Goldman Sachs Discusses Its Blowout Quarter

7:02 Risk factors….

7:03 CFO David Viniar giving overview… “Pleased to report solid Q1 results for Goldman Sachs”

Weak environment continued during December. For that month, net revenues were just $183 million.

“Although the market also had its challenges during the first quarter, the results demonstrate resiliency of the franchise.”

Generated an annualized ROE of 14.3%

7:06 Viniar: Quarter also benefitted from change in landscape (competitors going out of business).

7:08 Viniar: After stress test, goal is to redeem all of the TARP capital. “We never believed the investment of taxpayer funds was intended to be permanent.

Now running through the various businesses

7:10 Record FICC revenue was due to lower competition, higher net margins and higher volatility. Mortgage results improved sequentially, but commercial real estate weakened, losing $800 million.

7:13 Expenses: Total $4.7 billion, about 50% of net revenue (in line with historical pattern). Headcount of 28,000 down 7%.

7:14 “Our competitive position has improved significantly over recent years” But, company is still cautious given the global economy.

Q&A Time:

Q: Does decline in illiquid assets mean FICC gains weren’t due to reversal of marks?

A: Yes, gains were NOT due to any reversal of marks.

Q: The AIG question. Were the results due to AIG?

A: Virtually all of those cashflows — and they were just cashflows having nothing to do with P&L — took place last year. P&L related to AIG for Q1 was $0

Q: Why didn’t book value increase more?

A: It’s complicated… Has something to do with compensation. Rather technical.

Q: Sustainability of FICC revenue?

A: Would never use revenue and sustainability in the same sentence. But revenue was very widespread. We had the benefit of higher spread/less competition, we also had lower volumes.

Q: Was March more challenging, like it was for the other banks?

A: Revenues across FICC was pretty consistent throughout the quarter.

Q: Meredith Whitney: “Too early this morning!, I’m back on caffeine… how do you size the larger business when you look at the compositino of the revenues.”

A: “One of the things about our business, and one of the advantages is the breadth and diversity of our revenues.” We don’t expect all businesses to do well at all times. The recession-sensitive business (underwriting, M&A) were operating in a more difficult businesses. On the other hand, results that aren’t directional or related to volume, like FICC, performed extremely well. As we sit here today, we think we have our busines sized correctly.

Q: Whitney: Did your lending commitments come down during the quarter?

A: There were not a lot of lending commitments during the quarter. Corporate volumes were lower, but there were some…. Our economists have grown more optimistic about the second half of the year.

Q: TARP return timing?

A: As soon as possible after the stress test results at the end of the month

Q: New secondary private equity fund?

A: Pretty much entirely client money. Most of the money had already been raised.

Q: Where do you see opportunities?

A: We continue to see opportunities in the very, very liquid products. Also a lot of very good distressed asset opportunities. So far, there haven’t been a lot of good opportunities because sellers and buyers prices haven’t yet come in line. We expect that margin to shrink in the coming months. Certainly, we think over the medium-to-long-term there are good opportunities in the BRIC countries.

Q: What will get M&A and equity markets going again?

A: Over the last several weeks, you’ve already seeing a pretty big pickup in M&A and capital markets activities. There will be two IPOs this week. And in the first quarter there was a pickup in investment grade offerings. If the markets hold, you’ll see a pretty big pickup in equity activity.

Merger business won’t pickup until there’s a return in economic confidence.

Final Q: What does it mean once you’re no longer a TARP recipient? Can you till participate in FDIC program?

A: As far as we know, they’re not tied together. There are participants in FDIC program who do not have TARP capital. We’d like to issue unguaranteed debt, but in the meantime we still have capacity under the FDIC program.

Call done…

Original post: Starting a 7:00 we’ll be liveblogging Goldman Sachs (GS) Q1 conference call. Last night, the company reported blowout numbers, largely due to strength in its fixed incomde, commodities and currency unit.

See here for a recap of the numbers.

Among the topics we hope to learn more about: How much of the huge quarter was courtesy of AIG (the taxpayer) and how much of it was the result of a sustainable improvement in the underlying business.

Refresh the page for the latest updates.


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