10-QPeriod: Q3 FY1999

GOLDMAN SACHS GROUP INC Quarterly Report for Q3 Ended Aug 27, 1999

Filed October 7, 1999For Securities:GSGS-PAGS-PCGS-PDGSCE

Summary

Goldman Sachs Group, Inc. (GS) reported strong performance in the nine-month period ended August 27, 1999, with net revenues increasing by 30% to $9.87 billion compared to the prior year. This growth was driven by significant increases in Investment Banking and Trading and Principal Investments, with Investment Banking revenues up 20% and Trading and Principal Investments up 49%. The company's transition from a partnership to a corporation on May 7, 1999, and its initial public offering (IPO) significantly impacted financial reporting, introducing new expenses like amortization of IPO awards and a higher corporate tax rate. Despite these changes, the firm demonstrated resilience, with net earnings of $1.99 billion for the nine-month period, although this was impacted by non-recurring items related to the corporate conversion. Asset Management and Securities Services also showed positive growth, with revenues up 14% and assets under supervision reaching $412.6 billion.

Key Highlights

  • 1Net revenues increased by 30% to $9.87 billion for the nine months ended August 27, 1999.
  • 2Investment Banking revenues grew by 20% year-over-year, driven by strong M&A and underwriting activity.
  • 3Trading and Principal Investments revenues surged by 49% for the nine-month period, indicating robust market-making and principal investment performance.
  • 4The company completed its conversion from a partnership to a corporation and its Initial Public Offering (IPO) on May 7, 1999, significantly impacting financial reporting and expenses.
  • 5Asset Management and Securities Services saw a 14% increase in revenues, with total assets under supervision growing to $412.6 billion.
  • 6Operating expenses increased by 90% for the nine-month period, largely due to non-recurring IPO-related expenses and increased compensation following the corporate conversion.

Frequently Asked Questions

Revenue growth was primarily driven by strong performance in Investment Banking, up 20% due to higher advisory and underwriting fees, and Trading and Principal Investments, which saw a substantial 49% increase. This was supported by a 14% rise in Asset Management and Securities Services revenues.

The conversion and IPO led to several significant changes: the inclusion of former partner compensation in operating expenses, the recognition of non-cash compensation expense for employee initial public offering (IPO) awards, and a higher corporate tax rate. These factors contributed to a substantial increase in operating expenses and affected the net earnings and earnings per share.

Goldman Sachs is involved in several legal proceedings, including the MobileMedia Securities Litigation (where parties have agreed in principle to a settlement), Rockefeller Center Properties, Inc. Litigation (on appeal), and matters relating to Municipal Securities, AMF Securities Litigation, Iridium Securities Litigation, and HUD Litigation. Management believes the aggregate results of these proceedings will not have a material adverse effect on the firm's financial condition, though they could impact operating results for specific periods.

Goldman Sachs employs a comprehensive liquidity management structure, including diversification of funding sources (banks, non-bank lenders, repurchase agreements, commercial paper), maintaining a liquid balance sheet, dynamic management of its asset and funding profiles, and holding a liquidity cushion of unencumbered government obligations. The firm also maintains a liquidity ratio of at least 100% to ensure it can fund its positions on a secured basis.