DBRS Confirms Goldman Sachs Ratings – Senior at A (high), Trend Stable

DBRS Inc. (DBRS) has today confirmed all ratings for The Goldman Sachs Group, Inc. (Goldman or the Company) and related entities, including its Issuer & Senior Debt rating of A (high) and Short-Term Instruments rating of R-1 (middle). The trend on all ratings remains Stable.

Underpinning the ratings are Goldman’s diversified businesses in its global franchise. The current ratings consider the resiliency of this franchise, its strong performance across its many capital markets businesses and the strength of its earnings generation ability over an extended period of time. Additionally, the ratings reflect Goldman’s strength in risk management, high level of capitalization, and focus on maintaining a conservative funding profile supported by ample liquidity.

The current ratings level considers Goldman’s top tier global capital markets banking franchise. DBRS sees the Company’s businesses as being broadly diversified across a wide range of products, customer segments, and markets. Goldman’s franchise includes diverse, global business segments such as the Company’s formidable Investment Banking (IB) franchise and powerful Institutional Client Services (ICS) franchise. Goldman’s trading businesses are extensively diversified, underpinning the current rating level, as they provide the Company with the ability to sustain its underlying earnings across very different market conditions. The ICS franchise includes global franchises: (1) Fixed Income, Currency and Commodities Client Execution (FICC) and (2) Total Equities (Equities), which includes Equities client execution, Commissions and fees and Securities Services. Goldman’s franchise benefits from its other business segments which add diversity, such as its generally successful Investment Management (IM) businesses and its Investing & Lending (I&L) segment. While DBRS views the I&L segment as adding risk and volatility to the Company’s earnings, this segment has generated significant positive mark-to-market (MTM) revenues for the Company over time.

The Company continues to benefit from the expanding globalization of the capital markets, with leading positions in many capital markets businesses globally. Showing the global reach of its diverse franchise, 41% of the Company’s revenues are generated outside the United States, reflecting its significant presence in Europe and Asia. Goldman’s international expansion is an increasingly important driver of its success, as the Company expands both its customer base and the opportunities for its businesses. In competing in the current environment, Goldman also benefits from the stability of its organization, well-developed operational capabilities, ability to generate growth organically with limited acquisitions and divestitures, persistent culture and consistent senior management.

Reflecting its franchise strength and business diversity, the Company generates resilient earnings. In this prolonged cycle of market disruptions and economic weakness, Goldman has remained solidly profitable on an annual basis. DBRS views Goldman as having managed through this period of market disruptions better than most of its competitors. The current ratings level recognizes Goldman’s efforts to modify its business practices to maintain its reputation and address the evolving regulatory environment, which continues to be uncertain. While Goldman remains relatively well-positioned to cope with regulatory and legislative changes, the Company’s ratings incorporate the risks posed by stress scenarios and rapid regulatory changes that could pressure earnings.

The Stable trend considers the strength of Goldman’s diversified franchise that has proven resilient during this extended period of uncertainty in the global financial markets. The macro environment continues to be challenging on a global scale, pressuring revenues across a number of the Company’s diverse business lines. As such, DBRS views Goldman as generally being more cautious with risk taking in its trading businesses, while continuing to maintain significant levels of liquidity and capital. As a bank holding company (BHC), Goldman has access to the Fed’s discount window, as well as other programs. This access gives the market an extra degree of confidence in Goldman’s ability to weather another severe liquidity crisis. Overall, the Company is better positioned to weather the extended economic crisis than it was going into the downturn.

Nevertheless, given the continued global economic weakness, Goldman remains exposed to the extended market uncertainty that persists given its wide ranging capital markets activities and diverse market risk. With a balance sheet that is largely MTM, the Company is exposed to potential large market movements and disruptions. While environmental uncertainties have led to periods of disrupted activities and revenue pressures generally for financial institutions competing in the global capital markets, DBRS would view diminished investor confidence as the significant Goldman-specific risk given its reliance on wholesale funding. Importantly, DBRS notes that Goldman has demonstrated its ability to cope with a stressed environment.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations. Other methodologies used include the DBRS Criteria: – Intrinsic and Support Assessments, DBRS Criteria: Rating Bank Preferred Shares & Equivalent Hybrids, DBRS Criteria: Bank and Bank Holding Company Trust Preferred Securities, and DBRS Criteria: Rating Bank Subordinated Debt & Hybrid Instruments with Discretionary Payments. Both can be found on the DBRS website under Methodologies.These can be found at: http://www.dbrs.com/about/methodologies.

[Amended on August 19, 2014, to reflect actual methodologies used.]

The sources of information used for this rating include publicly available company documents, the Federal Reserve, and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Roger Lister
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 12 October 2000
Most Recent Rating Update: 11 November 2011

For additional information on this rating, please refer to the linking document under Related Research.