Goldman Sachs Group Inc. — 2020 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2020, with comparative information for 2019 and 2018. Goldman Sachs is a global financial institution operating through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The 2020 results reflect the COVID-19 pandemic, significant market volatility, monetary and fiscal support, Brexit implementation, and continued expansion of consumer and transaction banking.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenues | $44.56 billion | $36.55 billion | 22% increase |
| Pre-tax earnings | $12.48 billion | $10.58 billion | 18% increase |
| Net earnings | $9.46 billion | $8.47 billion | 12% increase |
| Net earnings to common | $8.92 billion | $7.90 billion | 13% increase |
| Diluted EPS | $24.74 | $21.03 | 18% increase |
| ROE | 11.1% | 10.0% | Improved |
| ROTE | 11.8% | 10.6% | Improved |
| Efficiency ratio | 65.0% | 68.1% | Improved |
| Provision for credit losses | $3.10 billion | $1.07 billion | Significant increase |
| Operating expenses | $28.98 billion | $24.90 billion | 16% increase |
| Effective tax rate | 24.2% | 20.0% | Higher |
Revenue growth was led by Global Markets and Investment Banking. Market-making revenue increased 53% to $15.55 billion, Investment Banking revenue increased 34% to $9.14 billion, Investment Management revenue increased 12% to $6.92 billion, and Commissions and fees increased 19% to $3.55 billion. Other principal transactions revenue declined 23% to $4.65 billion. Net interest income increased 9% to $4.75 billion as lower interest expense largely offset lower interest income.
Global Markets generated $21.16 billion of net revenue, up 43%, including $11.58 billion from FICC and $9.57 billion from Equities. Investment Banking generated $9.42 billion of segment revenue, up 24%, but pre-tax earnings declined 35% to $1.67 billion because of higher credit provisions, litigation costs, and expenses. Asset Management revenue declined 11% to $7.98 billion, while Consumer & Wealth Management revenue increased 15% to $6.00 billion.
Balance sheet, cash flow, debt, and liquidity
- Total assets increased 17% to $1.16 trillion; total liabilities increased to $1.07 trillion.
- Cash and cash equivalents increased to $155.84 billion from $133.55 billion.
- Total shareholders’ equity increased to $95.93 billion from $90.27 billion; book value per common share increased to $236.15 from $218.52.
- Deposits increased 37% to $259.96 billion, including substantial growth in consumer, private bank, and transaction banking deposits.
- Unsecured short-term borrowings were $52.87 billion and unsecured long-term borrowings were $213.48 billion. Long-term borrowings had a weighted average maturity of approximately seven years.
- Net cash used in operating activities was $13.73 billion, net cash used in investing activities was $34.36 billion, and net cash provided by financing activities was $70.38 billion. Cash increased by $22.30 billion during the year.
- Average global core liquid assets were $283.13 billion, compared with $233.65 billion in 2019. The average daily Liquidity Coverage Ratio was 128%, above the 100% minimum.
- Common Equity Tier 1 capital ratios were 14.7% under the Standardized Rules and 13.4% under the Advanced Rules. The Standardized Tier 1 leverage ratio was 8.1% and the Supplementary Leverage Ratio was 7.0%.
- The firm returned $3.72 billion to common shareholders, consisting of $1.93 billion of repurchases and $1.80 billion of common dividends. Repurchases were suspended through the fourth quarter of 2020 because of Federal Reserve restrictions.
Material changes versus the prior comparable period
- COVID-19-driven volatility and client repositioning materially increased Global Markets activity, spreads, and revenue.
- Investment banking underwriting volumes were strong, particularly equity underwriting, while completed mergers and acquisitions activity declined during parts of the year.
- Provision for credit losses nearly tripled, reflecting CECL adoption, COVID-19 economic uncertainty, wholesale loan impairments and ratings downgrades, and credit card portfolio growth. The allowance for loan losses rose to $3.87 billion from $1.44 billion.
- Litigation and regulatory provisions increased to $3.42 billion from $1.24 billion and reduced 2020 diluted EPS by $9.51 and ROE by 3.9 percentage points.
- Assets under supervision increased to $2.15 trillion from $1.86 trillion, driven by net inflows and market appreciation, although the mix shifted toward lower-fee liquidity products.
- Headcount increased 6% to 40,500, reflecting investments in technology and new business initiatives.
- The firm adopted CECL in January 2020, resulting in a $638 million after-tax reduction to retained earnings at adoption.
Guidance, outlook, commentary, and unusual items
- Management expects approximately $1.3 billion of annual run-rate expense efficiencies by year-end 2022 and approximately $1.0 billion of annual run-rate interest expense savings through funding optimization. About half of the expense-efficiency target had been achieved by year-end 2020; no interest-expense savings had yet been achieved.
- The firm expects its 2021 effective tax rate to be approximately 21%, excluding employee share-based award tax benefits and potential tax-rate changes.
- Management targets a medium-term Standardized CET1 ratio of 13.0% to 13.5%, including management buffers. The G-SIB surcharge was 2.5% for 2020 through 2022, with management expecting 3.0% beginning in 2023.
- The investment banking backlog increased significantly at year-end, particularly for potential equity underwriting and advisory transactions, but transactions may be delayed, modified, or cancelled.
- In January 2021, the firm entered into a co-branded credit card relationship with General Motors and agreed to acquire the related portfolio from Capital One. Closing was expected in September 2021; management estimated a $180 million provision for credit losses in the first quarter of 2021.
- The firm resumed common stock repurchases in the first quarter of 2021, subject to Federal Reserve capital-distribution restrictions.
- Brexit ended the U.K.’s pan-E.U. passporting rights on December 31, 2020. Goldman shifted certain client relationships and activities to Goldman Sachs Bank Europe SE and other E.U. entities, potentially increasing capital, liquidity, compliance, tax, and operating costs.
- The firm reached major settlements related to 1MDB, including a guarantee that Malaysia would receive at least $1.4 billion in assets and proceeds. The filing states that Goldman Sachs is no longer a well-known seasoned issuer as a result of the 1MDB settlement.
- Legal and regulatory matters remain material. Management estimated the upper end of reasonably possible aggregate losses, in excess of reserves, at approximately $0.9 billion for matters where a range could be estimated.
Principal risks and contingencies
- Exposure to market volatility, declining asset values, credit-spread movements, interest rates, currencies, commodities, liquidity disruptions, and lower client activity.
- COVID-19-related borrower defaults, additional credit-line draws, consumer credit deterioration, valuation uncertainty, and operational disruption.
- Credit concentration in corporate, commercial real estate, oil and gas, gaming and lodging, airlines, and other stressed industries.
- Reliance on access to secured and unsecured funding, deposits, credit ratings, and transfers from subsidiaries that may be restricted by regulation.
- Regulatory capital, liquidity, TLAC, resolution-planning, Volcker Rule, derivatives, consumer-protection, privacy, anti-money-laundering, and compensation requirements.
- Risks from Brexit, LIBOR and other reference-rate transitions, cyberattacks, technology failures, third-party service providers, model risk, conduct, conflicts of interest, and reputational damage.
- Significant litigation and investigations, including 1MDB, mortgage-related matters, securities offerings, antitrust claims, commodities, interest-rate swaps, foreign exchange, employment practices, and consumer businesses.
Most important facts for investors to verify
- Whether elevated Global Markets and underwriting revenues remain durable as volatility, spreads, and pandemic-related activity normalize.
- Credit-loss trends, allowance adequacy, nonaccrual loans, and exposures to commercial real estate, oil and gas, gaming and lodging, airlines, and consumer credit.
- Progress toward the $1.3 billion expense-efficiency target and $1.0 billion funding-savings target by year-end 2022.
- The effect of litigation, regulatory settlements, 1MDB obligations, and future legal provisions on earnings, capital, and reputation.
- Actual 2021 capital distributions, the applicable stress capital buffer, G-SIB surcharge, and the impact of the temporary leverage-ratio relief expiration.
- Execution and economics of the General Motors credit card portfolio acquisition and broader consumer-banking expansion.
- Changes in the asset-supervision mix, effective management fees, net inflows, and growth of alternative investments.
- Liquidity coverage, deposit stability, credit ratings, collateral requirements, and potential funding needs during renewed market stress.