Overview of Goldman Sachs. January 2016

Transcription

1 Overview of Goldman Sachs January 2016

2 Cautionary Note on Forward-Looking Statements This presentation may include forward-looking statements. These 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 our Annual Report on Form 10-K for the year ended December 31, You should also read the forward-looking disclaimers in our Form 10-Q for the period ended September 30, 2015, particularly as it relates to capital and leverage ratios, and information on the calculation of non-gaap financial measures that is posted on the Investor Relations portion of our website: See the appendix for more information about non-gaap financial measures in this presentation. Certain of the information regarding the Firm s capital ratios, risk-weighted assets, supplementary leverage ratio, total assets, level 3 assets and global core liquid assets consist of preliminary estimates. These estimates are forward-looking statements and are subject to change, possible materially, as the Firm completes its financial statements. Certain previously reported amounts have been conformed to the current presentation. See our Form 10-Q for the period ended September 30, 2015 for further information. Except as may be indicated on a particular slide, the statements in the presentation are current only as of its date January 20,

3 Key Credit Strengths Well-Positioned with respect to Regulatory Capital Ratios The firm is well-positioned for capital requirements with 4Q15 Common Equity Tier 1 (CET1) ratios of 13.6% and 12.4% under the Standardized and Advanced approaches, respectively, reflecting the applicable transitional provisions Our gross leverage is 9.9x as of 4Q15 In addition, 97% of our balance sheet is marked to market or carried at amounts that approximate fair value as of 3Q15, which means our equity reflects market value We have in place a comprehensive and conservative set of liquidity and funding policies that allows us to maintain significant flexibility to address both GS-specific and broader industry or market liquidity events Our two major liquidity and funding policies are based on the core tenets of: Best in Class Liquidity Risk Management Substantial liquidity refers to having enough cash or highly liquid instruments on hand to meet contractual, contingent and intraday outflows in a stressed environment Asset-liability management refers to having a liability profile that has sufficient term and diversification based upon the liquidity profile of our assets The Basel III liquidity requirements are broadly consistent with how GS manages liquidity risk and, under the rules approved by the U.S. federal bank regulatory agencies, we believe we are well-positioned for the Liquidity Coverage Ratio A substantial portion of our balance sheet is highly liquid and we maintain significant levels of liquidity. We call this pool of liquidity Global Core Liquid Assets or GCLA Global Core Liquid Assets GCLA ended 4Q15 at $199 billion, reflecting about 23% of our period-end balance sheet GCLA is comprised of cash, high quality and narrowly defined unencumbered assets, including U.S. Treasuries and German, French, Japanese and United Kingdom government obligations GCLA is sized well in excess of our near-term contractual and contingent outflows As a Bank Holding Company, access to the Fed as the lender of last resort provides additional liquidity protection, although we do not rely on this funding in our liquidity planning and stress testing 2

4 Key Credit Strengths (cont d) Conservative Asset-Liability Management Our principal objective is to fund our balance sheet and run the firm with the ability to weather stressed market conditions without dependence on government support Balance sheet comprised of highly liquid assets Greater than 90% 1 of the balance sheet was comprised of more liquid assets (e.g., cash, reverses/borrows, U.S. government/agency and other financial instruments) as of 3Q15 Businesses subject to conservative balance sheet limits that are reviewed regularly and monitored daily Liability term structure we seek to have long-dated liabilities to reduce our refinancing risk Weighted Average Maturity (WAM) of approximately 9 years as of 3Q15 for long-term unsecured borrowings WAM >120 days for secured funding as of 3Q15 (excluding funding collateralized by highly liquid securities that are eligible for inclusion in our GCLA) We maintain broad and diversified funding sources globally Counterparties well distributed throughout the U.S., Europe and Asia The balance sheet stands at $861 billion as of 4Q15, down $20 billion vs. 3Q15 and down 23% vs. 4Q07 Strong Asset Quality Diversified Global Business with Profitable Track Record Our asset quality has substantially improved since 4Q07 as our balance sheet reductions targeted less liquid, legacy exposures such as Level 3 assets Level 3 assets 2 are down by more than 50% since 4Q07 to $24 billion and represent 2.8% of our balance sheet as of 4Q15 From , net revenues have grown at a compound annual growth rate of approximately 6% Average annual ROE from of approximately 17% Our diversified business model allows us to outperform through cycles Although our FICC and Equities Client Execution businesses averaged 40% of net revenues from 2009 through 2015, this encompasses various products, markets, and regions designed to serve our global client base, which includes corporations, financial institutions and governments 1 Excludes sum of Level 3, Other Assets and investments in funds at NAV 2 4Q07 Level 3 Assets included investments in funds held at NAV, 4Q15 excludes these funds 3

5 Goldman Sachs Credit Profile Credit Ratings as of January 20, 2016 S&P Moody's Fitch GS Group Inc. Short-term debt A-2 P-2 F1 Long-term debt BBB+ A3 A Subordinated debt BBB- Baa2 A- Preferred stock BB Ba1 BB+ Outlook Stable Stable Stable GS&Co. Short-term debt A-1 N/A F1 Long-term debt A N/A A+ Outlook Watch Positive N/A Stable Goldman Sachs International Short-term debt A-1 P-1 F1 Long-term debt A A1 A Outlook Watch Positive Stable Positive Goldman Sachs Bank USA Short-term debt A-1 P-1 F1 Long-term debt A A1 A+ Short-term deposit N/A P-1 F1+ Long-term deposit N/A A1 AA- Outlook Watch Positive Stable Stable Goldman Sachs International Bank Short-term debt A-1 P-1 F1 Long-term debt A A1 A Short-term deposit N/A P-1 F1 Long-term deposit N/A A1 A Outlook Watch Positive Stable Positive 4

6 Diversified Net Revenue Mix Diversified by Business Average Diversified by Geography Average Investing & Lending 15% Investment Banking 16% Asia 16% Investment Management 15% FICC Client Execution 31% EMEA 26% Americas 58% Securities Services 5% Commissions and Fees 9% Equities Client Execution 9% Our goal is to continue to have leading, diverse franchise businesses 5

7 Financial Performance Net Revenues ($bn) 1 Net Earnings ($bn) & ROE (%) 1 $46.0 $ % 32.7% $37.7 $39.2 $34.2 $34.2 $34.5 $33.8 $11.6 $13.4 $25.2 $22.2 $ % $ % $8.4 $7.5 $8.0 $8.5 $ % $ % $ % 11.0% 7.4% $ % 3.7% Net Earnings ROE 1 In connection with becoming a bank holding company, the firm was required to change its fiscal year-end from November to December. This change in the firm s fiscal year-end resulted in a one-month transition period. For the one-month ended December 2008, we reported net revenues of $183 million and a net loss of $780 million 6

8 Our Risk Philosophy Corporate and Senior Management Oversight Board of Directors and Board Committees Senior Management (Chairman & CEO, President & COO, CFO) Independent Control and Support Functions Internal Audit Management Committee Firmwide Risk Committee (Securities Division Risk, Investment Banking Division Risk, Credit Policy, Operational Risk, Finance, Technology Risk, Investment Policy, Model Risk Control, Global Business Resilience, and Volcker Oversight) Firmwide Client & Business Standards Committee (New Activity / Suitability / Reputational Risk) Firmwide Capital & Commitments Committees Revenue- Producing Units Senior management awareness of nature and amount of risk incurred Independence of process from the business Fair value accounting is a critical risk mitigant and is supported by a robust price verification process Minimize losses and manage risk through: Active management Risk mitigation, where possible using collateral Diversification Return hurdles matched to underlying risks Overall risk tolerance established by assessment of opportunity relative to potential loss Qualitative and quantitative analysis, but not a specific formulaic link Variety of approaches used to monitor risk exposures Effective risk systems, which are thorough, timely and flexible While we manage risk conservatively, we are in a risktaking business and will incur losses 7

9 Managing Our Risk 4Q07 4Q15 Balance Sheet $1,120bn -23% $861bn Common Equity $40bn 1.9x $76bn Gross Leverage 26.2x -62% 9.9x GCLA 1 $61bn 3.3x $199bn Level 3 Assets 2 Down by more than 50% since 4Q07 1 Prior to 4Q09, GCLA reflects loan value and subsequent periods reflect fair value 2 4Q07 Level 3 Assets included investments in funds held at NAV, 4Q15 excludes these funds 8

10 Balance Sheet Overview Highly liquid balance sheet with 97% of our assets marked to market or carried at amounts that approximate fair value as of 3Q15 As of 3Q15, greater than 90% 1 of the balance sheet was comprised of more liquid assets (e.g., cash, reverses/borrows, U.S. government/agency and other financial instruments) Businesses are subject to conservative balance sheet limits that are reviewed regularly and monitored daily, including aged inventory limits 3Q15 Balance Sheet Allocation Balance Sheet Reduction: 2013 to 3Q15 ($bn) Investing & Lending 10% Other Assets 3% GCLA and Cash 23% $911 $22 $61 $375-3% $856 $881 $22 $25 $79 $91 $353 $327 Institutional Client Services 37% Secured Client Financing 27% $263-10% $211 $236 $190 $191 $ Q15 GCLA and Cash Secured Client Financing Institutional Client Services Investing & Lending Other Assets 1 Excludes sum of Level 3, Other Assets and investments in funds at NAV 9

11 Capital Update Shareholders Equity ($bn) Gross Leverage +15% $ x -20% $75.7 $11.2 $ x $69.5 $75.5 4Q12 4Q15 4Q12 4Q15 Common Equity Preferred Stock Structurally higher capital levels We continue to manage our balance sheet to provide a solid financial foundation as well as meet client needs and regulatory requirements. Our equity base has meaningfully expanded and leverage has decreased to record lows Taking a longer-term perspective, since 4Q07 we have seen significant strengthening of our capital base with common equity up 1.9x, while our gross leverage ratio has fallen by 62% Capital growth coupled with active balance sheet management leaves us well-positioned for capital requirements 10

12 Capital Update 4Q15 Transitional CET1 Ratios 1 4Q15 Standardized RWAs ($524bn) 1 4Q15 Advanced RWAs ($578bn) % 12.4% 10.0% 3.0% 3.0% 7.0% 7.0% Fed estimated G-SIB Surcharge 2 Fully Phased-in Regulatory Minimum Market Risk 20% Credit Risk 80% Operational Risk 23% Market Risk 18% Credit Risk 59% Standardized Advanced Supplementary Leverage Ratio (SLR) 3 Firm Bank 6.9% 5.9% 5.6% 4.2% Under the Standardized approach, our CET1 ratio as of 4Q15 was 13.6% on a transitional basis and 12.9% on a fully phased-in basis Under the Advanced approach, our CET1 ratio as of 4Q15 was 12.4% on a transitional basis and 11.7% on a fully phased-in basis Our fully phased-in SLR at the HoldCo of 5.9% as of 4Q15 and at GS Bank USA of 6.9% as of 3Q15 are compliant with the 2018 minimums 1Q14 4Q15 1Q14 3Q15 1 Calculated on a transitional basis based on the Federal Reserve Board s final rules 2 Based on the Federal Reserve Board s G-SIB final rule issued on 7/20/2015. The surcharge will be updated annually and may differ when the rule becomes effective 3 1Q14 SLR reflects our best estimate based on the U.S. federal bank regulatory agencies April 2014 proposal; 3Q15 and 4Q15 SLR based on the U.S. federal bank regulatory agencies final rule 11

13 Conservative and Comprehensive Liquidity Risk Management Substantial Liquidity Asset-Liability Management Our most important liquidity policy is to pre-fund estimated potential liquidity needs in a stressed environment Our GCLA consists of cash and highly-liquid government and agency securities that would be readily convertible to cash in a matter of days GCLA size is based on: Modeled assessment of the firm s liquidity risks, including contractual, behavioral and market-driven outflows and intraday demands Applicable regulatory requirements Qualitative assessment of the conditions of the financial markets and the firm Conservative asset and liability management to ensure stability of financing Focus on size and composition of assets to determine appropriate funding strategy Secured and unsecured financing sufficiently long-term relative to the liquidity profile of our assets in order to withstand a stressed environment without relying on asset sales Consistently manage overall characteristics of liabilities, including term, diversification and excess capacity Rigorous and conservative stress tests underpin our liquidity and asset-liability management frameworks 12

14 Liquidity Update We maintain substantial liquidity 3Q15 Average GCLA by Entity GCLA reflects about 23% of our balance sheet as of 4Q15 In 3Q15, approximately 75% of our average liquidity pool was made up of U.S. government obligations, overnight cash deposits (which are mainly at the Federal Reserve) and U.S. federal agency obligations, with the balance in high quality non-u.s. government obligations Our GCLA is held at our parent company and each of our major broker-dealer and bank subsidiaries to ensure that liquidity is available to meet entity liquidity requirements GS Group 26% Major Bank Subsidiaries 29% Major Broker- Dealer Subsidiaries 45% We continually enhance the models that drive the size of our GCLA Our Modeled Liquidity Outflow reflects potential contractual and contingent outflows of cash or collateral Average GCLA Trend ($bn) $183 $180 $ x since Our Intraday Liquidity Model provides an assessment of potential intraday liquidity needs Currently exceed the fully phased-in 100% LCR requirement 1 Prior to 4Q09, GCLA reflects loan value and subsequent periods reflect fair value 13

15 Asset-Liability Management We actively manage and monitor our asset base, with particular focus on liquidity and potential holding period Through our dynamic balance sheet management process, we use actual and projected asset balances to determine our funding requirements We conservatively manage the overall characteristics of our funding book, with a focus on maintaining long-term, diversified sources of financing with tenors appropriate for the anticipated holding period of our assets Our plans are reviewed and approved by the Firmwide Finance Committee as well as senior managers in our independent control and support functions As of 3Q15 % of Total Assets Equity and Long-term Debt Principal Sources of Funding Deposits GCLA and Cash 23% Secured Funding Financial Instruments Sold Secured Client Financing Institutional Client Services 27% 37% Investing & Lending 10% Other Assets 3% Total Assets $881bn 14

16 Diversification of Funding Sources As of 3Q15 Our secured funding book is diversified across: Counterparties Tenor Geography Term is dictated by the composition of our fundable assets with longer maturities executed for less liquid assets Collateralized Financings $118.2bn Deposits $91.5bn Shareholders' Equity $87.7bn Long-Term Unsecured Debt $175.8bn Shareholders equity is a significant, stable and perpetual source of funding Long-term unsecured debt is well diversified across the tenor spectrum, currency, investors and geography Weighted average maturity of long-term debt of ~9 years Deposits have become a larger source of funding We are focused on contractual term: 36% of our deposits are CDs (substantially all of which are brokered CDs) with a 3-year weighted average maturity Short-Term Unsecured Debt $41.3bn Short-term unsecured debt includes $24.7bn of the current portion of our long-term unsecured debt 15

17 Secured Funding Principles We manage our secured funding liquidity risk with: Extending initial trade tenors and managing maturities 1 Term Pre-rolling and negotiating tenor extensions with clients Longer tenors targeted for less liquid assets 2 Diversity Raising secured funding from a diverse set of funding counterparties 3 Excess Capacity Raising excess secured funding to insure against rollover risk or growth in assets to finance 4 GCLA We raise excess unsecured funding and hold as GCLA to mitigate any 30-day modeled liquidity needs 5 Stress Tests Imposing stress test limits to ensure we do not have excessive liquidity risk even in a severe scenario Funding-at-Risk (FaR) uses various metrics over various time periods to evaluate the risks in the secured funding book Matched book (Cash gap) 16

18 Unsecured Funding We continue to emphasize term and diversification across currency, channel and instrument In 2015, we raised $29.3bn of long-term unsecured vanilla funding $27.3bn of long-term unsecured vanilla debt $18.0bn of fixed-rate notes, including $4.1bn of sub-debt $9.3bn of floating-rate notes $2.0bn of fixed-to-floating non-cumulative perpetual preferreds 27% of YTD issuance in non-usd currencies Issuance conducted across the tenor spectrum, with 2, 3, 5, 7, 8, 10, and 30-year maturities, and included several notes with non-round tenors to smooth our maturity profile Approximately 10 year weighted average initial maturity for 2015 issuances Approximately 9 year WAM for the entire unsecured LT debt portfolio as of 3Q15 GS Group Long-Term Vanilla Issuance vs. Maturities ($bn) Issuance ($29.3bn) by Currency $ Average Issuance / Maturities: 125% $24.5 $21.9 $17.4 $29.2 $29.3 $19.3 Scheduled Maturities $21.1 $19.5 $20.2 $21.8 EUR 25% AUD 1% JPY 1% USD 73% Vanilla Debt Issuance Preferred Equity Issuance Maturities 1 Maturity values for 2016, 2017, and 2018 are as of December 31,

19 Deposit Growth Deposits have become a more meaningful share of the Firm s funding In particular, GS Bank USA has raised deposits with an emphasis on long-term CDs, private bank deposits and long-term relationships with broker-dealer aggregators that sweep their client cash to an FDIC-insured deposit at GS Bank USA GS International Bank, our main deposit-taking entity in Europe, raises deposits in the form of fixed term and on-demand deposits 58% of our deposits are FDIC insured as of 3Q15 3Q15 Deposits: $91.5bn (12% of Liabilities) Deposit Growth Trends ($bn) Institutional 6% +29% $91.5 Deposit Sweep Program 18% Private Bank Deposits 40% $70.7 $82.9 Up 3.3x since 4Q08 Certificates of Deposit 36% Q15 US Deposits International Deposits 18

20 Market, Credit & Operational Risk Management Policies Exposures and policies reviewed regularly Multiple risk metrics used to monitor and manage exposures Extensive investment in Market, Credit and Operational Risk groups Frequent reporting to / communication with senior management Market Risk Credit Risk Operational Risk Risk Overview Risk of loss from changes in market conditions Risk of loss related to failure of counterparties to fulfill financial and contractual obligations Risk of loss resulting from a failure of internal processes, people and systems or from external events Management Allocate risk limits to business level and control position sizes Committee Oversight Firmwide Risk Committee reviews the activities of existing businesses, approves firmwide and business-level market risk limits Set and monitor current and potential counterparty credit exposure levels Firmwide Risk Committee reviews existing counterparty credit exposures and approves firmwide and business-level credit risk limits Set comprehensive risk policies, enforcing, monitoring and measuring performance through various benchmarks, and active participation Firmwide Operational Risk Committee provides oversight of operational risk policies, framework and methodologies, and monitors the effectiveness of operational risk management Controls & Active Management Market Risk Management & Analysis centrally manages market risk at the firm by producing risk measures and monitoring against market risk limits approved by risk committees Credit Risk Management & Advisory centrally manages and controls counterparty credit exposures through the establishment of limits and use of collateral and netting agreements Operational Risk Management & Analysis centrally manages implementation of the framework and business-level managers actively manage and monitor exposures to operational risks 19

21 Market Risk-Related Metrics ($ in millions) 10% Sensitivity Table Average Annual Daily VaR Asset Categories September 2015 June 2015 $218 $36 $36 Equity $2,090 $2,047 $134 $66 $33 Debt $1,433 $1,487 Total $3,523 $3,534 The size of the aggregate 10% sensitivity decreased by 33% from 4Q07 to 3Q15 $176 $113 $32 $32 $20 $68 $33 $93 $94 $86 $22 $14 $26 $78 $80 $19 $17 $32 $63 $72 $76 $21 $20 $19 $30 $26 $26 $51 $47 -$96 -$92 -$66 -$54 -$51 -$45 -$ Interest Rates Equity Prices Currency Rates Commodity Prices Diversification Effect 20

22 Appendix Non-GAAP Measures The fully phased-in Standardized and Basel III Advanced CET1 ratios are non-gaap measures and may not be comparable to similar non-gaap measures used by other companies. As of 1Q14, the supplementary leverage ratio was also a non-gaap measure as it was not a required regulatory disclosure at that time. We believe that these ratios are meaningful because they are measures that we, our regulators and investors use to assess our ability to meet future regulatory capital requirements. These ratios are based on our current interpretation, expectations and understanding of the Revised Capital Framework and may evolve as we discuss its interpretation and application with our regulators. For a further discussion of the methodology used to calculate the firm s regulatory ratios, see Note 20 to the condensed consolidated financial statements in Part I, Item 1 Financial Statements (Unaudited) and Equity Capital Management and Regulatory Capital in Part I, Item 2 Management s Discussion and Analysis of Financial Condition and Results of Operations in the firm s Quarterly Report on Form 10-Q for the period ended September 30,

23 Appendix Non-GAAP Measures, continued In addition to preparing our consolidated statements of financial condition in accordance with U.S. GAAP, we prepare a balance sheet that generally allocates assets to our businesses, which is a non-gaap presentation and may not be comparable to similar non-gaap presentations used by other companies. We believe that presenting our assets on this basis is meaningful because it is consistent with the way management views and manages risks associated with the firm s assets and better enables investors to assess the liquidity of the firm s assets. The table below presents the reconciliation of the balance sheet allocation to our businesses to our U.S. GAAP balance sheet as of September