Goldman Sachs quarterly bond trading revenue drops 26 pct

Goldman Sachs quarterly bond trading revenue drops 26 pct

Goldman Sachs quarterly bond trading revenue drops 26 pct

The FINANCIAL -- The Goldman Sachs Group, Inc. on October 17 reported net revenues of $8.33 billion and net earnings of $2.13 billion for the third quarter ended September 30, 2017.

Diluted earnings per common share were $5.02 compared with $4.88 for the third quarter of 2016 and $3.95 for the second quarter of 2017. Annualized return on average common shareholders’ equity (ROE) was 10.9% for the third quarter of 2017 and 10.3% for the first nine months of 2017, according to Goldman Sachs.

Highlights

Goldman Sachs reported first nine months net revenues of $24.24 billion, 8% higher than the first nine months of 2016, which contributed to a 230 basis point improvement in pre-tax margin to 33.1%.

The firm ranked first in worldwide announced and completed mergers and acquisitions for the year-to-date. The firm also ranked first in worldwide common stock offerings for the year-to-date.

Debt underwriting produced year-to-date net revenues of $2.03 billion, its highest for the first nine months of the year, reflecting a leading position for the firm’s leveraged finance franchise.

Investing & Lending generated net revenues of $1.88 billion, its highest quarterly performance in over three years.

Assets under supervision increased to a record $1.46 trillion, including net inflows of $13 billion in long-term assets under supervision.

Book value per common share increased by 1.8% during the quarter and 4.5% during the year-to- date to $190.73. Basic shares decreased below 400 million for the first time, ending the quarter at 393.7 million.

The firm maintained capital ratios well in excess of the minimum requirements, as the firm’s Common Equity Tier 1 Standardized and Basel III Advanced ratios were 13.3% and 12.0%, respectively.

The firm maintained strong liquidity as global core liquid assets were $220 billion as of September 30, 2017.

“Our overall performance this year has been solid and provides a good foundation on which to execute and deliver our growth initiatives,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer.

Revenues

Investment Banking

Net revenues in Investment Banking were $1.80 billion for the third quarter of 2017, 17% higher than the third quarter of 2016 and 4% higher than the second quarter of 2017. Net revenues in Financial Advisory were $911 million, 38% higher than the third quarter of 2016, reflecting an increase in completed mergers and acquisitions. Net revenues in Underwriting were $886 million, essentially unchanged compared with the third quarter of 2016, as slightly higher net revenues in debt underwriting, reflecting higher net revenues from investment-grade activity, were largely offset by lower net revenues in equity underwriting, reflecting a decrease in industry-wide offerings. The firm’s investment banking transaction backlog decreased compared with both the end of the second quarter of 2017 and the end of 2016. 

Institutional Client Services

Net revenues in Institutional Client Services were $3.12 billion for the third quarter of 2017, 17% lower than the third quarter of 2016 and 2% higher than the second quarter of 2017.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.45 billion for the third quarter of 2017, 26% lower than the third quarter of 2016, due to significantly lower net revenues in commodities, interest rate products and credit products and lower net revenues in currencies, partially offset by higher net revenues in mortgages. Although market-making conditions improved in most businesses compared with the second quarter of 2017, Fixed Income, Currency and Commodities Client Execution continued to operate in a challenging environment characterized by low levels of volatility and low client activity.

Net revenues in Equities were $1.67 billion for the third quarter of 2017, 7% lower than the third quarter of 2016, primarily due to lower net revenues in equities client execution, reflecting significantly lower results in derivatives, partially offset by higher results in cash products. Net revenues from commissions and fees were lower, reflecting lower market volumes in the United States, and net revenues in securities services were slightly higher compared with the third quarter of 2016. Equities operated in an environment characterized by higher global equity prices compared with the second quarter of 2017, while volatility levels remained low.

Investing & Lending

Net revenues in Investing & Lending were $1.88 billion for the third quarter of 2017, 35% higher than the third quarter of 2016 and 19% higher than the second quarter of 2017. Net revenues in equity securities were $1.39 billion, 51% higher than the third quarter of 2016, reflecting an increase in net gains from investments in private equities, which were positively impacted by corporate performance and company-specific events. Net revenues in debt securities and loans were $492 million, 3% higher than the third quarter of 2016, reflecting higher net interest income, partially offset by lower net gains from investments in debt instruments.

Investment Management

Net revenues in Investment Management were $1.53 billion for the third quarter of 2017, 3% higher than the third quarter of 2016 and essentially unchanged compared with the second quarter of 2017. The increase in net revenues compared with the third quarter of 2016 was due to slightly higher management and other fees, reflecting higher average assets under supervision, and higher transaction revenues, partially offset by lower incentive fees. During the quarter, total assets under supervision increased $50 billion to $1.46 trillion. Long-term assets under supervision increased $36 billion, including net market appreciation of $23 billion, primarily in equity and fixed income assets, and net inflows of $13 billion, primarily in fixed income assets. Liquidity products increased $14 billion.

Expenses

Operating expenses were $5.35 billion for the third quarter of 2017, essentially unchanged compared with both the third quarter of 2016 and the second quarter of 2017.

Compensation and Benefits

The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $3.17 billion for the third quarter of 2017, essentially unchanged compared with the third quarter of 2016. The ratio of compensation and benefits to net revenues for the first nine months of 2017 was 40.0%, compared with 41.0% for both the first half of 2017 and the first nine months of 2016. Total staff increased 5% compared with the end of the second quarter of 2017, primarily reflecting the timing of campus hires.

Non-Compensation Expenses

Non-compensation expenses were $2.18 billion for the third quarter of 2017, 4% higher than the third quarter of 2016 and 2% higher than the second quarter of 2017. The increase compared with the third quarter of 2016 was primarily due to higher expenses related to consolidated investments and the firm’s online loan and deposit platform. These increases were partially offset by lower occupancy expenses (the third quarter of 2016 included $63 million of exit costs on office space).

Net provisions for litigation and regulatory proceedings for the third quarter of 2017 were $18 million compared with $46 million for the third quarter of 2016.

Provision for Taxes

The effective income tax rate for the first nine months of 2017 increased to 22.6% from 19.1% for the first half of 2017, primarily due to a decrease in the impact of tax benefits from the settlement of employee share-based awards in the first nine months of 2017 compared with the first half of 2017.

Capital

As of September 30, 2017, total shareholders’ equity was $86.29 billion (common shareholders’ equity of $75.09 billion and preferred stock of $11.20 billion) and unsecured long-term borrowings were $211.85 billion.

The firm’s Standardized Common Equity Tier 1 ratio reflecting the applicable transitional provisions was 13.3% as of September 30, 2017, compared with 13.9% as of June 30, 2017.

The firm’s Basel III Advanced Common Equity Tier 1 ratio reflecting the applicable transitional provisions was 12.0% as of September 30, 2017, compared with 12.5% as of June 30, 2017.

The firm’s supplementary leverage ratio on a fully phased-in basis was 6.1% as of September 30, 2017, compared with 6.3% as of June 30, 2017.
On October 16, 2017, the Board of Directors of The Goldman Sachs Group, Inc. (Board) declared a dividend of $0.75 per common share to be paid on December 28, 2017 to common shareholders of record on November 30, 2017.


During the quarter, the firm repurchased 9.6 million shares of its common stock at an average cost per share of $225.12, for a total cost of $2.17 billion. 
Book value per common share was $190.73 and tangible book value per common share was $180.42, both based on basic shares of 393.7 million as of September 30, 2017.

Other Balance Sheet and Liquidity Metrics

Total assets were $930 billion as of September 30, 2017, compared with $907 billion as of June 30, 2017.

The firm’s global core liquid assets were $220 billion as of September 30, 2017 and averaged $221 billion for the third quarter of 2017, compared with an average of $214 billion for the second quarter of 2017.

Level 3 assets were $21 billion as of September 30, 2017, unchanged compared with June 30, 2017, and represented 2.2% of total assets.