DBRS: Goldman’s Revenues Supported by Business Diversity; 1Q Highlights: IB Leadership, IM Momentum

Summary:
• Solid net revenues of $9.3 billion were supported by business diversity in a still difficult operating environment, particularly given the still evolving regulatory requirements.
• Highlights of 1Q14 include continued leadership in Investment Banking and momentum in Investment Management, a focus area for growth.
• DBRS, Inc. rates Goldman’s Issuer & Senior Debt at A (high) with a Stable trend.

The Goldman Sachs Group, Inc. (Goldman or the Company) reported net earnings (to common) of $1.9 billion on net revenues of $9.3 billion in another quarter characterized by an uneven global economic recovery, uncertainty regarding final regulatory requirements and overall subdued client demand and risk appetite. Goldman continues to maintain strong relative positioning across its global businesses with earnings resiliency that is evident in longer run trends. Evolving regulatory requirements remain a key issue, and could prove to be more constraining depending on how the Company is able to modify its business model to comply with finalized rules and what adjustments may be needed to comply with proposed frameworks.

While solid contributions across all businesses supported overall results, highlights of 1Q14 included continued leadership in Investment Banking (IB) and momentum in Investment Management (IM). Strong IB net revenues of $1.8 billion ticked up from last quarter, when Goldman’s IB revenues reached 2007 levels for the first time since the crisis. Maintaining a leading position in this space is important from a ratings perspective, as the well-entrenched IB franchise provides an entryway through which clients engage with other product and service offerings at Goldman. Momentum in IM was also a highlight of the quarter, given the Company’s focus on growth in this segment, which differentiates Goldman from other large financial institutions that have reduced their involvement in this business segment. From a ratings perspective, success with IM is important, as it is contributing to the stability of overall earnings. IM generated net revenues of $1.6 billion in 1Q14, maintaining a generally upward trajectory since early 2012. Contributing 17% to total net revenues, this business is now providing a comparable contribution to earnings as the Total Equities segment, which includes the Company’s sizable equity sales and trading businesses.

Goldman’s financial profile remains strong with significant liquidity levels (average of $181 billion in 1Q14) and an estimated Basel III Common Equity Tier 1 (CET1) ratio of 11.3%, on a transitional basis, and 9.7%, on a fully phased in basis, under the advanced approach at quarter-end. The Company provided a current estimate of its supplementary leverage ratio of 4.2% at the parent holding company level and 4.7% on a pro-forma basis after the sell down of investments in funds that are necessary for compliance with the Volcker rule. In advance of the final rule, the Company has not taken any specific actions to manage this ratio, a strategy that is in line with DBRS’s expectations given Goldman’s similar stance on past regulation that was awaiting finalization.

DBRS rates Goldman’s Issuer & Senior debt at A (high) with a Stable trend.

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

[Amended on December 23th, 2014 to remove unnecessary disclosures.]