DBRS Morningstar Confirms Ratings of Goldman Sachs at A (high), Stable Trend

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of The Goldman Sachs Group, Inc. (Goldman or the Company), including the Company’s Long-Term Issuer Rating of A (high) and Short-Term Issuer Rating of R-1 (middle). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for Goldman is AA (low), while its Support Assessment remains SA3. The Company’s Long-Term Issuer Rating is positioned one notch below the IA.

KEY RATING CONSIDERATIONS
The ratings confirmation reflects Goldman’s leading market positions across all of its major businesses, as well as its preeminent risk management, global peer-leading returns and strong balance sheet fundamentals. The ratings also consider Goldman’s exposure to a wide range of trading and investing activities that are integral to the value of its franchise, but also contribute a notable level of market risk that characterizes the Company’s risk profile. Furthermore, the unprecedented economic disruption caused by the Coronavirus Disease (COVID-19) pandemic and related extraordinary support measures implemented to mitigate the fallout have been factored into our ratings assessment.

RATING DRIVERS
Given Goldman’s current business mix and funding, we see the ratings as appropriately placed. Over the longer-term, fulfillment of the Company’s strategic initiatives, including enhancing the durability of its earnings, while consistently delivering on its financial targets, could result in positive ratings implications. Conversely, a sustained deterioration of earnings or balance sheet fundamentals would result in a downgrade. Any indications of significant weakening in Goldman’s franchise due to reputational issues, risk management deficiencies or operational missteps, would also result in a downgrade.

RATING RATIONALE
Goldman’s core franchises remain very strong. The Company’s Investment Banking (IB) franchise includes a dominant Financial Advisory business that is consistently top-ranked in worldwide completed M&A and a global-leading Equity Underwriting platform. In addition, Goldman has made significant market share gains over the past decade within Debt Underwriting, establishing a top-five position globally. Notably, the Company’s strong relationships with its investment banking clients provide recurring advisory and underwriting fees, as well as generating additional follow-on business throughout the rest of the firm.

Goldman remains one of the leading global players within Fixed Income, Currency and Commodities (FICC) and Equities. While these businesses are capital intensive and contribute a notable amount of market risk and revenue volatility, they can still generate a substantial amount of revenue even during adverse market conditions, as evidenced in the Company’s recent results. Goldman also has a top 10 global active Asset Management business and leading ultra-high net worth Wealth Management business, both of which provide stability to earnings. The Company has also embarked on a number of strategic initiatives, including building out a transaction banking business, growing its third-party alternatives business and scaling its consumer banking, high net worth and mass affluent offerings to drive more durable earnings. We expect Goldman to deliver on these initiatives, considering the Company’s strong operational infrastructure, top-notch talent and persistent culture that permeates the organization, having been cultivated through organic growth with limited acquisitions.

Goldman reported exceptionally strong 1Q21 results, including record net revenues of $17.7 billion, or roughly double the amount generated in the prior year quarter. Expenses were well contained in 1Q21, with an efficiency ratio of 53% (lower than the Company's target of 60%), reflecting broad-based operating leverage. Bottom line results were modestly boosted by reserve releases and a lower tax rate, but core results were strong across the franchise in our view. Overall, the Company's $6.8 billion of net income was up more than 50% compared to a very strong 4Q20, representing a Dodd-Frank era high return on equity of 31%.

Further underpinning the ratings, Goldman’s balance sheet fundamentals remain robust. We view favorably the Company’s efforts to further diversify its funding profile toward more stable sources, including continuing to grow its deposit base, which now represents about one-third of total funding sources. Goldman maintains a substantial amount of liquidity, with global core liquid assets averaging $299 billion during 1Q21, representing approximately 24% of average total assets. The Company’s Standardized CET1 ratio at the end of 1Q21 stood at 14.3%, comfortably above its target of 13.0% to 13.5%.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Goldman are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Very Strong/Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalization – Strong.

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

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations, DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021): https://www.dbrsmorningstar.com/research/372344/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021):
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:
Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the Global Methodology for Rating Banks and Banking Organisations was utilized to evaluate the Issuer, the DBRS Morningstar Criteria: Guarantees and Other Forms of Support was used to rate the subsidiary guaranteed by the Issuer and the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings was used to assess ESG factors.

The last rating action on this issuer took place on June 18, 2020 when all ratings were confirmed.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.
Lead Analyst: Michael McTamney, CFA, Senior Vice President – Global FIG
Rating Committee Chair: Lisa Kwasnowski, Senior Vice President – Global FIG
Initial Rating Date: October 29, 1999

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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