Goldman Sachs generated record quarterly net revenues, net earnings and diluted earnings per common share.
Investment Banking produced record quarterly net revenues of $1.72 billion, including record results in Financial Advisory and Debt Underwriting.
The firm continued its leadership in worldwide mergers and acquisitions, ranking first in announced transactions for the fiscal year-to-date. (2)
Fixed Income, Currency and Commodities (FICC) generated record quarterly net revenues of $4.60 billion, reflecting strong performance across all major businesses.
Equities produced record quarterly net revenues of $3.09 billion, 26% higher than the previous record set in the first quarter of 2006, reflecting strength across all major businesses.
Asset Management generated net revenues of $1.07 billion, including record management and other fees of $982 million. Assets under management increased 26% from a year ago to a record $719 billion, with net asset inflows of $35 billion during the quarter.
"We are very pleased with our first quarter's results. They are a product of strong client activity across every region and every segment of our business,"Â said Lloyd C. Blankfein, Chairman and Chief Executive Officer. "While market conditions will regularly shift, we are confident that our client-driven strategy will continue to produce the strongest results for the firm."Â
Net Revenues
Investment Banking
Net revenues in Investment Banking were $1.72 billion, 17% higher than the first quarter of 2006 and 28% higher than the fourth quarter of 2006. Net revenues in Financial Advisory were $861 million, 17% higher than the first quarter of 2006, primarily reflecting growth in industry-wide completed mergers and acquisitions. Net revenues in the firm's Underwriting business were $855 million, 16% higher than the first quarter of 2006, reflecting significantly higher net revenues in debt underwriting, primarily due to an increase in leveraged finance activity, as the financing environment remained favorable. The firm's investment banking backlog increased during the quarter. (3)
Trading and Principal Investments
Net revenues in Trading and Principal Investments were $9.42 billion, 35% higher than the first quarter of 2006 and 42% higher than the fourth quarter of 2006.
Net revenues in FICC were $4.60 billion, 20% higher than the first quarter of 2006, reflecting higher net revenues in credit products and mortgages. Net revenues in commodities and interest rate products were strong, but essentially unchanged from the same prior year period. Net revenues in currencies were also strong, but lower compared with the first quarter of 2006. During the quarter, FICC operated in an environment characterized by strong customer-driven activity and favorable market opportunities. In addition, although the subprime sector within the mortgage market experienced significant weakness, the broader credit environment remained strong.
Net revenues in Equities were $3.09 billion, 26% higher than the first quarter of 2006, primarily due to significantly higher net revenues in shares and principal strategies, reflecting strong results across all regions. Net revenues in derivatives were also strong, but essentially unchanged compared with the first quarter of 2006. During the quarter, Equities operated in an environment characterized by rising equity prices, strong customer-driven activity and favorable market opportunities.
Principal Investments recorded net revenues of $1.73 billion, reflecting gains and overrides from corporate and real estate principal investments, including a $227 million gain related to the firm's investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC) and a $161 million gain related to the firm's investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG). Net revenues in Principal Investments included approximately $500 million in gains in the first quarter of 2007 related to the firm's adoption of SFAS No. 157.
Asset Management and Securities Services
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Net revenues in Asset Management and Securities Services were $1.60 billion, 19% lower than the first quarter of 2006 and 12% higher than the fourth quarter of 2006.
Asset Management net revenues were $1.07 billion, 28% lower than the first quarter of 2006, reflecting significantly lower incentive fees, partially offset by a 31% increase in management and other fees. Incentive fees were $90 million for the first quarter of 2007 compared with $739 million for the same prior year period. During the quarter, assets under management increased $43 billion to $719 billion, reflecting non-money market net asset inflows of $24 billion, primarily in equity and fixed income assets, money market net asset inflows of $11 billion and market appreciation of $8 billion in equity and fixed income assets.
Securities Services net revenues were $525 million, 7% higher than the first quarter of 2006, as the firm's prime brokerage business generated strong results, reflecting continued growth in customer balances in securities lending and margin lending.
Expenses
Operating expenses were $7.87 billion, 17% higher than the first quarter of 2006 and 78% higher than the fourth quarter of 2006.
Compensation and Benefits
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Compensation and benefits expenses were $6.11 billion, 15% higher than the first quarter of 2006, reflecting the impact of higher net revenues. The ratio of compensation and benefits to net revenues was 48.0% for the quarter compared with 50.9% for the first quarter of 2006. Employment levels increased 2% during the quarter.
Non-Compensation Expenses
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Non-compensation expenses were $1.76 billion, 23% higher than the first quarter of 2006. Excluding non-compensation expenses related to consolidated entities held for investment purposes (4), non-compensation expenses were 26% higher than the first quarter of 2006, primarily due to higher brokerage, clearing, exchange and distribution fees, reflecting higher transaction volumes in Equities, and increased professional fees, reflecting increased levels of business activity. Other expenses also increased, primarily due to growth in the firm's insurance business.
Provision For Taxes
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The effective income tax rate for the first quarter of 2007 was 34.2%, down from 34.5% for fiscal year 2006 and up from 32.8% for the first quarter of 2006. The increase from the first quarter of 2006 was primarily due to a reduction in the impact of permanent benefits due to higher levels of earnings, and changes in the geographic mix of earnings.
Capital
As of February 23, 2007, total capital was $169.63 billion, consisting of $36.90 billion in total shareholders' equity (common shareholders' equity of $33.80 billion and preferred stock of $3.10 billion) and $132.73 billion in unsecured long-term borrowings. Book value per common share was $77.12 and tangible book value per common share was $65.74 (1), an increase of 6% and 7%, respectively, compared with the end of 2006. 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 438.3 million at period end.
The firm repurchased 13.0 million shares of its common stock at an average price of $207.26 per share, for a total cost of $2.69 billion during the quarter. The remaining share authorization under the firm's existing common stock repurchase program is 39.6 million shares.
Dividends
The Board of Directors of The Goldman Sachs Group, Inc. (the Board) declared a dividend of $0.35 per common share to be paid on May 24, 2007 to common shareholders of record on April 24, 2007. The Board also declared dividends of $369.15, $387.50, $369.15 and $364.31 per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively (represented by depositary shares, each representing a 1/1000th interest in a share of preferred stock), to be paid on May 10, 2007 to preferred shareholders of record on April 25, 2007.
Posted March 14th, 2007 by Armen Hareyan
