The Goldman Sachs Group Management Discusses Q1 2012 Results - Earnings Call Transcript

The Goldman Sachs Group (GS)

Q1 2012 Earnings Call

April 17, 2012 9:30 am ET

Executives

Dane Holmes -

David A. Viniar - Chief Financial Officer, Executive Vice President and Co-Chairman of Finance Committee

Analysts

Guy Moszkowski - BofA Merrill Lynch, Research Division

Howard Chen - Crédit Suisse AG, Research Division

Glenn Schorr - Nomura Securities Co. Ltd., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Michael Carrier - Deutsche Bank AG, Research Division

Christoph M. Kotowski - Oppenheimer & Co. Inc., Research Division

Meredith Ann Whitney - Meredith Whitney Advisory Group LLC

Kian Abouhossein - JP Morgan Chase & Co, Research Division

Michael Mayo - Credit Agricole Securities (USA) Inc., Research Division

Betsy Graseck - Morgan Stanley, Research Division

Fiona Swaffield - RBC Capital Markets, LLC, Research Division

Matthew H. Burnell - Wells Fargo Securities, LLC, Research Division

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Brennan Hawken - UBS Investment Bank, Research Division

Edward R. Najarian - ISI Group Inc., Research Division

Presentation

Operator

Good morning, and my name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs' First Quarter 2012 Earnings Conference Call. [Operator Instructions] Also, this call is being recorded today, Tuesday, April 17, 2012. Thank you. 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 first 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 condition may differ, possibly materially, from what is indicated in those 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 2011.

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 access. 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 www.gs.com.

This audiocast 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 A. Viniar

Thanks, Dane. I'd like to thank all of you for listening today. I'll give an overview of our first quarter results and then take your questions.

I'm pleased to report solid first quarter results for the firm. Net revenues were nearly $10 billion and net earnings were $2.1 billion. Earnings per diluted share were $3.92 and our annualized return on common equity was 12.2%. For Goldman Sachs, our opportunity set begins with our clients. In the wake of the financial crisis, our clients faced a series of challenges that accelerated in 2011. For both corporate and investment clients, shifting and often conflicting economic data created uncertainty about the outlook for the global economy.

Evolving clarity was complicated by the degree of interdependence among different regional economies. As would be expected, these macroeconomic concerns were reflected in the global Capital Markets, as market participants became increasingly concerned about the economic environment, particularly related to the potential systemic risks presented in Europe. The situation was exacerbated by growing skepticism regarding the willingness of the global political infrastructure to address the economic risks confronting the system. These factors resulted in periods of unprecedented volatility asset values and bouts of prolonged illiquidity, often sparked by perception or conjecture rather than fundamental analysis or actual facts.

Ultimately, economic uncertainty, market volatility and systemic risk factors had a materially negative impact on market psychology in 2011. While macroeconomic challenges persist, there have been some positive developments over the last few months. At the end of December, the European Central Bank announced that it would enhance its long-term refinancing operation to provide term liquidity. By addressing potential funding risks, the ECB materially reduced the markets concern that a systemic event could emanate from a European financial institution. In addition, the market has seen steady progress in 2012 on resolving Greece's debt situation, providing greater comfort that there will be a difficult but organized approach to addressing sovereign issues within the euro area.

In response to these critical events, Capital Markets rallied significantly in the first quarter of 2012. Credit markets improved materially, experiencing tighter spreads, higher activity levels, increased new issuance and most importantly, improved market liquidity. Global equity markets also rallied during the first quarter, with the S&P 500 up 12%, the FTSE up 14.2% and the Hang Seng up 11.5%. Volatility was materially lower as demonstrated by the VIX declining by 1/3. While there were positive developments, announced M&A volumes remained light and equity volumes remain muted, reflecting the longer time required to improve CEO confidence and investor conviction.

Ultimately, the more favorable operating environment, combined with the strength of our diverse global client franchise to create an improved opportunity set for Goldman Sachs in the first quarter of 2012.

I'll now review each of our businesses. Investment Banking produced first quarter net revenues of $1.2 billion, up 35% from fourth quarter results. First quarter Advisory revenues were $489 million, up 4% from the fourth quarter. Goldman Sachs ranked first in worldwide announced M&A globally for the year-to-date. We advice on a number of important transactions that closed in the first quarter, including Hitachi Global Storage Technologies $4.8 billion sale to Western Digital Corporation, Temple-Inland's $4.3 billion sale to International Paper, and Transatlantic Holdings $3.4 billion sale to Allegheny.

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