Goldman Sachs Reports Second Quarter Earnings
Investment Banking and Equities Achieve Record Results
New York - The Goldman Sachs Group, Inc. (NYSE: GS) today reported net earnings of US$755 million, or US$1.48 per diluted share, for its fiscal second quarter ended May 26, 2000.
Earnings per diluted share were 14% above pro forma earnings per diluted share of US$1.30 for the same 1999 quarter, and 16% lower than record results of US$1.76 for the first quarter of 2000. Pro forma earnings for 1999 assume that the firm's incorporation and other related transactions had occurred at the beginning of 1999. Annualized return on average stockholders' equity was 30% for the first half of 2000 and 26% for the second quarter.
Core earnings per diluted share were US$1.54 for the second quarter compared to US$1.36 in the same 1999 pro forma period. Core earnings per diluted share exclude the amortization of the employee initial public offering awards and include all of the related restricted stock units issued in connection with the initial public offering in common shares outstanding.
- Investment Banking generated net revenues of US$1.59 billion, 22% above its best prior quarter, with both Financial Advisory and Underwriting achieving record results.
- Goldman Sachs maintained its dominant position in equity new issues, ranking first in both worldwide and U.S. initial public offerings and public stock offerings. (1)
- The firm advised clients on announced mergers and acquisitions valued at more than US$550 billion in the calendar year through May, and ranked first in both announced and completed U.S. transactions. (1)
- The firm's Equities trading business achieved net revenues of US$1.09 billion, 27% higher than the record first quarter of 2000.
- Goldman Sachs' Asset Management business continued its growth in net revenues, which increased 65% from the same 1999 period to a record US$354 million. Assets under management increased 34% from a year ago.
"Our second quarter performance again demonstrated the strength and breadth of the Goldman Sachs franchise. While the second quarter saw rising interest rates and volatile equity markets, we produced record revenues in many of our key businesses, including Investment Banking, Equities and Asset Management," said Henry M. Paulson, Jr., Chairman and Chief Executive Officer.
(1)Thomson Financial Securities Data - January 1, 2000 through May 26, 2000
Global Capital Markets
Net revenues in Global Capital Markets, which includes Investment Banking and Trading and Principal Investments, were US$2.99 billion, 10% above the second quarter of 1999 and 10% lower than the record first quarter of 2000.
Investment Banking generated net revenues of US$1.59 billion, a 59% increase from last year's second quarter and 29% above the prior quarter. Revenue growth was strong in all major regions, particularly in Europe.
Net revenues in the Financial Advisory business increased 40% over the same period in 1999, primarily due to increased mergers and acquisitions activity in the high technology, financial institutions, and energy and power sectors.
Underwriting net revenues increased 79% compared to the same 1999 period as the firm capitalized on strong equity new issue activity in the communications, media and entertainment and high technology sectors.
Trading and Principal Investments
Net revenues in Trading and Principal Investments were US$1.40 billion for the quarter, 19% lower than the second quarter of 1999 and 33% lower than the record first quarter of 2000.
FICC net revenues decreased 30% compared to a strong second quarter of 1999, as higher interest rates and widening credit spreads led to a slowdown in new issue transactions and general declines in secondary market activity across many fixed income products.
Net revenues in Equities rose by 76% over the same 1999 period as increased customer flow and higher levels of market volatility led to growth in most components of the business. Net revenue growth was particularly strong in equity derivatives and Pan-European shares compared to the same prior year period.
Principal Investments experienced negative net revenues of US$321 million as significant market declines in technology and telecommunications stocks led to a partial reversal of unrealized gains recorded primarily in the prior two quarters. These negative net revenues, when adjusted for the related reduction in compensation expense and taxes, lowered the firm's earnings per diluted share in the second quarter by US$0.19.
Asset Management and Securities Services
Asset Management and Securities Services net revenues were US$1.16 billion, 55% above the same prior year period, but essentially unchanged from the prior quarter.
Asset Management net revenues increased 65% over last year's second quarter, primarily reflecting a 34% increase in average assets under management as well as favorable changes in the composition of assets managed.
Securities Services net revenues were 45% higher than the same 1999 period, due to continued growth in the firm's prime brokerage business and increased customer balances in securities lending and margin lending.
Commissions increased 54% compared to the same period last year as transaction volumes in global equity markets rose to record levels.
Operating expenses were US$2.90 billion, up 20% from the same pro forma period in 1999, primarily reflecting increased compensation and benefits commensurate with higher net revenue levels. The ratio of compensation and benefits to net revenues was 50% for the second quarter of 2000. Non-compensation-related expenses rose 42% compared to the same pro forma period in 1999, primarily due to costs associated with higher employment levels, global expansion and growth in business activity. The firm's effective tax rate for the second quarter was 40%.
As of May 26, 2000, total capital was US$36.6 billion, consisting of US$11.9 billion in stockholders' equity and US$24.7 billion in long-term debt. Book value per share was US$24.60, based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 483,995,863 at period end. The firm repurchased 588,000 shares of its common stock during the quarter.
The Board of Directors of The Goldman Sachs Group, Inc. declared a dividend of US$0.12 per share to be paid on August 24, 2000, to voting and nonvoting common shareholders of record on July 24, 2000.
Goldman Sachs is a leading global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, it is one of the oldest and largest investment banking firms. The firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.
Cautionary Note Regarding Forward-Looking Statements
Statements in this press release may constitute "forward-looking statements." These forward-looking statements represent only the firm's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of its control. For a discussion of some of the risks and factors that could affect the firm's future results, see "Business - Certain Factors That May Affect Our Business" in the firm's Annual Report on Form 10-K for the fiscal year ended November 26, 1999. Form 10-K for the fiscal year ended November 26, 1999.
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