10-QPeriod: Q2 FY2020

GOLDMAN SACHS GROUP INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 7, 2020For Securities:GSGS-PAGS-PCGS-PDGSCE

Summary

Goldman Sachs Group, Inc. reported strong net revenues of $13.30 billion for the second quarter of 2020, a significant 41% increase year-over-year, driven by robust performance across Global Markets and Investment Banking segments. However, net earnings saw a substantial decline of 85% to $373 million, largely impacted by a $2.96 billion provision for litigation and regulatory proceedings, which also significantly affected operating expenses and the efficiency ratio. The firm saw a notable increase in its provision for credit losses to $1.59 billion, reflecting the economic impact of the COVID-19 pandemic and the adoption of the CECL standard. Despite the significant legal provisions and increased credit loss provisions impacting profitability, the firm maintained a strong capital position, with a CET1 capital ratio of 13.3% under the Standardized Capital Rules as of June 30, 2020. The firm also experienced a substantial increase in deposits, contributing to a stronger liquidity position. Management highlighted continued client activity and the firm's ability to deploy balance sheet to meet client needs amidst market volatility as key drivers of revenue performance.

Financial Highlights

34 data points
Beta

Net Income

$373.00M

EPS (Diluted)

$0.53

Total Assets

$1.14T

Cash & Equivalents

$132.60B

Free Cash Flow

-$12.71B

Financial Statements
Beta
Interest Expense$2.09B
Net Income$373.00M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)355.70M
Shares Outstanding (Diluted)355.70M

Key Highlights

  • 1Net revenues increased by 41% to $13.30 billion in Q2 2020 compared to Q2 2019.
  • 2Net earnings decreased by 85% to $373 million in Q2 2020 compared to Q2 2019, primarily due to litigation provisions.
  • 3Provision for credit losses increased significantly to $1.59 billion in Q2 2020 from $214 million in Q2 2019.
  • 4Global Markets segment revenue grew by 93% year-over-year, driven by strong client activity in FICC and Equities.
  • 5Investment Banking revenues increased by 36% year-over-year, with strong performance in underwriting.
  • 6CET1 capital ratio remained strong at 13.3% (Standardized Capital Rules) as of June 30, 2020.
  • 7The firm suspended stock repurchases through Q3 2020 due to FRB requirements.

Frequently Asked Questions

The primary driver for the substantial decrease in net earnings was a $2.96 billion provision for litigation and regulatory proceedings recorded in the second quarter of 2020. This provision significantly impacted operating expenses and overall profitability.

The COVID-19 pandemic led to increased market volatility and economic uncertainty, which drove higher client activity in Global Markets and Investment Banking, boosting net revenues. However, it also necessitated a significant increase in the provision for credit losses due to anticipated economic deterioration, impacting net earnings. The firm also suspended share repurchases due to regulatory requirements.

Investment Banking saw strong underwriting activity due to issuers accessing capital markets, but financial advisory revenue decreased due to lower M&A transactions. Global Markets benefited from high client activity and volatile markets, leading to significant revenue growth in both FICC and Equities. Future performance in these segments may be impacted by sustained economic downturns or reduced market volatility.

Goldman Sachs maintained a strong capital position with a CET1 ratio above regulatory requirements. The firm also reported a strong liquidity position, with record GCLA and increased deposits. They are actively managing their balance sheet and are complying with regulatory requirements, including the suspension of stock repurchases.