DBRS: Goldman Sachs Ratings Unchanged After 2Q13 Earnings – Sr. at A (high), Trend Stable

DBRS, Inc. (DBRS) has today commented on the 2Q13 results of The Goldman Sachs Group, Inc. (Goldman or the Company). The Issuer & Senior Debt rating of A (high) and Short-Term Instruments rating of R-1 (middle) remain unchanged with a Stable trend. Goldman reported net earnings of $1.9 billion for the quarter on total net revenues of $8.6 billion, broadly in line with average quarterly run-rates over the last two years.

The quarter’s results affirm the strength of Goldman’s franchise across its businesses and global reach. Benefiting from its leading position in financial advisory and strength in underwriting, Investment Banking (IB) net revenues remained strong at $1.6 billion, largely consistent with 1Q13. Within Institutional Client Services (ICS), Equities delivered stable net revenues ($1.9 billion) despite the sale of the reinsurance business, but Fixed Income, Currency and Commodities Client Execution (FICC) performance was weaker (down 23% QoQ to $2.5 billion) due to the unfavorable impact of rate volatility and spread widening on interest rate, credit, and mortgage products. This was partly offset by increased activity in currencies, driven by higher volatility, primarily in Asia. Adding stability to Goldman’s revenues, Investment Management (IM) delivered flat QoQ net revenues of $1.3 billion. Conversely, net revenues in Investing & Lending (I&L) declined to $1.4 billion in 2Q13 from $2.1 billion in 1Q13 driven by lower revenues in equity securities. Notably, Goldman sold its remaining stake in ICBC in 2Q13, which should help to reduce revenue volatility going forward. Meanwhile, bottom line results were aided by well-controlled expenses, including the accrual for compensation expense at 43% of net revenues, and a lower effective tax rate.

Goldman continues to maintain a strong liquidity profile and solid capitalization. The Company’s liquidity pool (Global Core Excess) averaged $180 billion during 2Q13, representing a substantial 19% of total assets. With regard to capital, Goldman reported a Tier 1 common ratio of 13.5% under Basel 1 and reflecting the revised market risk regulatory capital requirements which became effective on January 1, 2013. The Company also reported an estimated Basel III ratio (based on advanced IRB approach) of 9.3%. DBRS sees the Company’s strong organic capital generation capability as facilitating compliance with regulatory minimums. Meanwhile, current estimates indicate that Goldman is adequately positioned with regard to the proposed supplementary leverage ratio at both the holding company and bank level.

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

[Amended on May the 23rd, 2014 to remove unnecessary disclosures.]