Goldman Sachs : Reports Third Quarter Earnings Per Common Share of $4.57 and Increases the Quarterly Dividend to $0.60 Per Common Share

The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $8.39 billion and net earnings of $2.24 billion for the third quarter ended September 30, 2014. Diluted earnings per common share were $4.57 compared with $2.88 for the third quarter of 2013 and $4.10 for the second quarter of 2014. Annualized return on average common shareholders’ equity (ROE) ⁽¹⁾ was 11.8% for the third quarter of 2014 and 11.2% for the first nine months of 2014.

Highlights

• Goldman Sachs continued its leadership in investment banking, ranking first in worldwide announced and completed mergers and acquisitions for the year-to-date. ⁽²⁾ The firm also ranked first in worldwide equity and equity-related offerings and common stock offerings for the year-to-date. ⁽²⁾
• Assets under supervision increased to a record $1.15 trillion, with net inflows during the quarter of $20 billion, including $13 billion in long-term assets under supervision.
• Book value per common share and tangible book value per common share ⁽³⁾ both increased approximately 2% during the quarter to $161.38 and $151.70, respectively.
• The firm continues to manage its liquidity and capital conservatively. The firm’s global core excess liquidity ⁽⁴⁾ was $180 billion ⁽⁵⁾ as of September 30, 2014. In addition, the firm’s Common Equity Tier 1 ratio ⁽⁶⁾ was 11.8% ⁽⁵⁾ as of September 30, 2014, under the Basel III Advanced approach.
• On October 15, 2014, the firm increased its quarterly dividend to $0.60 per common share.

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“The combination of improving economic conditions in the U.S. and a strong global franchise continued to drive client activity across our diverse set of businesses,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “While conditions and sentiment can shift quickly, the strength of our transaction backlog indicates our clients’ desire to pursue and execute their strategic plans for growth.”

Net Revenues

Investment Banking

Net revenues in Investment Banking were $1.46 billion for the third quarter of 2014, 26% higher than the third quarter of 2013 and 18% lower than the second quarter of 2014. Net revenues in Financial Advisory were $594 million, 40% higher than the third quarter of 2013, reflecting an increase in industry-wide completed mergers and acquisitions. Net revenues in Underwriting were $870 million, 17% higher than the third quarter of 2013, due to significantly higher net revenues in equity underwriting, principally from initial public offerings. This increase was partially offset by slightly lower net revenues in debt underwriting. The firm’s investment banking transaction backlog increased compared with the end of the second quarter of 2014 and increased significantly compared with the end of 2013. ⁽⁷⁾

Institutional Client Services

Net revenues in Institutional Client Services were $3.77 billion for the third quarter of 2014, 32% higher than the third quarter of 2013 and 2% lower than the second quarter of 2014.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $2.17 billion, including a gain of $157 million related to the extinguishment of certain of the firm’s junior subordinated debt, and were 74% higher than a challenging third quarter of 2013. Excluding this gain, the increase in net revenues in Fixed Income, Currency and Commodities Client Execution was due to significantly higher net revenues in currencies, as well as in commodities, interest rate products and mortgages, partially offset by significantly lower net revenues in credit products. During the quarter, Fixed Income, Currency and Commodities Client Execution continued to operate in an environment characterized by generally low levels of activity, although during the latter part of the quarter, market-making conditions were generally more favorable.

Net revenues in Equities were $1.60 billion, including a gain of $113 million related to the extinguishment of certain of the firm’s junior subordinated debt ($28 million and $85 million included in equities client execution and securities services, respectively), and were essentially unchanged compared with the third quarter of 2013. Excluding this gain, net revenues in equities client execution were lower, reflecting a decrease in cash products, and securities services net revenues were essentially unchanged. Commissions and fees were slightly higher compared with the third quarter of 2013. During the quarter, Equities operated in an environment characterized by continued low volatility levels and generally lower market volumes in the United States and Europe compared with the second quarter of 2014.

The net gain attributable to the impact of changes in the firm’s own credit spreads on borrowings for which the fair value option was elected was $66 million ($37 million and $29 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the third quarter of 2014, compared with a net loss of $72 million ($47 million and $25 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the third quarter of 2013.

Investing & Lending

Net revenues in Investing & Lending were $1.69 billion for the third quarter of 2014, 15% higher than the third quarter of 2013 and 18% lower than the second quarter of 2014. Results for the third quarter of 2014 included net gains of $876 million from investments in equities, primarily reflecting net gains from company-specific events in private equities and net gains in public equities. In addition, Investing & Lending net revenues included net gains and net interest income of $606 million from debt securities and loans, and other net revenues of $210 million related to the firm’s consolidated investments.

Investment Management

Net revenues in Investment Management were $1.46 billion for the third quarter of 2014, 20% higher than the third quarter of 2013 and essentially unchanged compared with the second quarter of 2014. The increase in net revenues compared with the third quarter of 2013 was primarily due to higher management and other fees, reflecting higher average assets under supervision. In addition, incentive fees and transaction revenues were higher. During the quarter, total assets under supervision ⁽⁸⁾ increased $8 billion to $1.15 trillion. Long-term assets under supervision ⁽⁸⁾ increased $1 billion, including net inflows of $13 billion, largely offset by net market depreciation of $12 billion, both primarily in equity and fixed income assets. In addition, liquidity products ⁽⁸⁾ increased $7 billion.

Expenses

Operating expenses were $5.08 billion, 12% higher than the third quarter of 2013 and 19% lower than the second quarter of 2014.

Compensation and Benefits

The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $2.80 billion for the third quarter of 2014, 18% higher than the third quarter of 2013, reflecting an increase in net revenues. The ratio of compensation and benefits to net revenues for the first nine months of 2014 was 40.0%, compared with 43.0% for the first half of 2014 and 41.0% for the first nine months of 2013. Total staff increased 3% during the third quarter of 2014.

Non-Compensation Expenses

Non-compensation expenses were $2.28 billion, 5% higher than the third quarter of 2013 and 4% lower than the second quarter of 2014. The increase compared with the third quarter of 2013 primarily reflected higher brokerage, clearing, exchange and distribution fees, an increase in depreciation and amortization expenses due to higher impairment charges, and an increase in other expenses reflecting higher net provisions for litigation and regulatory proceedings.

Net provisions for litigation and regulatory proceedings for the third quarter of 2014 were $194 million compared with $142 million for the third quarter of 2013.

Provision for Taxes

The effective income tax rate for the first nine months of 2014 was 31.0%, up from 30.3% for the first half of 2014, primarily due to a decrease in the impact of permanent benefits.

Capital

As of September 30, 2014, total capital was $247.58 billion, consisting of $82.28 billion in total shareholders’ equity (common shareholders’ equity of $73.08 billion and preferred stock of $9.20 billion) and $165.30 billion in unsecured long-term borrowings. Book value per common share was $161.38 and tangible book value per common share ⁽³⁾ was $151.70, both approximately 2% higher compared with the end of the second quarter of 2014. Book value per common share and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 452.8 million as of September 30, 2014.

On October 15, 2014, the Board of Directors of The Goldman Sachs Group, Inc. increased the firm’s quarterly dividend to $0.60 per common share from $0.55 per common share. The dividend will be paid on December 30, 2014 to common shareholders of record on December 2, 2014.

During the quarter, the firm repurchased 7.1 million shares of its common stock at an average cost per share of $176.00, for a total cost of $1.25 billion. The remaining share authorization under the firm’s existing repurchase program is 32.0 million shares. ⁽⁹⁾

The firm’s Common Equity Tier 1 ratio ⁽⁶⁾ was 11.8% ⁽⁵⁾ as of September 30, 2014, up from 11.4% as of June 30, 2014, in each case under the Basel III Advanced approach reflecting the applicable transitional provisions.

Other Balance Sheet and Liquidity Metrics

• Total assets were $869 billion ⁽⁵⁾ as of September 30, 2014, compared with $860 billion as of June 30, 2014.
• The firm’s global core excess liquidity (GCE) ⁽⁴⁾ was $180 billion ⁽⁵⁾ as of September 30, 2014 and averaged $183 billion ⁽⁵⁾ for the third quarter of 2014, compared with an average of $173 billion for the second quarter of 2014.
• Level 3 assets were $41 billion ⁽⁵⁾ as of September 30, 2014, compared with $40 billion as of June 30, 2014, and represented 4.7% of total assets.

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The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

Cautionary Note Regarding Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the year ended December 31, 2013.

Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets, level 3 assets and global core excess liquidity consist of preliminary estimates. These estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its financial statements.

Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the year ended December 31, 2013.

Conference Call

A conference call to discuss the firm’s results, outlook and related matters will be held at 9:30 am (ET). The call will be open to the public. Members of the public who would like to listen to the conference call should dial 1-888-281-7154 (in the U.S.) or 1-706-679-5627 (outside the U.S.). The number should be dialed at least 10 minutes prior to the start of the conference call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the firm’s web site, www.goldmansachs.com/investor-relations. There is no charge to access the call. For those unable to listen to the live broadcast, a replay will be available on the firm’s web site or by dialing 1-855-859-2056 (in the U.S.) or 1-404-537-3406 (outside the U.S.) passcode number 22368541 beginning approximately three hours after the event. Please direct any questions regarding obtaining access to the conference call to Goldman Sachs Investor Relations, via e-mail, at gs-investor-relations@gs.com.

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Footnotes