01—Abstract
Summary
Summary of the 10-Q filed November 3, 2016. Cited figures are marked; the original filing is the authoritative source.
Goldman Sachs Group, Inc. (GS) reported strong results for the third quarter of 2016, with net earnings of $2.09 billiona, a 47% increase year-over-year, leading to diluted EPS of $4.88, up 68% from the prior year.
This performance was driven by robust growth in net revenues, which rose 19% to $8.17 billionb, largely due to significant increases in the Investing & Lending segment and improved performance in Institutional Client Services, particularly in market-making activities across various product lines like interest rates, credit, and equities. Despite a 10% increase in operating expenses, mainly attributable to higher compensation and benefits reflecting the revenue growth, the firm maintained solid capital ratios, with its Common Equity Tier 1 ratio above regulatory minimums. The firm's balance sheet remained strong, with total assets increasing and a focus on maintaining diversified funding sources.
02—Key points
Key Highlights
- Net earnings increased by 47% year-over-year to $2.09 billion for Q3 2016.
- Diluted earnings per share (EPS) saw a significant increase of 68% year-over-year to $4.88 for Q3 2016.
- Total net revenues grew by 19% year-over-year to $8.17 billion, driven by strong performance in market-making and Investing & Lending.
- Market-making revenues surged by 57% year-over-year, indicating improved trading conditions and client activity.
- Investing & Lending segment net revenues more than doubled year-over-year, primarily due to gains in equities.
- Operating expenses increased by 10% year-over-year, largely due to higher compensation and benefits costs reflecting the revenue growth.
- Common Equity Tier 1 ratio remained strong at 14.0% (Standardized approach) and 12.4% (Basel III Advanced approach) as of September 30, 2016, well above regulatory minimums.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed November 3, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Interest Expense | $1.77B$1.28B | +39.0% |
| Net Income | $2.09B$1.43B | +46.8% |
| EPS (Basic) | $4.96$2.95 | +68.1% |
| EPS (Diluted) | $4.88$2.90 | +68.3% |
| Shares Outstanding (Basic) | 422.40M449.00M | −5.9% |
| Shares Outstanding (Diluted) | 430.20M458.60M | −6.2% |
05—Questions
Frequently Asked Questions
What were the key drivers of Goldman Sachs' improved financial performance in Q3 2016 compared to Q3 2015?
The improved financial performance was primarily driven by a significant increase in net revenues, up 19% year-over-year to $8.17 billion. This growth was largely fueled by stronger market-making activities across various products, which saw a 57% increase, and a more than doubling of revenues in the Investing & Lending segment, mainly from equity investments. The firm also benefited from higher incentive fees in Investment Management.
How did operating expenses change, and what factors contributed to this change?
Operating expenses increased by 10% year-over-year to $5.30 billion. This increase was mainly due to a 36% rise in compensation and benefits expenses, reflecting the firm's higher net revenues and a higher year-to-date compensation-to-net revenue ratio. However, non-compensation expenses decreased by 15%, largely due to significantly lower net provisions for litigation and regulatory proceedings, which were $46 million in Q3 2016 compared to $416 million in Q3 2015.
What is the company's capital position as of September 30, 2016?
Goldman Sachs maintained a strong capital position as of September 30, 2016. Its Common Equity Tier 1 (CET1) ratio was 14.0% under the Standardized approach and 12.4% under the Basel III Advanced approach, both well above the minimum regulatory requirements. Total shareholders' equity stood at $87.11 billion, and book value per common share was $181.25.
How did the different business segments perform in Q3 2016 compared to Q3 2015?
The Investment Banking segment saw a slight decrease in pre-tax earnings to $674 million from $768 million, primarily due to lower financial advisory revenues, though underwriting revenues increased. Institutional Client Services significantly improved its pre-tax earnings to $1.22 billion from $691 million, driven by stronger market-making revenues. The Investing & Lending segment's pre-tax earnings more than doubled to $708 million from $312 million, mainly due to equity investments. Investment Management's pre-tax earnings decreased slightly to $264 million from $300 million, impacted by lower incentive fees.
06—Continue