The Goldman Sachs Group (GS)

Q4 2010 Earnings Call

January 19, 2011 9:30 am ET


David Viniar - Chief Financial Officer, Executive Vice President and Member of Management Committee

Dane Holmes - Director Investor Relations


Matthew Burnell - Wells Fargo Securities, LLC

Jeffrey Harte - Sandler O'Neill & Partners L.P.

Glenn Schorr - UBS

David Trone - JMP Securities LLC

Guy Moszkowski - BofA Merrill Lynch

Howard Chen - Crédit Suisse AG

Steven Wharton - JP Morgan

Richard Staite - Atlantic Equities LLP

Kian Abouhossein - JP Morgan Chase & Co

Christoph Kotowski - Oppenheimer & Co. Inc.

Michael Mayo - Credit Agricole Securities (USA) Inc.

Richard Bove - Punk Ziegel

Roger Freeman - Barclays Capital



Good morning, my name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] Mr. Holmes, you may begin your conference.

Dane Holmes

Good morning, this is Dane Holmes, Director of Investor Relations at Goldman Sachs. Welcome to our fourth quarter earnings conference call. Today's call may include forward-looking statements. These statements represent the firm's belief regarding future events that by their nature are uncertain and outside of the firm's control. The firm's actual results and financial conditions may differ, possibly materially, from what is indicated in these forward-looking statements.

For a discussion of some of the risks and factors that could affect the firm's future results, please see the description of risk factors in our current annual report on Form 10-K for our fiscal year ended December 2009. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to our Investment Banking, transaction backlog, capital ratios, risk-weighted assets and Global Core Excess. And you should also read the information on the calculation of non-GAAP financial measures that is posted on the Investor Relations portion of our website at This audio cast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent.

Our Chief Financial Officer, David Viniar, will now review the firm's results. David?

David Viniar

Thanks, Dane. I'd like to thank all of you for listening today. I'll give an overview of our fourth quarter full year results, and then take your questions. My remarks today will be focused on our new segment disclosure that was discussed in our Business Standards Committee report. The Business Standards Committee evaluated the firm's public financial disclosures with the objective of improving our standards of transparency and disclosure by more clearly explaining business activities and performance, and how that relates to serving our clients. The committee recommended changing the firm's three previous business segment into the following four business segments: Investment Banking, Institutional Client Services, Investing and Lending and Investment Management. The composition of the new four segments is described in greater detail in our 8-K dated January 11, 2011.

Full year and net revenues for 2010 was $39.2 billion. Net earnings were $8.4 billion, and earnings per diluted share were $13.18. These results generated an adjusted return of common equity of 13.1%, which is our reported return of common equity excluding the U.K. bank payroll tax, the SEC settlement and the impairment of our New York Stock Exchange Designated Market Maker rights. If these items are included, our return on common equity for 2010 was 11.5%. Over the past year, book value per share was up 10% to $128.72.

The fourth quarter net revenues were $8.6 billion. Net earnings were $2.4 billion and earnings per diluted share were $3.79. During 2010, market participants were faced with a series of broad macroeconomic concerns. European sovereign risk came under heightened scrutiny periodically during the year. Investors have also been intensely focused on the U.S. mortgage market regarding procedural concerns, associated with home foreclosures and the potential for mortgage put back risks.

Throughout the year, global financial regulation continue to be a concern, specifically, the implications of the Dodd-Frank Act and Basel III. Finally, the trajectory of the global economy was heavily debated, and there were growing fears about the potential for inflation in growth markets. The ultimate consequences of these concerns lead to greater risk conversions, a deterioration and conviction among institutional investors and thus, a steady decline in client activity.

This reduction of client activity occurred across a broad set of businesses within Investment Banking and FICC and equities client execution. Despite the difficult economic backdrop and lower levels of client business, the firm produced a solid 13% adjusted return on common equity, which is a testament to the strength and breadth of our client franchise and the commitment of our people.

I'll now review each of our businesses. Investment Banking produced fourth quarter net revenues of $1.5 billion, up 30% in the third quarter due to significant increases in Financial Advisory and Equity Underwriting revenues. For the full year, Investment Banking net revenues were $4.8 billion, down 3% from 2009, with a 9% improvement in Financial Advisory, partially mitigating an 11% decline in Underwriting.

Within Investment Banking, fourth quarter Advisory revenues were $628 million, up 26% from the third quarter. Goldman Sachs ranked first in worldwide announcement, completed M&A globally for calendar 2010. We advice a number of important transactions to close in the fourth quarter, including for Brookfield Asset Management, which led to $24 billion restructuring of general growth properties, E.On's $7.6 billion sales to PPL Corporation, and United Airlines $6.5 billion merger with Continental Airlines. We're also adviser on a number of significant announced transactions including NSTAR's $17.5 billion merger vehicles with Northeast Utilities, Earl Collies [ph] $9.6 billion acquisition of Silvenate [ph] and Toronto Dominion Bank, $6.3 billion acquisition of Chrysler Financial.

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