10-QPeriod: Q3 FY2016

GOLDMAN SACHS GROUP INC Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 3, 2016For Securities:GSGS-PAGS-PCGS-PDGSCE

Summary

Goldman Sachs Group, Inc. (GS) reported strong results for the third quarter of 2016, with net earnings of $2.09 billion, 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 billion, 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.

Financial Highlights

37 data points
Beta

Net Income

$2.09B

EPS (Diluted)

$4.88

Total Assets

$879.99B

Cash & Equivalents

$118.00B

Free Cash Flow

-$5.40B

Financial Statements
Beta
Interest Expense$1.77B
Net Income$2.09B
EPS (Basic)$4.96
EPS (Diluted)$4.88
Shares Outstanding (Basic)422.40M
Shares Outstanding (Diluted)430.20M

Key Highlights

  • 1Net earnings increased by 47% year-over-year to $2.09 billion for Q3 2016.
  • 2Diluted earnings per share (EPS) saw a significant increase of 68% year-over-year to $4.88 for Q3 2016.
  • 3Total net revenues grew by 19% year-over-year to $8.17 billion, driven by strong performance in market-making and Investing & Lending.
  • 4Market-making revenues surged by 57% year-over-year, indicating improved trading conditions and client activity.
  • 5Investing & Lending segment net revenues more than doubled year-over-year, primarily due to gains in equities.
  • 6Operating expenses increased by 10% year-over-year, largely due to higher compensation and benefits costs reflecting the revenue growth.
  • 7Common 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.

Frequently Asked Questions

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.

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.

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.

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.