Business Context and Reporting Period
The Goldman Sachs Group, Inc. is a global financial institution providing investment banking, market making and securities services, asset management, wealth management, consumer banking and lending. It reports four segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
This Form 10-K covers the fiscal year ended December 31, 2021, with comparisons to 2020 and 2019. The filing is an annual report rather than a standalone fourth-quarter filing; fourth-quarter information is disclosed where relevant.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenues | $59.34 billion | $44.56 billion | Up 33% |
| Pre-tax earnings | $27.04 billion | $12.48 billion | Up 117% |
| Net earnings | $21.64 billion | $9.46 billion | Up 129% |
| Net earnings to common | $21.15 billion | $8.92 billion | Up 137% |
| Diluted EPS | $59.45 | $24.74 | Up 140% |
| ROE | 23.0% | 11.1% | Up 11.9 percentage points |
| ROTE | 24.3% | 11.8% | Up 12.5 percentage points |
| Efficiency ratio | 53.8% | 65.0% | Improved |
| Provision for credit losses | $357 million | $3.10 billion | Down substantially |
| Operating expenses | $31.94 billion | $28.98 billion | Up 10% |
| Effective tax rate | 20.0% | 24.2% | Down 4.2 percentage points |
Revenue and Segment Performance
- Investment Banking net revenues were $14.88 billion, up 58%, driven by higher financial advisory and underwriting activity. Segment ROE was 64.8%, compared with 10.5% in 2020.
- Global Markets net revenues were $22.08 billion, up 4%. Equities revenues increased 20% to $11.49 billion, while FICC revenues declined 9% to $10.58 billion as volatility and client activity normalized from 2020 levels.
- Asset Management net revenues were $14.92 billion, up 87%, primarily due to substantially higher private-equity gains and lending and debt investment revenues. Segment ROE was 28.0%, compared with 8.5%.
- Consumer & Wealth Management net revenues were $7.47 billion, up 25%, reflecting higher wealth-management fees, loan balances, credit-card balances and deposits. Segment ROE was 4.0%, compared with 2.7%.
- Firmwide assets under supervision increased to $2.47 trillion from $2.15 trillion, supported by $228 billion of net inflows and $97 billion of market appreciation.
Cash Flow, Balance Sheet, Debt and Liquidity
- Cash and cash equivalents increased to $261.04 billion from $155.84 billion. Net cash provided by financing activities was $134.74 billion, while net cash used for investing activities was $30.47 billion and operating cash flow was $921 million.
- Total assets rose to $1.46 trillion from $1.16 trillion, principally due to higher collateralized agreements, cash, loans and customer receivables.
- Total shareholders’ equity increased to $109.93 billion from $95.93 billion. Book value per common share rose to $284.39 from $236.15; tangible book value per common share rose to $270.91 from $222.32.
- Deposits increased to $364.23 billion from $259.96 billion. Unsecured long-term borrowings increased to $254.09 billion from $213.48 billion, and total unsecured borrowings reached $301.05 billion.
- The firm issued approximately $60 billion of benchmark debt in 2021 and expected significantly lower benchmark issuance in 2022.
- Average global core liquid assets were $334.52 billion for 2021. Fourth-quarter average daily LCR was 122%, above the 100% minimum.
- At December 31, 2021, Standardized and Advanced CET1 ratios were 14.2% and 14.9%, respectively. The Standardized CET1 requirement was 13.4%. The Tier 1 leverage ratio was 7.3% and the SLR was 5.6%.
Material Changes Versus the Prior Comparable Period
- Results benefited from a strong global economic recovery, elevated mergers and acquisitions and underwriting volumes, higher equity markets, and improved credit conditions.
- Provision for credit losses fell sharply from $3.10 billion to $357 million as reserves were released following improvement in the economic outlook, partly offset by portfolio growth and approximately $185 million related to the planned General Motors co-branded credit-card portfolio acquisition.
- Net provisions for litigation and regulatory proceedings declined to $534 million from $3.42 billion, materially improving the efficiency ratio and earnings comparison.
- Compensation and benefits expense increased to $17.72 billion from $13.31 billion, reflecting strong performance. Headcount increased 8% to 43,900.
- Total loans increased to $162.14 billion from $119.99 billion, including growth in wealth-management loans, real estate loans and credit-card loans.
- Common-shareholder capital returned was $7.49 billion, including $5.20 billion of repurchases and $2.29 billion of common dividends. The fourth-quarter return was $1.20 billion.
- The firm acquired Goldman Sachs Bank Europe SE through GS Bank USA in July 2021 and announced acquisitions of NN Investment Partners and GreenSky.
Guidance, Outlook, Risks and Unusual Items
- Management expected the 2022 effective tax rate to be approximately 20% to 21%, excluding certain employee share-based award tax benefits and potential tax-rate changes.
- Medium-term targets announced in early 2022 were ROE of 14% to 16%, ROTE of 15% to 17%, an efficiency ratio of approximately 60%, and capital ratios maintained 50 to 100 basis points above regulatory requirements.
- Management targeted more than $10 billion of management and other fees in 2024, including more than $2 billion from alternative assets, and increased its alternative-investment gross-inflow target to $225 billion by the end of 2024.
- Key uncertainties include COVID-19 variants, inflation, supply-chain disruption, labor shortages, geopolitical risk, interest-rate changes, market volatility, declining asset values, weaker investment-banking activity, credit deterioration and reduced liquidity.
- LIBOR transition remains material. Approximately $10.0 trillion of USD LIBOR-based derivative notional remained at December 2021, with approximately $5.5 trillion maturing after June 2023. USD LIBOR exposure also affected approximately $34.5 billion of benchmark unsecured debt and preferred stock.
- The filing identifies extensive litigation, regulatory investigations and related contingencies. The estimated upper end of reasonably possible aggregate loss was approximately $2.0 billion in excess of reserves for matters where a range could be estimated.
- The firm guarantees that the Government of Malaysia will receive at least $1.4 billion in assets and proceeds related to 1MDB by August 18, 2025. Approximately $450 million had been returned as of the latest August 2021 report.
- A 100% weighting to the adverse economic scenario would have increased the allowance for credit losses by approximately $1.3 billion as of December 2021; this is a hypothetical sensitivity, not a forecast.
- The filing identifies cyber, operational, model, conduct, reputational, climate, regulatory and resolution risks. A one-notch credit-rating downgrade could have triggered approximately $345 million of additional collateral or termination payments, and a two-notch downgrade approximately $1.54 billion.
- Internal control over financial reporting was assessed as effective, and the independent auditor issued an unqualified opinion.
Most Important Facts for Investors to Verify
- Verify the sustainability of 2021 earnings, particularly the contribution from private-equity marks, investment-banking volumes, lower credit-loss provisions and reduced litigation expense.
- Monitor normalization in FICC and broader market-making activity as volatility, interest rates and liquidity conditions change.
- Review loan growth, credit-card vintages, non-investment-grade corporate exposure, commercial real estate exposure and allowance sensitivity under adverse economic scenarios.
- Confirm progress, purchase accounting and integration risks for the NN Investment Partners and GreenSky transactions, including the GreenSky loan commitments.
- Assess capital flexibility in light of higher standardized risk-weighted assets, the G-SIB surcharge, stress capital requirements and regulatory restrictions on subsidiary dividends.
- Track LIBOR remediation, fallback provisions and potential legal, operational, valuation and funding effects of benchmark-rate transition.
- Review the 1MDB asset-recovery guarantee, ongoing litigation and regulatory investigations, including communications-recordkeeping matters and securities-market antitrust cases.
- Evaluate liquidity availability at the parent company versus regulated subsidiaries, recognizing that legal and regulatory restrictions may limit transfers of funds to Group Inc.