Broker/Dealer - Earnings and Guidance
| Goldman Sachs Group Inc. (third quarter 2009) |  |
November 04, 2009 7:11 PM ET
By Tyler Hall
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(Note: The following are excerpts from Goldman Sachs Group Inc.'s third-quarter 2009 Form 10-Q. SNL Financial's comments appear in italics. All figures in the following article are in millions, except where noted.) Goldman Sachs lost money in trading only one day during the third quarter of 2009. Goldman trading Goldman reported bringing in trading revenues of more than $100 million on each of 36 days during the third quarter, down from 46 days in the second quarter. Goldman lost money on two trading days during the second quarter, including a loss of $25 million to $50 million and a loss of $75 million to $100 million. During the third quarter of 2009, Goldman lost money on one trading day, and it was less than $25 million. Trading and principal investments revenue totaled $8.80 billion for the third quarter, up from $2.44 billion in the third quarter of 2008. Securitization activity continued to pick up During the three and nine months ended September 2009, the firm securitized $18.75 billion and $35.22 billion, respectively, of financial assets in which the firm had continuing involvement as of September 2009, including $18.75 billion and $34.63 billion, respectively, of residential mortgages, primarily in connection with government agency securitizations, and $0 and $591 million, respectively, of other financial assets. During the three and nine months ended August 2008, the firm securitized $5.85 billion and $12.39 billion, respectively, of financial assets, including $1.38 billion and $5.49 billion, respectively, of residential mortgages, $0 and $773 million, respectively, of commercial mortgages, and $4.48 billion and $6.13 billion, respectively, of other financial assets, primarily in connection with CLOs.. Increased banking capital ratios GS Bank USA increased its leverage ratio to 13.9% from 9.8% in June 2009 under Basel I. The firm's Tier 1 ratio and total capital ratio also increased. Brokerage subs continued to be well-capitalized As of September 2009, GS&Co. had regulatory net capital, as defined by Rule 15c3-1, of $13.41 billion, which exceeded the amount required by $11.48 billion. As of September 2009, GSEC had regulatory net capital, as defined by Rule 15c3-1, of $1.95 billion, which exceeded the amount required by $1.84 billion. ROAE soared Annualized return on average total shareholders equity increased to 20.0% for the September quarter, compared to 7.5% during the quarter ended August 2008. Level 3 assets continued to decrease Total level 3 assets were $50.47 billion, $54.44 billion and $66.19 billion as of September 2009, June 2009 and November 2008, respectively. The decrease in level 3 assets during the three months ended September 2009 primarily reflected unrealized losses on derivative assets, principally due to tighter credit spreads (which are level 2 inputs) on the underlying instruments, and sales and paydowns on corporate debt and other debt obligations, and on loans and securities backed by commercial real estate. The decrease in level 3 assets as of September 2009 as compared with November 2008 primarily reflected unrealized losses (principally on private equity and real estate fund investments, loans and securities backed by commercial real estate, and bank loans and bridge loans) and sales and paydowns (principally on bank loans and bridge loans, other debt obligations, and loans and securities backed by commercial real estate). VaR decreases Goldman's daily value at risk decreased to $189 million as of September, from $221 million as of June, primarily due to a decrease in the interest rates category, partially offset by an increase in the commodity prices category. The decrease in interest rates was principally due to lower levels of volatility and tighter credit spreads. The increase in commodity prices was primarily due to higher levels of exposure, partially offset by lower levels of volatility. Increased cross-border risk The Federal Financial Institutions Examination Council requires the reporting of cross-border risk where outstandings exceed 0.75% of consolidated assets. Ireland and Switzerland were new additions to Goldman's list of countries, with $8.6 billion and $7.0 billion in assets, respectively. IPO process suit In the lawsuits alleging that the prospectuses for certain offerings violated the federal securities laws by failing to disclose the existence of alleged arrangements to "tie" allocations to higher customer brokerage commission rates as well as purchase orders in the aftermarket, by a decision dated October 5, 2009, the federal district court approved the proposed settlement. On October 23, 2009, certain objectors filed a petition in the U.S. Court of Appeals for the Second Circuit seeking review of the district court's certification of a class for purposes of the settlement. Enron litigation final hearing In the class action relating to the exchangeable notes, on October 28, 2009, the federal district court entered an order preliminarily approving the settlement and setting a final hearing for February 4, 2010. Treasury litigation By a decision dated August 6, 2009, the federal district court denied GS&Co.'s motion for summary judgment as to the remaining claims. On October 13, 2009, the parties filed an offer of judgment and notice of acceptance with respect to plaintiff's individual claim. Plaintiff's notice purported to reserve the right to appeal with respect to the district court's prior denial of class certification, and GS&Co. has indicated its position that such reservation is ineffective. Recent Goldman Sachs Behind the Q/K stories: Click here to see Goldman Sachs' second-quarter Behind the Q. Click here to see Goldman Sachs' 2008 Behind the K. | 
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