Item 2.02 Results of Operations and Financial Condition.
On January 16, 2013, The Goldman Sachs Group, Inc. (Group Inc. and, together
with its consolidated subsidiaries, the firm) reported its earnings for the
fourth quarter and year ended December 31, 2012. 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 16, 2013, Group Inc. reported net revenues of $34.16 billion and net
earnings of $7.48 billion for the year ended December 31, 2012. Diluted earnings
per common share were $14.13 compared with $4.51 for the year ended
December 31, 2011. Return on average common shareholders' equity (ROE) (1) was
10.7% for 2012.
Fourth quarter net revenues were $9.24 billion and net earnings were
$2.89 billion. Diluted earnings per common share were $5.60 compared with $1.84
for the fourth quarter of 2011 and $2.85 for the third quarter of 2012.
Annualized ROE (1) was 16.5% for the fourth quarter of 2012.
Net Revenues
Investment Banking
Full Year
Net revenues in Investment Banking were $4.93 billion for 2012, 13% higher than
2011. Net revenues in Financial Advisory were $1.98 billion, essentially
unchanged compared with 2011. Net revenues in the firm's Underwriting business
were $2.95 billion, 25% higher than 2011, due to strong net revenues in debt
underwriting. Net revenues in debt underwriting were significantly higher
compared with 2011, primarily reflecting higher net revenues from
investment-grade and leveraged finance activity. Net revenues in equity
underwriting were lower compared with 2011, primarily reflecting a decline in
industry-wide initial public offerings.
Fourth Quarter
Net revenues in Investment Banking were $1.41 billion for the fourth quarter of
2012, 64% higher than the fourth quarter of 2011 and 21% higher than the third
quarter of 2012. Net revenues in Financial Advisory were $508 million, 8% higher
than the fourth quarter of 2011, primarily reflecting an increase in
industry-wide completed mergers and acquisitions. Net revenues in the firm's
Underwriting business were $897 million, more than double the amount in the
fourth quarter of 2011. Net revenues in both debt underwriting and equity
underwriting were significantly higher compared with the fourth quarter of 2011,
primarily reflecting an increase in industry-wide activity.
The firm's investment banking transaction backlog increased compared with both
the end of the third quarter of 2012 and the end of 2011. (2)
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Institutional Client Services
Full Year
Net revenues in Institutional Client Services were $18.12 billion for 2012, 5%
higher than 2011.
Net revenues in Fixed Income, Currency and Commodities Client Execution were
$9.91 billion for 2012, 10% higher than 2011. These results reflected strong net
revenues in mortgages, which were significantly higher compared with 2011. In
addition, net revenues in credit products and interest rate products were solid
and higher compared with 2011. These increases were partially offset by
significantly lower net revenues in commodities and slightly lower net revenues
in currencies. Although broad market concerns persisted during 2012, Fixed
Income, Currency and Commodities Client Execution operated in a generally
improved environment characterized by tighter credit spreads and less
challenging market-making conditions compared with 2011.
Net revenues in Equities were $8.21 billion for 2012, essentially unchanged
compared with 2011. Net revenues in securities services were significantly
higher compared with 2011, reflecting a gain of approximately $500 million on
the sale of the firm's hedge fund administration business. In addition, equities
client execution net revenues were higher than 2011, primarily reflecting
significantly higher results in cash products, principally due to increased
levels of client activity. These increases were partially offset by lower
commissions and fees, reflecting lower market volumes. During 2012, Equities
operated in an environment generally characterized by an increase in global
equity prices and lower volatility levels.
The net loss attributable to the impact of changes in the firm's own credit
spreads on borrowings for which the fair value option was elected was
$714 million ($433 million and $281 million related to Fixed Income, Currency
and Commodities Client Execution and equities client execution, respectively)
for 2012, compared with a net gain of $596 million ($399 million and
$197 million related to Fixed Income, Currency and Commodities Client Execution
and equities client execution, respectively) for 2011.
Fourth Quarter
Net revenues in Institutional Client Services were $4.34 billion for the fourth
quarter of 2012, 42% higher than the fourth quarter of 2011 and 4% higher than
the third quarter of 2012.
Net revenues in Fixed Income, Currency and Commodities Client Execution were
$2.04 billion for the fourth quarter of 2012, 50% higher than the fourth quarter
of 2011, reflecting significantly higher net revenues in credit products and
mortgages compared with difficult market-making conditions during the fourth
quarter of 2011, and higher net revenues in currencies. These increases were
partially offset by significantly lower net revenues in commodities and lower
net revenues in interest rate products. During the fourth quarter of 2012, Fixed
Income, Currency and Commodities Client Execution operated in an environment
characterized by generally tighter credit spreads and improved activity levels
in credit products and mortgages compared with the fourth quarter of 2011.
Net revenues in Equities were $2.30 billion for the fourth quarter of 2012, 36%
higher than the fourth quarter of 2011, reflecting significantly higher net
revenues in securities services and equities client execution. The increase in
securities services net revenues compared with the fourth quarter of 2011
reflected a gain of approximately $500 million on the sale of the firm's hedge
fund administration business. The increase in equities client execution net
revenues compared with the fourth quarter of 2011 reflected significantly higher
net revenues in derivatives and higher net revenues in reinsurance. These
increases were partially offset by lower commissions and fees, reflecting lower
market volumes. During the quarter, Equities operated in an environment
generally characterized by low volatility levels and an increase in equity
prices in Asia and Europe.
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The net loss attributable to the impact of changes in the firm's own credit
spreads on borrowings for which the fair value option was elected was
$126 million ($79 million and $47 million related to Fixed Income, Currency and
Commodities Client Execution and equities client execution, respectively) for
the fourth quarter of 2012. 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 $20 million (all related to equities client execution) for the
fourth quarter of 2011.
Investing & Lending
Full Year
Net revenues in Investing & Lending were $5.89 billion for 2012. Investing &
Lending net revenues were positively impacted by tighter credit spreads and an
increase in global equity prices. Results for 2012 included a gain of
$408 million from the firm's investment in the ordinary shares of Industrial and
Commercial Bank of China Limited (ICBC), net gains of $2.39 billion from other
investments in equities, primarily in private equities, net gains and net
interest income of $1.85 billion from debt securities and loans, and other net
revenues of $1.24 billion, principally related to the firm's consolidated
investment entities.
Fourth Quarter
Net revenues in Investing & Lending were $1.97 billion for the fourth quarter of
2012. Investing & Lending net revenues were positively impacted by generally
tighter credit spreads and an increase in equity prices in Asia and Europe.
Results for the fourth quarter of 2012 included a gain of $334 million from the
firm's investment in the ordinary shares of ICBC, net gains of $789 million from
other investments in equities, primarily in private equities, net gains and net
interest income of $485 million from debt securities and loans, and other net
revenues of $365 million, principally related to the firm's consolidated
investment entities.
Investment Management
Full Year
Net revenues in Investment Management were $5.22 billion for 2012, 4% higher
than 2011, due to significantly higher incentive fees, partially offset by lower
transaction revenues and slightly lower management and other fees. During the
year, assets under supervision (3) increased $70 billion to $965 billion. Assets
under management increased $26 billion to $854 billion, reflecting net market
appreciation of $44 billion, primarily in fixed income and equity assets,
partially offset by net outflows of $18 billion. Net outflows included outflows
in equity, alternative investment and money market assets, partially offset by
inflows in fixed income assets (4). Other client assets increased $44 billion to
$111 billion, primarily due to net inflows (4).
Fourth Quarter
Net revenues in Investment Management were $1.52 billion for the fourth quarter
of 2012, 20% higher than the fourth quarter of 2011 and 26% higher than the
third quarter of 2012. The increase in net revenues compared with the fourth
quarter of 2011 was primarily due to significantly higher incentive fees and
higher management and other fees. During the quarter, assets under supervision
increased $14 billion to $965 billion. Assets under management decreased
$2 billion to $854 billion, reflecting net outflows of $7 billion (4), partially
offset by net market appreciation of $5 billion. Net outflows included outflows
in fixed income, equity and alternative investment assets, partially offset by
inflows in money market assets. Other client assets increased $16 billion to
$111 billion, primarily due to net inflows.
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Expenses
Operating expenses were $22.96 billion for 2012, essentially unchanged compared
with 2011.
Compensation and Benefits
Compensation and benefits expenses (including salaries, discretionary
compensation, amortization of equity awards and other items such as benefits)
were $12.94 billion for 2012, 6% higher than 2011. The ratio of compensation and
benefits to net revenues for 2012 was 37.9% compared with 42.4% for 2011. Total
staff (5) decreased 3% compared with the end of 2011.
Non-Compensation Expenses
Full Year
Non-compensation expenses were $10.01 billion for 2012, 4% lower than 2011. The
decrease compared with 2011 primarily reflected the impact of expense reduction
initiatives, lower brokerage, clearing, exchange and distribution fees, lower
occupancy expenses and lower impairment charges. These decreases were partially
offset by higher other expenses and increased reserves related to the firm's
reinsurance business. The increase in other expenses compared with 2011
primarily reflected higher net provisions for litigation and regulatory
proceedings and higher charitable contributions.
Fourth Quarter
Non-compensation expenses were $2.95 billion for the fourth quarter of 2012, 14%
higher than the fourth quarter of 2011 and 24% higher than the third quarter of
2012. The increase compared with the fourth quarter of 2011 was due to higher
other expenses. The increase in other expenses primarily reflected higher net
provisions for litigation and regulatory proceedings and higher charitable
contributions.
The fourth quarter of 2012 included $260 million of net provisions for
litigation and regulatory proceedings (including the settlement with the Federal
Reserve Board regarding the independent foreclosure review) and $157 million of
charitable contributions to Goldman Sachs Gives. 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 in both 2012 and 2011 to fund the charitable contribution to Goldman
Sachs Gives.
Provision for Taxes
The effective income tax rate for 2012 was 33.3%, essentially unchanged from
33.5% for the first nine months of 2012 and up from 28.0% for 2011. The increase
from 28.0% to 33.3% was primarily due to the earnings mix and a decrease in the
impact of permanent benefits.
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Capital
As of December 31, 2012, total capital was $243.02 billion, consisting of
$75.72 billion in total shareholders' equity (common shareholders' equity of
$69.52 billion and preferred stock of $6.20 billion) and $167.30 billion in
unsecured long-term borrowings. Book value per common share was $144.67, an
increase of approximately 11% compared with the end of 2011 and approximately 3%
compared with the end of the third quarter of 2012. Tangible book value per
common share (6) was $134.06, an increase of approximately 12% compared with the
end of 2011 and approximately 3% compared with the end of the third quarter of
2012. 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 480.5 million as of December 31, 2012.
On October 24, 2012, Group Inc. issued 34,000 shares of perpetual 5.95%
Non-Cumulative Preferred Stock, Series I (Series I Preferred Stock), for
aggregate proceeds of $850 million.
During the year, the firm repurchased 42.0 million shares of its common stock at
an average cost per share of $110.31, for a total cost of $4.64 billion,
including 12.7 million shares during the fourth quarter at an average cost per
share of $120.11, for a total cost of $1.53 billion. The remaining share
authorization under the firm's existing repurchase program is 21.5 million
shares. (7)
Under the regulatory capital requirements currently applicable to bank holding
. . .
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is being furnished as part of this Report on Form 8-K:
99.1 Press release of Group Inc. dated January 16, 2013 containing financial
information for its fourth quarter and year ended December 31, 2012.
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