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Goldman Sachs Group 8-K 2012

Documents found in this filing:

  1. 8-K
  2. Ex-99.1
  3. Graphic
  4. Graphic
Form 8-K
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 18, 2012

THE GOLDMAN SACHS GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

  

No. 001-14965

  

No. 13-4019460

(State or other jurisdiction of

incorporation)

  

(Commission

File Number)

  

(IRS Employer

Identification No.)

 

200 West Street

New York, New York

    

10282

(Address of principal executive offices)      (Zip Code)

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:

 

¨

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item 2.02    Results of Operations and Financial Condition.

  

Item 8.01    Other Events.

  

Item 9.01    Financial Statements and Exhibits.

  

Signature

  

EX-99.1: PRESS RELEASE

  


Table of Contents

Item 2.02 Results of Operations and Financial Condition.

On January 18, 2012, The Goldman Sachs Group, Inc. (Group Inc. and, together with its consolidated subsidiaries, the firm) reported its earnings for its fourth quarter and year ended December 31, 2011. 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.

Item 8.01 Other Events.

On January 18, 2012, Group Inc. reported net revenues of $28.81 billion and net earnings of $4.44 billion for the year ended December 31, 2011. Diluted earnings per common share were $4.51 compared with $13.18 for the year ended December 31, 2010. Return on average common shareholders’ equity (ROE) (1) was 3.7% for 2011.

Excluding the preferred dividend of $1.64 billion related to the redemption of the firm’s Series G Preferred Stock, diluted earnings per common share were $7.46 (2) and ROE was 5.9% (2) for the year ended December 31, 2011.

Fourth quarter net revenues were $6.05 billion and net earnings were $1.01 billion. Diluted earnings per common share were $1.84 compared with $3.79 for the fourth quarter of 2010 and a diluted loss per common share of $0.84 for the third quarter of 2011. Annualized ROE (1) was 5.8% for the fourth quarter of 2011.

Net Revenues

Investment Banking

Full Year

Net revenues in Investment Banking were $4.36 billion for 2011, 9% lower than 2010. Net revenues in Financial Advisory were $1.99 billion, 4% lower than 2010. Net revenues in the firm’s Underwriting business were $2.37 billion, 14% lower than 2010, reflecting significantly lower net revenues in equity underwriting, principally due to a decline in industry-wide activity. Net revenues in debt underwriting were essentially unchanged compared with 2010.

Fourth Quarter

Net revenues in Investment Banking were $857 million for the fourth quarter of 2011, 43% lower than the fourth quarter of 2010 and 10% higher than the third quarter of 2011. Net revenues in Financial Advisory were $470 million, 25% lower than the fourth quarter of 2010, primarily reflecting a significant decline in industry-wide completed mergers and acquisitions. Net revenues in the firm’s Underwriting business were $387 million, 56% lower than the fourth quarter of 2010. Net revenues in both equity underwriting and debt underwriting were significantly lower than the fourth quarter of 2010, primarily reflecting a significant decline in industry-wide activity.

The firm’s investment banking transaction backlog increased compared with the end of 2010, and decreased compared with the end of the third quarter of 2011. (3)

 

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Table of Contents

Institutional Client Services

Full Year

Net revenues in Institutional Client Services were $17.28 billion for 2011, 21% lower than 2010.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $9.02 billion for 2011, 34% lower than 2010. Although activity levels during 2011 were generally consistent with 2010 levels, and results were solid during the first quarter of 2011, the environment during the remainder of 2011 was characterized by broad market concerns and uncertainty, resulting in volatile markets and significantly wider credit spreads, which contributed to difficult market-making conditions and led to reductions in risk by the firm and its clients. As a result of these conditions, net revenues across the franchise were lower, including significant declines in mortgages and credit products, compared with 2010.

Net revenues in Equities were $8.26 billion for 2011, 2% higher than 2010. During 2011, average volatility levels increased and equity prices in Europe and Asia declined significantly, particularly during the third quarter. The increase in net revenues reflected higher commissions and fees, primarily due to higher transaction volumes, particularly during the third quarter of 2011. In addition, net revenues in securities services increased compared with 2010, reflecting the impact of higher average customer balances. Equities client execution net revenues were lower than 2010, primarily reflecting significantly lower net revenues in shares.

The net gain attributable to the impact of changes in the firm’s own credit spreads on borrowings for which the fair value option was elected was approximately $600 million for 2011.

Fourth Quarter

Net revenues in Institutional Client Services were $3.06 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 25% lower than the third quarter of 2011.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.36 billion for the fourth quarter of 2011, 17% lower than the fourth quarter of 2010. The decline in net revenues compared with the fourth quarter of 2010 reflected lower results in mortgages and credit products as continued global economic uncertainty contributed to difficult market-making conditions. These decreases were partially offset by higher net revenues in interest rate products and, to a lesser extent, commodities and currencies.

Net revenues in Equities were $1.69 billion for the fourth quarter of 2011, 15% lower than the fourth quarter of 2010, primarily reflecting lower net revenues in equities client execution, as well as lower commissions and fees. The decline in equities client execution compared with the fourth quarter of 2010 primarily reflected lower net revenues in derivatives. Securities services net revenues were higher compared with the fourth quarter of 2010, primarily reflecting the impact of changes in the composition of customer balances. Although global equity prices generally increased during the quarter, Equities operated in an environment characterized by lower activity levels.

 

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Table of Contents

The net gain attributable to the impact of changes in the firm’s own credit spreads on borrowings for which the fair value option was elected was not material for the fourth quarter of 2011.

Investing & Lending

Full Year

Net revenues in Investing & Lending were $2.14 billion for 2011. Results for 2011 included a loss of $517 million from the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC) and net gains of $1.12 billion from other investments in equities, primarily in private equity positions, partially offset by losses from public equities. In addition, Investing & Lending included net revenues of $96 million from debt securities and loans. This amount includes approximately $1 billion of unrealized losses related to relationship lending activities, including the effect of hedges, offset by net interest income and net gains from other debt securities and loans. Results for 2011 also included other net revenues of $1.44 billion, principally related to the firm’s consolidated entities held for investment purposes.

Fourth Quarter

Net revenues in Investing & Lending were $872 million for the fourth quarter of 2011. Results for the fourth quarter of 2011 primarily included a gain of $388 million from the firm’s investment in the ordinary shares of ICBC, net gains of $384 million from other investments in equities, primarily in public equities, and other net revenues of $321 million, principally related to the firm’s consolidated entities held for investment purposes. These results were partially offset by net losses of $221 million from debt securities and loans, primarily reflecting approximately $450 million of unrealized losses related to relationship lending activities, including the effect of hedges, partially offset by net interest income.

Investment Management

Full Year

Net revenues in Investment Management were $5.03 billion for 2011, essentially unchanged compared with 2010, primarily due to higher management and other fees, reflecting favorable changes in the mix of assets under management, offset by lower incentive fees. During the year, assets under management decreased $12 billion to $828 billion, reflecting net outflows of $17 billion, partially offset by net market appreciation of $5 billion. Net outflows primarily reflected outflows in fixed income and equity assets, partially offset by inflows in money market assets.

Fourth Quarter

Net revenues in Investment Management were $1.26 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 3% higher than the third quarter of 2011. The decrease in net revenues compared with the fourth quarter of 2010 was primarily due to lower incentive fees. During the quarter, assets under management increased $7 billion to $828 billion, reflecting net market appreciation of $15 billion in equity and fixed income assets, partially offset by net outflows of $8 billion. Net outflows primarily reflected outflows in fixed income and equity assets, partially offset by inflows in money market assets.

 

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Table of Contents

Expenses

Operating expenses were $22.64 billion for 2011, 14% lower than 2010.

Compensation and Benefits

Compensation and benefits expenses (including salaries, discretionary compensation, amortization of equity awards and other items such as benefits) were $12.22 billion for 2011, a 21% decline compared with $15.38 billion for 2010. The ratio of compensation and benefits to net revenues for 2011 was 42.4%. Total staff (4) decreased 7% compared with the end of 2010.

Non-Compensation Expenses

Full Year

Non-compensation expenses were $10.42 billion for 2011, essentially unchanged compared with 2010. Non-compensation expenses for 2011 included higher brokerage, clearing, exchange and distribution fees, increased reserves related to the firm’s insurance business and higher market development expenses compared with 2010. These increases were offset by lower other expenses during 2011. The decrease in other expenses primarily reflected lower net provisions for litigation and regulatory proceedings (2010 included $550 million related to a settlement with the SEC).

Fourth Quarter

Non-compensation expenses were $2.59 billion, 15% lower than the fourth quarter of 2010 and 5% lower than the third quarter of 2011. The decrease compared with the fourth quarter of 2010 was primarily due to the impact of an impairment of the firm’s New York Stock Exchange Designated Market Maker rights of $305 million during the fourth quarter of 2010 and higher charitable contributions during the fourth quarter of 2010. These decreases were partially offset by the impact of impairments on consolidated investments of approximately $170 million during the fourth quarter of 2011.

The fourth quarter of 2011 included $47 million of net provisions for litigation and regulatory proceedings and $78 million of charitable contributions to Goldman Sachs Gives. Compensation was reduced to fund the charitable contribution to Goldman Sachs Gives. This amount is in addition to prior year contributions made to Goldman Sachs Gives.

Provision for Taxes

The effective income tax rate for 2011 was 28.0% (5), down from 30.3% for the first nine months of 2011. The decrease in the effective income tax rate was primarily due to an increase in permanent benefits as a percentage of earnings and the earnings mix.

 

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Table of Contents

Capital

As of December 31, 2011, total capital was $243.93 billion, consisting of $70.38 billion in total shareholders’ equity (common shareholders’ equity of $67.28 billion and preferred stock of $3.10 billion) and $173.55 billion in unsecured long-term borrowings. Book value per common share was $130.31 and tangible book value per common share (6) was $119.72, both approximately 1% higher compared with the end of 2010 and both approximately 1% lower compared with the end of the third quarter of 2011. 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 516.3 million at period end.

During the year, the firm repurchased 47.0 million shares of its common stock at an average cost per share of $128.33, for a total cost of $6.04 billion, including 9.2 million shares during the fourth quarter at an average cost of $98.54, for a total cost of $908 million. The remaining share authorization under the firm’s existing repurchase program is 63.5 million shares. (7)

Under the regulatory capital guidelines currently applicable to bank holding companies (Basel 1), the firm’s Tier 1 capital ratio (8) was 13.8% and the firm’s Tier 1 common ratio (9) was 12.1% as of December 31, 2011, both unchanged compared with the end of the third quarter of 2011.

Other Balance Sheet and Liquidity Metrics

 

 

Total assets (10) were $923 billion as of December 31, 2011, compared with $949 billion as of September 30, 2011 and $911 billion as of December 31, 2010.

 

 

Level 3 assets (10) were $48 billion as of December 31, 2011, compared with $47 billion as of September 30, 2011 and $45 billion as of December 31, 2010, and represented 5.2% of total assets.

 

 

The firm’s global core excess liquidity (GCE) (11) was $172 billion as of December 31, 2011 and averaged $167 billion for the fourth quarter of 2011, compared with the average of $164 billion for the third quarter of 2011. GCE averaged $166 billion for 2011, compared with the average of $168 billion for 2010.

Dividends

The Goldman Sachs Group, Inc. declared a dividend of $0.35 per common share to be paid on March 29, 2012 to common shareholders of record on March 1, 2012. The firm 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, 2012 to preferred shareholders of record on January 26, 2012.

 

 

 

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Table of Contents

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 December 31, 2010.

Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets, level 3 assets and 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 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 December 31, 2010.

 

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Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

SEGMENT NET REVENUES

(UNAUDITED)

$ in millions

 

     Year Ended             % Change From  
             December 31,         
2011
            December 31,         
2010
                    December 31,         
2010
 

Investment Banking

          

Financial Advisory

   $ 1,987      $ 2,062        

  
     (4 )% 
          

Equity underwriting

     1,085        1,462            (26

Debt underwriting

     1,283        1,286              
  

 

 

   

 

 

       

 

 

 

Total Underwriting

     2,368        2,748            (14
          
  

 

 

   

 

 

       

 

 

 

Total Investment Banking

     4,355        4,810            (9
  

 

 

   

 

 

       

 

 

 
          

Institutional Client Services

          

Fixed Income, Currency and Commodities Client Execution

     9,018        13,707            (34
          

Equities client execution

     3,031        3,231            (6

Commissions and fees

     3,633        3,426            6   

Securities services

     1,598        1,432            12   
  

 

 

   

 

 

       

 

 

 

Total Equities

     8,262        8,089            2   
          
  

 

 

   

 

 

       

 

 

 

Total Institutional Client Services

     17,280        21,796            (21
  

 

 

   

 

 

       

 

 

 
          

Investing & Lending

          

ICBC

     (517     747            N.M.   

Equity securities (excluding ICBC)

     1,120        2,692            (58

Debt securities and loans

     96        2,597            (96

Other (12)

     1,443        1,505            (4
          
  

 

 

   

 

 

       

 

 

 

Total Investing & Lending

     2,142        7,541            (72
  

 

 

   

 

 

       

 

 

 
          

Investment Management

          

Management and other fees

     4,188        3,956            6   

Incentive fees

     323        527            (39

Transaction revenues

     523        531            (2
          
  

 

 

   

 

 

       

 

 

 

Total Investment Management

     5,034        5,014              
  

 

 

   

 

 

       

 

 

 
          
  

 

 

   

 

 

       

 

 

 

Total net revenues

   $ 28,811      $ 39,161            (26
  

 

 

   

 

 

       

 

 

 

 

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Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

SEGMENT NET REVENUES

(UNAUDITED)

$ in millions

 

     Three Months Ended             % Change From  
         December 31,    
2011
        September 30,    
2011
        December 31,    
2010
                September 30,    
2011
        December 31,    
2010
 

Investment Banking

              

Financial Advisory

   $ 470      $ 523      $ 628                 (10 )%      (25 )% 
              

Equity underwriting

     191        90        555            112        (66

Debt underwriting

     196        168        324            17        (40
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Underwriting

     387        258        879            50        (56
              
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Investment Banking

     857        781        1,507            10        (43
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 
              

Institutional Client Services

              

Fixed Income, Currency and Commodities Client Execution

     1,363        1,731        1,636            (21     (17
              

Equities client execution

     526        903        772            (42     (32

Commissions and fees

     782        1,019        863            (23     (9

Securities services

     385        409        368            (6     5   
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Equities

     1,693        2,331        2,003            (27     (15
              
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Institutional Client Services

     3,056        4,062        3,639            (25     (16
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 
              

Investing & Lending

              

ICBC

     388        (1,045     55            N.M.        N.M.   

Equity securities (excluding ICBC)

     384        (1,004     1,066            N.M.        (64

Debt securities and loans

     (221     (907     537            N.M.        N.M.   

Other (12)

     321        477        330            (33     (3
              
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Investing & Lending

     872        (2,479     1,988            N.M.        (56
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 
              

Investment Management

              

Management and other fees

     1,016        1,044        1,057            (3     (4

Incentive fees

     141        45        310            N.M.        (55

Transaction revenues

     107        134        141            (20     (24
              
  

 

 

   

 

 

   

 

 

       

 

 

   

 

 

 

Total Investment Management

     1,264        1,223