After a pro forma run through of the relatively weak quarter and year, David Viniar dominated airtime on the call, as usual.Here are some of the key takeaways, paraphrasing and summarizing Viniar’s comments:
On client activity levels in 2012: given the number of “macro uncertainties, clients in wait and see mode” but Goldman is starting to see more strategic assets sales. Looking forward to 2012, Viniar “[wishes he] had a crystal ball..lots of macro headwinds…but a lot of the US economic data has been better” recently.
On funding costs: Viniar noted that the firm had “been paying higher rates for years” given its focus on long-term funding compared to short-term and that he didn’t expect this to change.
Views on the EU: Recent measures make him feel a “tiny bit better” but there are still many uncertainties.
EU exposures: continue to be quite low; on a gross funded basis (gross exposure less treasuries and cash held at Goldman) is $3.9 billion; net exposure (gross exposure less treasuries and cash held at Goldman and less CDS not with counterparties in the same country as the asset) is $3.3 billion.
On severance costs: Were “around $250 million, $50 million in last quarter.” The wave of departures towards the end of the year did not cause this number to rise significantly.
Layoffs: Have been “across the board, across the pyramid” of the firm
Basel III and internal funding practices: “How we are charging the desks is still a complicated question. Basel III doesn’t start for a long time and a lot of what we do is short term.” As a result, we are “taking into account tenor of what we do. The key is to balance that “don’t want desks to pass on profitable transactions” but need to continue to adjust and prepare businesses for Basel III
How to expand ROE: Ways 1-10 to expand ROE is “top line growth…ROE largely driven by growing revenues.” Viniar later said he wouldn’t set an ROE target until he knows the extent of “[changes] in capital requirements and opportunity sets” that are available to the firm.
Growth markets: The “most important thing to us is growth in GDP in the growth markets”
Management changes: part of the “normal progression at Goldman Sachs…people have been very loyal through a financial crisis and reputational issues” and the average tenure of a partner grew to 8 years.
On the recent retirements of David Heller and Edward Eisler: They are “fantastic people…as good as any two in the industry. But we have people as good as them behind them.”
Deal backlog: “Filed IPO’s are at highest levels ever, [we’re] just waiting for markets to accept them”
defence of Goldman’s role as a market-maker: The “market making function we perform is very valuable function for our clients. The ability to do that directly [by clients and and bypass Goldman’s traders’] will be very difficult.”
Revenue mix for banking/trading: “The trend will be a shift towards a little less than 50% inside the US and a little more outside the US.”trend more towards a little lss than 50 inside us and a little more outside