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Goldman Sachs Group 8-K 2010 Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
January 21, 2010 THE GOLDMAN SACHS GROUP, INC.
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (212) 902-1000
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
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On January 21, 2010, The Goldman Sachs Group, Inc. (Group Inc. and, together with its consolidated
subsidiaries, the firm) reported its earnings for its fiscal fourth quarter and fiscal year ended
December 31, 2009. A copy of Group Inc.’s press release containing this information is being
furnished as Exhibit 99.1 to this Report on Form 8-K and is incorporated herein by reference.
The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed
“filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act) or
otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated
by reference into any filing of Group Inc. under the Securities Act of 1933 or the Exchange Act.
On January 21, 2010, Group Inc. reported net revenues of $45.17 billion and net earnings of $13.39
billion for the year ended December 31, 2009. Diluted earnings per common share were $22.13
compared with $4.47 for the year ended November 28, 2008. Return on average common shareholders’
equity (ROE) (1) was 22.5% for 2009.
Fourth quarter net revenues were $9.62 billion and net earnings were $4.95 billion. Diluted
earnings per common share were $8.20 compared with a diluted loss per common share of $4.97 for the
fourth quarter ended November 28, 2008 and diluted earnings per common share of $5.25 for the third
quarter ended September 25, 2009. Annualized ROE (1) was 31.7% for the fourth quarter
of 2009.
Net Revenues
Investment Banking
Full Year
Net revenues in Investment Banking were $4.80 billion for the year, 7% lower than 2008. Net revenues in Financial Advisory were $1.89 billion, 29% lower than 2008, reflecting a decline in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $2.90 billion, 15% higher than 2008, due to higher net revenues in equity underwriting, primarily reflecting an increase in industry-wide equity and equity-related offerings. Net revenues in debt underwriting were slightly lower than 2008. Fourth Quarter
Net revenues in Investment Banking were $1.64 billion, 58% higher than the fourth quarter of 2008 and 82% higher than the third quarter of 2009. Net revenues in Financial Advisory were $673 million, 17% higher than the fourth quarter of 2008, reflecting an increase in client activity. Net revenues in the firm’s Underwriting business were $962 million, more than double the amount in the fourth quarter of 2008, reflecting significantly higher net revenues in both equity and debt underwriting. The increase in equity underwriting primarily reflected higher net revenues from initial public offerings. The increase in debt underwriting primarily reflected higher net revenues from high-yield activity. - 2 -
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The firm’s investment banking transaction backlog increased during the quarter and increased
significantly during the twelve months ended December 31, 2009. (2)
Trading and Principal Investments
Full Year
Net revenues in Trading and Principal Investments were $34.37 billion for the year, significantly higher than 2008. Net revenues in Fixed Income, Currency and Commodities (FICC) were $23.32 billion for 2009 compared
with $3.71 billion for 2008. During 2009, FICC operated in an environment characterized by strong
client-driven activity, particularly in more liquid products. In addition, asset values generally
improved and corporate credit spreads tightened significantly for most of the year. The increase
in net revenues compared with 2008 reflected particularly strong performances in credit products,
mortgages and interest rate products, which were each significantly higher than 2008. Net revenues
in commodities were also particularly strong and were slightly higher than 2008, while net revenues
in currencies were strong, but lower than a particularly strong 2008. During 2009, mortgages
included a loss of approximately $1.5 billion on commercial mortgage loans. Results in 2008 were
negatively impacted by asset writedowns across non-investment-grade credit origination activities,
corporate debt, private and public equities, and residential and commercial mortgage loans and
securities.
Net revenues in Equities were $9.89 billion for the year, 7% higher than 2008. Net revenues for
2009 reflected strong results in the client franchise businesses. However, these results were
lower than a strong 2008 and included significantly lower commissions. Results in principal strategies
were positive compared with losses in 2008. During 2009, Equities operated in an
environment characterized by a significant increase in global equity prices, favorable market
opportunities and a significant decline in volatility levels.
Principal Investments recorded net revenues of $1.17 billion for the year. These results included
a gain of $1.58 billion related to the firm’s investment in the ordinary shares of Industrial and
Commercial Bank of China Limited (ICBC), a gain of $1.31 billion from corporate principal
investments and a loss of $1.76 billion from real estate principal investments.
Fourth Quarter
Net revenues in Trading and Principal Investments were $6.41 billion, compared with negative net revenues of $4.36 billion for the fourth quarter of 2008 and net revenues of $10.03 billion for the third quarter of 2009. - 3 -
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Net revenues in FICC were $3.97 billion compared with negative net revenues of $3.40 billion
for the fourth quarter of 2008. During the fourth quarter of 2009, FICC operated in an environment
characterized by generally lower client activity levels than earlier in the year, continued
tightening of corporate credit spreads and improving asset values. The increase in net revenues
compared with the fourth quarter of 2008 reflected significantly improved results in credit
products and mortgages compared with a very weak fourth quarter of 2008. Net revenues in interest
rate products and currencies were significantly lower compared with the fourth quarter of 2008,
while net revenues in commodities were essentially unchanged. Results during the fourth quarter of
2008 were negatively impacted by asset writedowns across non-investment-grade credit origination
activities, corporate debt, private and public equities, and commercial mortgage loans and
securities, as well as by losses from trading in credit products.
Net revenues in Equities were $1.93 billion, 27% lower than the fourth quarter of 2008. This
decrease reflected lower net revenues, including significantly lower commissions, in the client
franchise businesses compared with a particularly strong fourth quarter of 2008. Results in
principal strategies were positive compared with losses in the fourth quarter of 2008. During the
quarter, Equities operated in an environment characterized by generally lower client activity
levels than earlier in the year, an increase in global equity prices and a decline in volatility
levels.
Principal Investments recorded net revenues of $507 million for the fourth quarter of 2009. These
results included a gain of $441 million related to the firm’s investment in the ordinary shares of
ICBC, a gain of $610 million from corporate principal investments and a loss of
$559 million from real estate principal investments.
Asset Management and Securities Services
Full Year
Net revenues in Asset Management and Securities Services were $6.00 billion for the year, 25% lower than 2008. Asset Management net revenues were $3.97 billion,
13% lower than 2008, primarily reflecting the impact of changes in the composition of assets managed, principally due to market depreciation during the
fourth quarter of 2008, as well as lower incentive fees. During
the year ended December 31, 2009, assets under management increased $73 billion to $871 billion,
due to $76 billion of market appreciation, primarily in fixed income and equity assets, partially
offset by $3 billion of net outflows. Outflows in money market assets were offset by inflows in
fixed income assets.
Securities Services net revenues were $2.03 billion, 41% lower than 2008. The decrease in net
revenues primarily reflected the impact of lower customer balances,
reflecting lower hedge fund industry assets and reduced leverage.
Fourth Quarter
Net revenues in Asset Management and Securities Services were $1.57 billion, 10% lower than the fourth quarter of 2008 and 8% higher than the third quarter of 2009. - 4 -
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Asset Management net revenues were $1.13 billion, 19% higher than the fourth quarter of 2008, reflecting higher incentive fees, as well as higher management and other fees. During the quarter,
assets under management increased $23 billion to $871 billion, due to $12 billion of net inflows,
primarily reflecting inflows in fixed income assets, partially offset by outflows in money market
assets, and $11 billion of market appreciation across all asset
classes.
Securities Services net revenues were $443 million, 45% lower than the fourth quarter of 2008. The
decrease in net revenues primarily reflected the impact of changes in the composition of securities
lending customer balances, as well as lower total customer balances.
The decline in total customer balances reflected lower hedge fund
industry assets and reduced leverage.
Expenses
Operating expenses were $25.34 billion for the year, 27% higher than 2008.
Compensation and Benefits
Compensation and benefits expenses (including salaries, discretionary compensation, amortization of
equity awards and other items such as payroll taxes, severance costs and benefits) were $16.19
billion for the year and were 35.8% of net revenues. This ratio of compensation and benefits to
net revenues was down from 48.0% (excluding severance costs of approximately $275 million in the
fourth quarter of 2008) for 2008 and represented the firm’s lowest annual ratio of compensation and
benefits to net revenues. In the fourth quarter, compensation was reduced by $500 million to fund
a charitable contribution to Goldman Sachs Gives, which is reflected in the
negative compensation and benefits expenses of $519 million for
the quarter.
Non-Compensation Expenses
Full Year
Non-compensation expenses were $9.15 billion for the year, 2% higher than 2008. The increase compared with 2008 reflected the impact of charitable contributions of approximately $850 million (included in other expenses) during 2009, primarily including $310 million to The Goldman Sachs Foundation and $500 million to Goldman Sachs Gives. Compensation was reduced to fund the charitable contribution to Goldman Sachs Gives. The focus for this $500 million contribution to Goldman Sachs Gives is on those areas that have proven to be fundamental to creating jobs and economic growth, building and stabilizing communities, honoring service and veterans and increasing educational opportunities. The firm will ask its participating managing directors to make recommendations regarding potential charitable recipients for this contribution. Depreciation and amortization expenses also increased compared with 2008 and included real estate impairment charges of approximately $600 million related to consolidated entities held for investment purposes during 2009. These increases were partially offset by the impact of lower brokerage, clearing, exchange and distribution fees, principally reflecting lower transaction volumes in Equities, and the impact of reduced staff levels and expense reduction initiatives during 2009. Fourth Quarter
Non-compensation expenses were $2.76 billion, 10% higher than the fourth quarter of 2008 and 24% higher than the third quarter of 2009. The increase compared with the fourth quarter of 2008 reflected the impact of charitable contributions of approximately $620 million (included in - 5 -
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other expenses) during the fourth quarter of 2009, primarily including $100 million to The Goldman
Sachs Foundation and $500 million to Goldman Sachs Gives. In addition, other expenses included $30
million of net provisions for litigation and regulatory proceedings during the fourth quarter of
2009. These increases were partially offset by lower brokerage, clearing, exchange and
distribution fees, primarily reflecting lower transaction volumes in Equities, lower depreciation
and amortization expenses, primarily due to decreased real estate impairment charges related to
consolidated entities held for investment purposes in the fourth quarter of 2009, and the impact of
reduced staff levels and expense reduction initiatives.
Provision for Taxes
During 2009, the firm incurred $6.44 billion of corporate taxes, resulting in an effective income tax rate of 32.5%, up slightly from 32.2% for the first nine months
of 2009.
Capital
As of December 31, 2009, total capital was $255.80 billion, consisting of $70.71 billion in total
shareholders’ equity (common shareholders’ equity of $63.76 billion and preferred stock of $6.96
billion) and $185.09 billion in unsecured long-term borrowings. Book value per common share was
$117.48, an increase of 23% during the twelve months ended December 31, 2009 and 6% during the
quarter. Tangible book value per common share (3) was $108.42, an increase of 27%
during the twelve months ended December 31, 2009 and 7% during the quarter. Book value and
tangible book value per common share are based on common shares outstanding, including restricted
stock units granted to employees with no future service requirements, of 542.7 million at period
end.
Under the regulatory capital guidelines currently applicable to bank holding companies, the firm’s
Tier 1 capital ratio under Basel I (4) was 15.0% as of December 31, 2009, up from 14.5%
as of September 25, 2009. The firm’s Tier 1 common ratio (4) under Basel I was 12.2% as
of December 31, 2009, up from 11.6% as of September 25, 2009. The firm’s ratio of tangible common
shareholders’ equity (3) to Basel I risk-weighted assets (4) was 13.6% as of
December 31, 2009, up from 13.1% as of September 25, 2009.
Other Balance Sheet and Liquidity Metrics
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Dividends
The Board of Directors of Group Inc. (the Board) declared a dividend of $0.35 per common share to
be paid on March 30, 2010 to common shareholders of record on March 2, 2010. The Board also
declared dividends of $239.58, $387.50, $255.56 and $255.56 per share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively
(represented by depositary shares, each representing a 1/1,000th interest in a share of preferred
stock), to be paid on February 10, 2010 to preferred shareholders of record on January 26, 2010.
In addition, the Board declared a dividend of $2,500 per share of Series G Preferred Stock to be
paid on February 10, 2010 to preferred shareholders of record on January 26, 2010.
Cautionary Note Regarding Forward-Looking Statements
This Report on Form 8-K contains “forward-looking statements” within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking
statements are not historical facts but instead represent only the firm’s beliefs regarding future
events, many of which, by their nature, are inherently uncertain and outside of the firm’s control.
It is possible that the firm’s actual results and financial condition may differ, possibly
materially, from the anticipated results and financial condition indicated in these forward-looking
statements. For a discussion of some of the risks and important factors that could affect the
firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s
Annual Report on Form 10-K for the fiscal year ended November 28, 2008 and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s
Annual Report on Form 10-K for the fiscal year ended November 28, 2008.
Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets,
level 3 assets and average global core excess liquidity consist of preliminary estimates; these
estimates are forward-looking statements and are subject to change, possibly materially, as the
firm completes its financial statements.
Statements about the firm’s investment banking transaction backlog also may constitute
forward-looking statements. Such statements are subject to the risk that the terms of these
transactions may be modified or that they may not be completed at all; therefore, the net revenues,
if any, that the firm actually earns from these transactions may differ, possibly materially, from
those currently expected. Important factors that could result in a modification of the terms of a
transaction or a transaction not being completed include, in the case of underwriting transactions,
a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility
in the securities markets
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generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities
markets, an inability to obtain adequate financing, an adverse development with respect to a party
to the transaction or a failure to obtain a required regulatory approval. For a discussion of
other important factors that could adversely affect the firm’s investment banking transactions, see
“Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year
ended November 28, 2008 and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Part II, Item 7 of the firm’s Annual Report on
Form 10-K for the fiscal year ended November 28, 2008.
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES (UNAUDITED) $ in millions
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SEGMENT NET REVENUES (UNAUDITED) $ in millions
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) In millions, except per share amounts
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) In millions, except per share amounts and total staff
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED) Average Daily VaR (11)
$ in millions
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