10-QPeriod: Q2 FY2008

GOLDMAN SACHS GROUP INC Quarterly Report for Q2 Ended May 30, 2008

Filed July 7, 2008For Securities:GSGS-PAGS-PCGS-PDGSCE

Summary

Goldman Sachs Group, Inc. reported a decrease in net revenues for the three months ended May 29, 2008, to $9.42 billion from $10.18 billion in the prior year period, primarily driven by a significant decline in Trading and Principal Investments, particularly within credit products. Despite challenging market conditions, the firm demonstrated resilience, with diluted earnings per common share of $4.58 compared to $4.93 in the prior year quarter. The Asset Management and Securities Services segment showed strong growth, with net revenues increasing significantly due to higher management fees and record net revenues in securities services driven by strong prime brokerage results. The firm ended the quarter with total shareholders' equity of $44.82 billion, an increase from the previous year.

Financial Highlights

18 data points
Beta

Net Income

$2.09B

EPS (Diluted)

$4.58

Free Cash Flow

-$14.09B

Financial Statements
Beta
Net Income$2.09B
EPS (Basic)$4.80
EPS (Diluted)$4.58
Shares Outstanding (Basic)427.50M
Shares Outstanding (Diluted)447.40M

Key Highlights

  • 1Net revenues for the three months ended May 2008 decreased 7% to $9.42 billion year-over-year, impacted by weaker performance in Trading and Principal Investments, especially credit products.
  • 2Diluted earnings per common share were $4.58 for the quarter, down from $4.93 in the same period last year.
  • 3Asset Management and Securities Services saw a significant 18% increase in net revenues, reaching $2.15 billion, with assets under management reaching a record $895 billion.
  • 4Investment Banking net revenues decreased slightly by 2% to $1.69 billion, with Financial Advisory up 13% while Underwriting declined 13% due to lower debt underwriting activity.
  • 5Trading and Principal Investments net revenues decreased 16% to $5.59 billion, primarily due to a 29% drop in FICC revenues, largely attributable to credit products.
  • 6The firm maintained a strong capital position, with total shareholders' equity increasing to $44.82 billion as of May 30, 2008.
  • 7Compensation and benefits expenses decreased 7% year-over-year, reflecting lower net revenues and discretionary compensation.

Frequently Asked Questions

The primary driver for the decrease in net revenues was a significant decline in the Trading and Principal Investments segment, particularly within credit products in the FICC (Fixed Income, Currencies, and Commodities) business, which experienced a loss of approximately $775 million related to non-investment-grade credit origination activities.

The Asset Management and Securities Services segment performed strongly, with net revenues increasing 18% year-over-year to $2.15 billion. This growth was driven by higher management and other fees in Asset Management and record net revenues in Securities Services, largely due to a significant increase in customer balances in its prime brokerage business. Assets under management also reached a record $895 billion.

The firm experienced challenging market conditions, characterized by elevated volatility and weakness in credit markets. While these conditions negatively impacted the Trading and Principal Investments segment, particularly credit products, the firm's diversified business model, including strong performance in Asset Management and Securities Services and resilient Investment Banking revenue, helped mitigate some of these effects.

Goldman Sachs maintained a strong capital position. Total shareholders' equity increased to $44.82 billion as of May 30, 2008, compared to $42.80 billion as of November 30, 2007. The firm's Total Capital Ratio was 14.2%, complying with Consolidated Supervised Entity (CSE) capital adequacy standards.