Goldman Sachs International – Financial Statements
Unaudited Half-yearly Financial Report
Company Number: 02263951
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
UNAUDITED HALF-YEARLY FINANCIAL REPORT FOR THE HALF YEAR ENDED
INDEX
Page No. |
|
Part I |
|
Management Report |
|
Introduction |
2 |
Executive Overview |
2 |
Business Environment |
3 |
Results of Operations |
4 |
Balance Sheet and Funding Sources |
7 |
|
8 |
Regulatory Matters and Other Developments |
11 |
Principal Risks and Uncertainties |
12 |
Risk Management |
13 |
Overview and Structure of Risk Management |
13 |
Liquidity Risk Management |
13 |
Market Risk Management |
15 |
Credit Risk Management |
16 |
Operational Risk Management |
18 |
Model Risk Management |
18 |
Directors |
18 |
Responsibility Statement |
18 |
Page No. |
||
Part II |
||
Unaudited Financial Statements |
||
Profit and Loss Account |
19 |
|
Statements of Comprehensive Income |
19 |
|
Balance Sheet |
20 |
|
Statements of Changes in Equity |
21 |
|
Statements of Cash Flows |
22 |
|
Notes to the Financial Statements |
23 |
|
Note 1. |
General Information |
23 |
Note 2. |
Summary of Significant Accounting Policies |
23 |
Note 3. |
Critical Accounting Estimates and Judgements |
23 |
Note 4. |
Net Revenues |
24 |
Note 5. |
Tax on Profit |
24 |
Note 6. |
Financial Instruments Owned and Financial |
|
Instruments Sold, But Not Yet Purchased |
25 |
|
Note 7. |
Collateralised Agreements |
25 |
Note 8. |
Debtors |
25 |
Note 9. |
Collateralised Financings |
26 |
Note 10. |
Other Creditors |
26 |
Note 11. |
Share Capital |
28 |
Note 12. |
Other Equity Instruments |
28 |
Note 13. |
Cash and Cash Equivalents |
28 |
Note 14. |
Reconciliation of Cash Flows From Operating Activities |
28 |
Note 15. |
Contingent Liabilities |
29 |
Note 16. |
Financial Risk Management and Capital Management |
32 |
Note 17. |
Financial Assets and Liabilities |
33 |
1
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
Introduction
The company's primary regulators are the
The company's ultimate parent undertaking and controlling entity is
The company seeks to be the advisor of choice for its clients and a leading participant in global financial markets. As part of
The company generates revenues from the following business activities: Investment Banking; Fixed Income, Currency and Commodities (FICC); Equities; and Investment Management, which includes Asset management and Wealth management.
The company strives to maintain a work environment that fosters professionalism, excellence, diversity, cooperation among employees and high standards of business ethics. The company recognises that it needs the most talented people to deliver outstanding results for clients. A diverse workforce in terms of gender, ethnicity, sexual orientation, background, culture and education ensures the development of better ideas, products and services. For further information about
References to "the financial statements" are to the unaudited financial statements as presented in Part II of this financial report. All references to
Unless otherwise stated, all amounts in this annual report are prepared in accordance with United Kingdom Generally Accepted Accounting Practices (
Executive Overview
Profit and Loss Account
Three Months Ended
Net revenues were
Administrative expenses were
Six Months Ended
Net revenues were
Administrative expenses were
Capital Ratios
As of
2
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
Balance Sheet
The balance sheet is set out on page 20 of this financial report. In the subsequent paragraphs, total assets are the sum of "Fixed assets", "Current assets" and "Pension surplus". Total liabilities are the sum of "Creditors: amounts falling due within one year", "Creditors: amounts falling due after more than one year" and "Provisions for liabilities".
As of
As of
Total level 3 financial assets were
Under
Business Environment
In March, the spread of the coronavirus (COVID-19) pandemic across the globe and the dramatic measures taken to contain it, including the temporary closures of non-essential businesses and stay-at-home requirements, caused a sharp contraction in global economic activity, high levels of volatility across most financial assets and global markets, a decline in global equity prices, and a significant widening of credit spreads. Global central banks, including the
As the period progressed, several economies began to take steps towards reopening, causing economic indicators to improve. As a result, financial markets rebounded during the period as equity prices increased and credit spreads tightened due to improved sentiment towards economic recovery. This rise in the valuation of risk assets was also fueled by continued support from governments and central banks globally. Volatility in the equity markets, although declining, remained elevated, and commodities markets experienced significant turmoil, as oil prices declined significantly due to an unprecedented surplus in net supply.
3
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
Results of Operations
Net Revenues
Net revenues include the net profit arising from transactions, with both third parties and affiliates, in securities, foreign exchange and other financial instruments, and fees and commissions. This is inclusive of associated interest and dividends.
The table below presents the company's net revenues by business activity.
Three Months |
Six Months |
|||
Ended May |
Ended May |
|||
$ in millions |
2020 |
2019 |
2020 |
2019 |
Investment Banking |
$1,348 |
$1,296 |
$2,750 |
$2,634 |
FICC |
1,564 |
847 |
2,110 |
1,489 |
Equities |
538 |
948 |
1,173 |
1,432 |
Investment Management |
92 |
268 |
449 |
495 |
Total net revenues |
|
|
|
|
In the table above, reclassifications have been made to previously reported amounts to conform to the current presentation. See Note 2 to the financial statements for further information.
Investment Banking
Investment Banking consists of:
Financial advisory. Includes strategic advisory engagements with respect to mergers and acquisitions, divestitures, corporate defence activities, restructurings and spin-offs.
Underwriting. Includes public offerings and private placements, including local and cross-border transactions and acquisition financing, of a wide range of securities and other financial instruments, including loans.
Corporate lending. Includes lending to corporate clients, including relationship lending, middle-market lending and acquisition financing.
Three Months Ended
The increase in Financial advisory reflected an increase in completed mergers and acquisitions transactions. The increase in Underwriting reflected higher net revenues in Debt and Equity underwriting.
As of
Six Months Ended
The increase in Underwriting reflected significantly higher net revenues in Debt underwriting and higher net revenues in Equity underwriting. The decrease in Financial advisory reflected a decrease in completed mergers and acquisitions transactions.
As of
The backlog represents an estimate of net revenues from future transactions where the company believes that future revenue realisation is more likely than not. The changes in backlog may be a useful indicator of client activity levels which, over the long term, impact net revenues. However, the time frame for completion and corresponding revenue recognition of transactions in the backlog varies based on the nature of the engagement, as certain transactions may remain in the backlog for longer periods of time, which is expected to occur in light of the impact of the COVID-19 pandemic on mergers and acquisitions. In addition, the backlog is subject to certain limitations, such as assumptions about the likelihood that individual client transactions will occur in the future. Transactions may be cancelled or modified, and transactions not included in the estimate may also occur, including underwriting transactions for which the time frame from discussion to completion has shortened in the current environment.
4
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
FICC
FICC generates revenues from intermediation and financing activities.
- FICC intermediation. Includes client execution activities related to making markets in both trading cash and derivative instruments, as detailed below.
Interest Rate Products. Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives.
Credit Products. Investment-grade corporate securities, high-yield securities, credit derivatives, exchange-traded funds, bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims.
Mortgages. Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives, and other asset-backed securities, loans and derivatives.
Currencies. Currency options, spot/forwards and other derivatives on G-10 currencies and emerging-market products.
Commodities. Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, base, precious and other metals, electricity, coal, agricultural and other commodity products. - FICC financing. Includes providing financing to the company's clients through securities sold under agreements to repurchase (repurchase agreements), as well as through structured credit and asset-backed lending, which are typically longer term in nature.
Three Months Ended
Six Months Ended
Equities
Equities generates revenues from intermediation and financing activities.
- Equities intermediation. Includes client execution activities related to making markets in equity products and commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide, as well as over-the-counter (OTC) transactions.
- Equities financing. Includes prime brokerage and other equities financing activities, including securities lending, margin lending and swaps and generates revenues primarily in the form of interest rate spreads or fees.
The company's net revenues are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads and (ii) changes in the fair value of its inventory, and interest income and interest expense related to the holding, hedging and funding of its inventory.
Three Months Ended
Six Months Ended
5
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
Investment Management
Investment Management includes Asset management and Wealth management.
Asset management includes direct investments made by the company, which are typically longer-term in nature, and investing services provided to group undertakings or funds managed by
Wealth management includes wealth advisory services, including portfolio management and financial counselling, brokerage and other transaction services to high-net-worth individuals and families.
Three Months Ended
Six Months Ended
Administrative Expenses
Administrative expenses are primarily influenced by compensation (including the impact of the
The table below presents the company's administrative expenses and headcount.
Three Months |
Six Months |
||||
Ended May |
Ended May |
||||
$ in millions |
2020 |
2019 |
2020 |
2019 |
|
Direct costs of employment |
$0,597 |
$0,684 |
|
|
|
Brokerage, clearing, exchange |
|||||
and distribution fees |
302 |
230 |
540 |
430 |
|
Market development |
8 |
28 |
29 |
49 |
|
Communications and technology |
31 |
32 |
63 |
62 |
|
Depreciation and amortisation |
46 |
33 |
82 |
53 |
|
Occupancy |
1 |
35 |
8 |
116 |
|
Professional fees |
38 |
47 |
85 |
98 |
|
Management charges from group |
|||||
undertakings |
196 |
219 |
436 |
427 |
|
Management charges to group |
|||||
undertakings |
(75) |
(100) |
(161) |
(194) |
|
Other expenses |
218 |
238 |
423 |
440 |
|
Total administrative expenses |
|
|
|
|
|
Total headcount at period-end |
4,229 |
4,013 |
|||
In the table above:
- Direct costs of employment included a credit of
$20 million for the three months endedMay 2020 , a credit of$56 million for the three months endedMay 2019 , a credit of$47 million for the six months endedMay 2020 and a charge of$1 million for the six months endedMay 2019 relating to the mark-to-market of share-based compensation. - Occupancy includes rent and other occupancy-related costs for the company's legacy
London campus. Management charges from group undertakings includes occupancy-related costs for the company's newLondon campus.
Three Months Ended
Direct costs of employment were
Brokerage, clearing, exchange and distribution fees were
Occupancy and management charges from group undertakings collectively were
As of
6
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
Six Months Ended
Administrative expenses were
Direct costs of employment were
Brokerage, clearing, exchange and distribution fees were
Depreciation and amortisation expenses were
Occupancy and management charges from group undertakings collectively were
As of
Interest Payable and Similar Expenses
Interest payable and similar expenses consists of interest on long-term subordinated loans from parent and group undertakings.
Three Months Ended
Interest payable and similar expenses was
Six Months Ended
Tax on Profit
The effective tax rate was 23.7% for the six months ended
Balance Sheet and Funding Sources
Balance Sheet Management
One of the company's risk management disciplines is its ability to manage the size and composition of its balance sheet. The company leverages the firmwide balance sheet management process performed at the
In order to ensure appropriate risk management, the company seeks to maintain a sufficiently liquid balance sheet and leverages
- balance sheet limits, (iii) monitoring of key metrics and (iv) scenario analyses. See "Balance Sheet and Funding Sources - Balance Sheet Management" in Part I of the 2019 Annual Report for further information about the company's balance sheet management process.
Funding Sources
The company's primary sources of funding are collateralised financings, intercompany unsecured borrowings, external unsecured borrowings and shareholder's funds. The company raises this funding through a number of different products, including:
- Repurchase agreements and securities loaned;
- Intercompany loans from
Group Inc. and other affiliates; - Debt securities issued including notes, certificates, and warrants; and
- Other borrowings including funded derivatives and transfers of assets accounted for as financings rather than sales.
The table below presents information about the company's funding sources.
As of |
||||
May |
November |
|||
$ in millions |
2020 |
2019 |
||
Collateralised financings |
|
50% |
|
52% |
Intercompany unsecured borrowings |
70,023 |
26% |
64,311 |
25% |
External unsecured borrowings |
26,991 |
10% |
23,139 |
9% |
Total shareholder's funds |
36,145 |
14% |
34,248 |
14% |
Total funding sources |
|
100% |
|
100% |
7
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
The company generally distributes funding products through its own sales force and third-party distributors to a large, diverse creditor base in a variety of global markets. The company believes that its relationships with external creditors are critical to its liquidity. These creditors include banks, securities lenders, corporations, pension funds, insurance companies, mutual funds and individuals. The company has imposed various internal guidelines to monitor creditor concentration across its external funding programmes.
Secured Funding. The company funds a significant amount of inventory on a secured basis, with external counterparties, as well as with affiliates. Secured funding includes collateralised financings in the balance sheet.
The company may also pledge its inventory as collateral for securities borrowed under a securities lending agreement. The company also uses its own inventory to cover transactions in which the company or its clients have sold securities that have not yet been purchased. Secured funding is less sensitive to changes in
The company seeks to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and seeks longer maturities for secured funding collateralised by asset classes that may be harder to fund on a secured basis, especially during times of market stress.
A majority of the company's secured funding for securities not eligible for inclusion in the GCLA is executed through term repurchase agreements and securities loaned contracts. The company also raises secured funding through debt securities issued, other borrowings and intercompany loans.
The weighted average maturity of the company's external secured funding included in collateralised financings in the balance sheet, excluding funding that can only be collateralised by liquid government and agency obligations, exceeded 120 days as of
Intercompany Unsecured Borrowings. The company sources funding through intercompany unsecured borrowings, primarily from its immediate parent undertaking,
Funding IHC is a wholly-owned, direct subsidiary of
Intercompany unsecured borrowings include loans, subordinated loans and other borrowings.
External Unsecured Borrowings. External unsecured borrowings include debt securities issued, other borrowings, bank loans and overdrafts.
Shareholder's Funds. Shareholder's funds is a stable and perpetual source of funding. See Notes 11 and 12 to the financial statements for further information.
Capital adequacy is of critical importance to the company. The company has in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to assist the company in maintaining the appropriate level and composition of capital in both business- as-usual and stressed conditions.
The company determines the appropriate amount and composition of its equity capital by considering multiple factors including the company's current and future regulatory capital requirements, the results of the company's capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, the business environment and conditions in the financial markets.
The company's capital planning and stress testing process incorporates internally designed stress tests and those required under the PRA's Internal Capital Adequacy Assessment Process (ICAAP). It is also designed to identify and measure material risks associated with business activities, including market risk, credit risk, operational risk and other risks. The company's goal is to hold sufficient capital to ensure that it remains adequately capitalised after experiencing a severe stress event. The company's assessment of capital adequacy is viewed in tandem with its assessment of liquidity adequacy and is integrated into its overall risk management structure, governance and policy framework.
8
GOLDMAN SACHS INTERNATIONAL (UNLIMITED COMPANY)
Management Report
In addition, as part of the company's comprehensive capital management policy, a contingency capital plan is maintained that provides a framework for analysing and responding to a perceived or actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information, as well as timely communication with external stakeholders.
The company is subject to the capital framework for E.U.- regulated financial institutions prescribed in the CRD and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on the
The risk-based capital requirements are expressed as capital ratios that compare measures of regulatory capital to risk- weighted assets (RWAs). The CET1 capital ratio is defined as CET1 capital divided by RWAs. The Tier 1 capital ratio is defined as Tier 1 capital divided by RWAs. The total capital ratio is defined as total capital divided by RWAs.
The CET1 capital, Tier 1 capital and Total capital ratio requirements (collectively, the Pillar 1 capital requirements) are supplemented by:
- A capital conservation buffer of 2.5% of RWAs, consisting entirely of capital that qualifies as CET1 capital.
- A countercyclical capital buffer of up to 2.5% of RWAs (and also consisting entirely of CET1 capital) in order to counteract excessive credit growth. The buffer only applies to the company's exposures to certain types of counterparties based in jurisdictions which have announced a countercyclical buffer. The buffer was negligible as of
May 2020 . The countercyclical capital buffer applicable to the company could change in the future and, as a result, the company's risk-based capital requirements could increase. - The individual capital requirement under Pillar 2A (an additional amount to cover risks not adequately captured in Pillar 1). The PRA performs a periodic supervisory review of the company's ICAAP, which leads to a final determination by the PRA of the individual capital requirement under Pillar 2A. This is a point in time assessment of the minimum amount of capital the PRA considers that a firm should hold.
Regulatory Risk-Based Capital Ratios
The table below presents information about the company's minimum risk-based capital requirements.
As of |
||
May |
November |
|
2020 |
2019 |
|
CET1 capital ratio |
8.2% |
8.8% |
Tier 1 capital ratio |
10.1% |
10.7% |
Total capital ratio |
12.6% |
13.4% |
In the table above:
- The minimum risk-based capital requirements incorporate the Pillar 2A capital requirement received from the PRA and could change in the future.
- Minimum risk-based capital requirements for the company have decreased compared with
November 2019 due to a reduction in the countercyclical capital buffer and modification to the Pillar 2A capital requirements issued by the company's regulators in response to the COVID-19 pandemic.
In addition to the Pillar 2A capital requirement, the PRA also defines the forward-looking capital requirement which represents the PRA's view of the capital that the company would require to absorb losses in stressed market conditions. This is known as Pillar 2B or the "PRA buffer" and is not reflected in the requirements shown above.
The table below presents information about the company's actual risk-based capital ratios.
As of |
||
May |
November |
|
$ in millions |
2020 |
2019 |
Risk-based capital and RWAs |
||
CET1 capital |
$025,217 |
$124,082 |
Additional Tier 1 notes |
$118,300 |
$118,300 |
Tier 1 capital |
$033,517 |
$132,382 |
Tier 2 capital |
$115,281 |
$115,377 |
Total capital |
$038,798 |
$137,759 |
RWAs |
|
|
Risk-based capital ratios |
||
CET1 capital ratio |
10.1% |
11.6% |
Tier 1 capital ratio |
13.4% |
15.7% |
Total capital ratio |
15.5% |
18.3% |
In the table above:
- The company's CET1 capital ratio, Tier 1 capital ratio, Total capital ratio as of
May 2020 decreased compared withNovember 2019 , primarily due to an increase in the company's RWAs. See "Risk-Weighted Assets" for further information. - CET1 capital, Tier 1 capital and Total capital as of
May 2020 excluded the company's profit fromApril 1, 2020 through
May 31, 2020 , as such profits have not yet been approved to be included as regulatory capital by the PRA.
9
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