Business context and reporting period
The Goldman Sachs Group, Inc. filed an unaudited Form 10-Q for the quarter ended March 31, 2022. Goldman Sachs is a global financial institution operating through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The filing compares the first quarter of 2022 with the first quarter of 2021 and balance-sheet data with December 31, 2021.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total net revenues | $12.93 billion | $17.70 billion | Down 27% |
| Pre-tax earnings | $4.66 billion | $8.34 billion | Down 44% |
| Net earnings | $3.94 billion | $6.84 billion | Down 42% |
| Net earnings to common | $3.83 billion | $6.71 billion | Down 43% |
| Diluted EPS | $10.76 | $18.60 | Down 42% |
| Annualized ROE | 15.0% | 31.0% | Down 16.0 points |
| Annualized ROTE | 15.8% | 32.9% | Down 17.1 points |
| Efficiency ratio | 59.7% | 53.3% | Up 6.4 points |
| Provision for credit losses | $561 million | $(70) million benefit | Unfavorable swing |
| Net cash used in operating activities | $22.95 billion | $5.18 billion | Higher use of cash |
| Net cash provided by financing activities | $53.10 billion | $42.98 billion | Higher source of cash |
Net interest income increased 23% to $1.83 billion, reflecting higher loan and other interest-earning asset balances and lower borrowing costs. Non-interest revenue declined 32% to $11.11 billion, primarily because other principal transactions fell to a $90 million loss from $3.89 billion of revenue in the prior-year quarter.
Segment performance
- Investment Banking: Net revenues declined 36% to $2.41 billion and pre-tax earnings declined 52% to $999 million. Equity underwriting revenue fell sharply as industry activity slowed.
- Global Markets: Net revenues increased 4% to $7.87 billion and pre-tax earnings increased 17% to $4.01 billion. FICC revenue rose 21% to $4.72 billion, while Equities revenue fell 15% to $3.15 billion.
- Asset Management: Net revenues fell 88% to $546 million, producing a $590 million pre-tax loss, compared with $2.67 billion of pre-tax earnings in Q1 2021. Equity investments generated a $367 million loss versus $3.12 billion of revenue.
- Consumer & Wealth Management: Net revenues increased 21% to $2.10 billion and pre-tax earnings increased 33% to $238 million. Credit card and wealth-management balances grew, but credit-loss provisions increased.
Balance sheet, liquidity, debt and capital
- Total assets increased 9% from December 2021 to $1.59 trillion, principally due to higher collateralized agreements, trading assets, customer receivables and cash.
- Cash and cash equivalents were $274.16 billion, up from $261.04 billion at year-end 2021. Average global core liquid assets were $374.86 billion.
- Deposits increased to $386.81 billion from $364.23 billion. Unsecured short-term borrowings increased to $58.08 billion from $46.96 billion, while unsecured long-term borrowings increased to $258.39 billion from $254.09 billion.
- Total shareholders’ equity was $115.24 billion, up from $109.93 billion. Book value per common share was $293.31, versus $284.39 at year-end; tangible book value per common share was $275.13.
- Average daily liquidity coverage ratio was 126%, above the 100% minimum. Management stated that liquidity was appropriate at quarter-end.
- Standardized and Advanced CET1 capital ratios were 14.4% and 14.6%, respectively. The Standardized and Advanced total capital ratios were 18.1% and 18.0%. The Tier 1 leverage ratio was 7.1% and the supplementary leverage ratio was 5.6%.
- The firm returned $1.21 billion to common shareholders through $500 million of repurchases and $711 million of common dividends. The quarterly common dividend was $2.00 per share.
Material changes versus comparable periods
- Profitability declined materially from the unusually strong Q1 2021 market environment. The largest adverse contributors were Asset Management investment marks and lower Investment Banking underwriting activity.
- Credit conditions worsened: the firm recorded a $561 million provision versus a $70 million benefit in Q1 2021. The allowance for loan losses increased to $4.09 billion, and nonaccrual loans increased to $2.90 billion from $2.47 billion at year-end.
- Consumer credit expanded significantly. Credit card loans rose to $10.59 billion from $8.21 billion, including approximately $2.0 billion associated with the General Motors co-branded credit-card portfolio acquisition. Credit-card lending commitments increased to $53.48 billion from $35.93 billion.
- Goldman Sachs completed its $1.73 billion all-stock acquisition of GreenSky in March 2022, adding approximately $975 million of goodwill and $725 million of identifiable intangible assets on a preliminary basis.
- Accumulated other comprehensive loss increased to $2.68 billion, primarily reflecting a $1.35 billion after-tax loss on available-for-sale securities, partly offset by a $740 million after-tax debt valuation adjustment gain.
- Average daily VaR increased to $98 million from $83 million in Q4 2021, and period-end VaR increased to $127 million from $91 million. The firmwide VaR limit was exceeded six times during the quarter.
Guidance, outlook, risks and unusual items
- Management’s approximately three-year targets are ROE of 14%–16%, ROTE of 15%–17%, and an efficiency ratio of approximately 60%. The firm also targets capital ratios 50–100 basis points above regulatory requirements.
- Management expects a 2022 effective tax rate of approximately 20% versus 15.4% in Q1, subject to earnings mix and tax developments.
- Goldman Sachs announced a target of more than $10 billion of annual management and other fees in 2024, including more than $2 billion from alternative assets, and a target of $225 billion of gross alternative-investment inflows from 2020 through 2024.
- The operating outlook remains exposed to Russia’s invasion of Ukraine, sanctions, inflation, higher interest rates, supply-chain disruption, COVID-19 effects, declining equity prices, widening credit spreads and changes in market-making or investment-banking activity.
- The firm reported an approximately $300 million net revenue loss in Q1 from Russian and Ukrainian counterparties, borrowers, issuers and related instruments. Russia credit exposure was $260 million at March 31, 2022, while market exposure to Russian issuers was not material. Goldman Sachs was winding down its Russian operations.
- A 100%-weighted adverse economic scenario would have increased the allowance for credit losses by approximately $1.3 billion as of March 31, 2022; this is a hypothetical sensitivity and excludes potential qualitative reserve changes.
- The filing identifies an upper end of approximately $1.9 billion of reasonably possible aggregate legal loss in excess of reserves for matters where a range could be estimated. Management did not believe other pending matters would materially affect financial condition, although individual-period operating results could be materially affected.
- The firm guarantees that Malaysia receives at least $1.4 billion of assets or proceeds related to 1MDB. Approximately $450 million had been returned as of February 2022, and the guarantee must be satisfied by August 2025, subject to the filing’s reimbursement provisions.
- USD LIBOR exposure remains significant: approximately $10 trillion of USD LIBOR-based derivative notional, including approximately $6 trillion maturing after June 2023, and approximately $34.5 billion of benchmark unsecured debt and preferred-stock exposure.
- Volcker Rule compliance remains relevant to approximately $229 million of covered-fund investments subject to a July 2022 conformance deadline. The firm expected primarily to restructure these investments as liquidating trusts.
Most important facts for investors to verify
- Whether the decline in Asset Management marks and Investment Banking underwriting volumes is temporary or signals a sustained deterioration in market conditions.
- The trajectory of credit-card and consumer-loan growth, charge-offs, nonaccrual loans and the adequacy of the $4.09 billion loan-loss allowance.
- Whether GreenSky and other strategic acquisitions achieve targeted revenue growth without materially increasing credit losses, operating costs or goodwill-impairment risk.
- Actual capital distributions, regulatory capital requirements, the forthcoming stress-capital-buffer determination and the potential 2023–2024 G-SIB surcharge increase.
- Exposure to Russia, Ukraine, Turkey and other stressed jurisdictions, including the effect of sanctions, collateral and hedges.
- Progress and potential costs associated with 1MDB, communications-recordkeeping investigations, antitrust matters, underwriting litigation and other regulatory proceedings.
- The effect of rising interest rates and USD LIBOR replacement on derivatives, debt, preferred stock, loans, funding costs and valuation adjustments.
- Future liquidity needs, collateral calls and rating-downgrade requirements, including the disclosed $1.02 billion of potential additional collateral or termination payments under a two-notch downgrade scenario.