10-QPeriod: Q2 FY2011

GOLDMAN SACHS GROUP INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 9, 2011For Securities:GSGS-PAGS-PCGS-PDGSCE

Summary

Goldman Sachs Group, Inc. (GS) reported a decrease in net revenues for the second quarter of 2011 compared to the same period in 2010, driven by a significant decline in its Institutional Client Services segment, particularly in Fixed Income, Currencies, and Commodities Client Execution. This was partially offset by strong performance in Investment Banking, which saw higher revenues from both underwriting and financial advisory services, and a modest increase in Investment Management fees. Despite lower revenues, the firm managed its expenses effectively, leading to a 23% reduction in operating expenses year-over-year for the quarter. This cost-saving initiative, targeting $1.2 billion in annual reductions, along with strong underwriting and advisory fees, helped improve pre-tax earnings compared to the prior year's quarter, albeit with diluted EPS still lower year-over-year due to weaker overall performance in client services and investing & lending segments. The firm continued its share repurchase program and maintained robust capital ratios.

Financial Highlights

31 data points
Beta

Net Income

$1.09B

EPS (Diluted)

$1.85

Total Assets

$936.91B

Free Cash Flow

$10.76B

Financial Statements
Beta
Net Income$1.09B
EPS (Basic)$1.96
EPS (Diluted)$1.85
Shares Outstanding (Basic)531.90M
Shares Outstanding (Diluted)569.50M

Key Highlights

  • 1Net revenues decreased by 18% year-over-year to $7.28 billion in Q2 2011.
  • 2Diluted Earnings Per Share (EPS) were $1.85 in Q2 2011, down from $0.78 in Q2 2010, but improved significantly from the prior quarter.
  • 3Institutional Client Services revenues declined by 29% year-over-year, driven by weaker performance in Fixed Income, Currencies, and Commodities.
  • 4Investment Banking revenues increased by 54% year-over-year, benefiting from strong underwriting and financial advisory activity.
  • 5Investment Management revenues increased by 12% year-over-year, driven by higher fees due to increased assets under management and favorable fee mix.
  • 6Operating expenses decreased by 23% year-over-year due to lower compensation and benefits, and a significant reduction in litigation and regulatory provisions.
  • 7The firm repurchased $1.50 billion of common stock during the quarter, continuing its capital return program.

Frequently Asked Questions

The primary driver of the revenue decline was a significant drop in the Institutional Client Services segment, particularly in Fixed Income, Currencies, and Commodities Client Execution. This was attributed to challenging market conditions, including high uncertainty, decreased liquidity, and a reduction in market-making activities, especially in mortgages and commodities.

The Investment Banking segment performed strongly, with revenues increasing by 54% year-over-year to $1.45 billion. This growth was driven by robust underwriting activity, particularly in debt and equity offerings, and an increase in financial advisory services related to mergers and acquisitions.

Goldman Sachs launched an initiative to identify areas for improved efficiency and reduce operating expenses, targeting approximately $1.2 billion in annual reductions. This is being achieved through staff reductions and planned expenditure cuts, with completion expected before the end of the year.

The firm maintained strong capital ratios. The Tier 1 capital ratio was 14.7% and the Tier 1 leverage ratio was 7.3% as of June 2011. The firm also repurchased $1.50 billion of its common stock during the quarter, demonstrating a commitment to capital management.