Goldman Sachs Group Inc. — Q1 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020, and balance-sheet data as of March 31, 2021 versus December 31, 2020. Goldman Sachs operates through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
Management described a substantially improved operating environment, supported by vaccine distribution, fiscal stimulus, accommodative monetary policy, higher equity prices, tighter credit spreads, and strong client activity. COVID-19, vaccine execution, economic recovery, geopolitical developments, and regulatory change remained significant uncertainties.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total net revenues | $17.704 billion | $8.743 billion | +102% |
| Pre-tax earnings | $8.337 billion | $1.348 billion | +518% |
| Net earnings | $6.836 billion | $1.213 billion | +464% |
| Net earnings applicable to common | $6.711 billion | $1.123 billion | +497% |
| Diluted EPS | $18.60 | $3.11 | +498% |
| Annualized ROE | 31.0% | 5.7% | +25.3 points |
| Annualized ROTE | 32.9% | 6.0% | +26.9 points |
| Efficiency ratio | 53.3% | 73.9% | Improved |
| Provision for credit losses | $(70) million benefit | $937 million expense | $1.007 billion improvement |
| Operating expenses | $9.437 billion | $6.458 billion | +46% |
Net margin was approximately 38.6% in Q1 2021, compared with approximately 13.9% in Q1 2020; pre-tax margin was approximately 47.1%, compared with approximately 15.4%.
Revenue and segment performance
- Investment Banking: Net revenues of $3.771 billion, up 73%. Equity underwriting benefited from IPO and SPAC activity; financial advisory benefited from higher completed M&A transactions. Approximately 15% of equity-underwriting revenue came from SPAC activity. Pre-tax earnings were $2.071 billion versus $393 million.
- Global Markets: Net revenues of $7.581 billion, up 47%. FICC revenues rose 31% to $3.893 billion and Equities revenues rose 68% to $3.688 billion. Management stated that Archegos-related events did not result in a loss or material impact on Global Markets revenue.
- Asset Management: Net revenues were $4.614 billion versus a $96 million net loss in Q1 2020, reflecting strong private-equity, public-equity, lending, and debt-investment results. Pre-tax earnings were $2.671 billion versus a $1.373 billion loss.
- Consumer & Wealth Management: Net revenues of $1.738 billion, up 16%, including $371 million from Consumer Banking, up 32%. Pre-tax earnings were $179 million versus $80 million.
Firmwide assets under supervision were $2.204 trillion at March 31, 2021, up from $1.818 trillion a year earlier. The firm reported $60 billion of Q1 2021 net inflows and $1 billion of net market depreciation.
Balance sheet, liquidity, debt and capital
| Balance-sheet item | March 31, 2021 | December 31, 2020 |
|---|---|---|
| Total assets | $1.302 trillion | $1.163 trillion |
| Cash and cash equivalents | $191.155 billion | $155.842 billion |
| Loans, net | $121.261 billion | $116.115 billion |
| Deposits | $286.018 billion | $259.962 billion |
| Unsecured short-term borrowings | $58.463 billion | $52.870 billion |
| Unsecured long-term borrowings | $219.044 billion | $213.481 billion |
| Total shareholders’ equity | $97.664 billion | $95.932 billion |
- Cash increased by $35.313 billion during the quarter. Operating cash flow was negative $5.183 billion, investing cash flow was negative $2.487 billion, and financing cash flow was positive $42.983 billion.
- Average global core liquid assets were $298.642 billion. Average daily liquidity coverage ratio was 138%, versus 128% in Q4 2020, above the 100% minimum.
- Standardized CET1 capital ratio was 14.3%, and Advanced CET1 was 13.5%. Standardized total capital ratio was 18.4%; Advanced total capital ratio was 17.0%.
- Tier 1 leverage ratio was 7.6% and supplementary leverage ratio was 6.5%. The temporary regulatory exclusion of certain U.S. Treasury securities and Federal Reserve deposits expired April 1, 2021, which will reduce reported leverage ratios in subsequent periods.
- The firm issued approximately $20 billion of benchmark debt during the quarter and expects 2021 benchmark debt issuance to exceed maturities and redemptions. Unsecured long-term borrowings had maturities extending through 2065, with approximately $20.845 billion maturing in 2022.
- Goldman resumed common-stock repurchases, buying 8.7 million shares for $2.700 billion, and paid $448 million of common dividends. Management expected Q2 repurchases to remain near Q1 levels, excluding repurchases offsetting equity compensation, subject to regulatory capital restrictions.
Material changes versus the prior comparable period
- Revenue growth was broad-based, led by investment banking, market making, and other principal transactions. Other principal transactions improved from a $782 million loss to $3.894 billion of revenue, primarily from private-equity and other investment gains.
- Credit-loss provisioning shifted from a $937 million expense to a $70 million benefit, reflecting improved economic forecasts and reserve releases, partly offset by portfolio growth and a $180 million provision related to the planned General Motors co-branded credit-card portfolio acquisition.
- Compensation and benefits expense increased to $6.043 billion from $3.235 billion, reflecting stronger performance; headcount increased to approximately 40,300 from 38,500.
- Available-for-sale securities generated a $628 million after-tax reduction in other comprehensive income, compared with a $517 million gain in Q1 2020. Comprehensive income was $6.196 billion versus $4.634 billion.
- Gross loans increased to $124.776 billion from $119.989 billion, while the allowance for loan losses declined to $3.515 billion from $3.874 billion. Nonaccrual loans declined to $3.161 billion from $3.552 billion.
- Total commitments rose to $344.470 billion from $284.968 billion, principally due to higher lending and collateralized-agreement commitments.
Guidance, outlook, risks and unusual items
- Management expected an effective tax rate of approximately 21% for the remainder of 2021, excluding potential changes in tax rates. Q1’s effective tax rate was 18.0%.
- Management’s medium-term target for the Standardized CET1 ratio was 13.0% to 13.5%, including management buffers. The firm expects its G-SIB surcharge to remain 2.5% through 2022 and potentially rise to 3.0% beginning in 2023.
- Investment-banking backlog increased from year-end, particularly for advisory and debt underwriting, but transactions may be delayed, modified, or cancelled.
- Key operating risks include weaker economic recovery, renewed COVID-19 outbreaks or variants, lower market volatility, declining client activity, reduced M&A and underwriting volumes, wider credit losses, declining asset prices, funding or liquidity stress, and higher regulatory capital requirements.
- The firm remains exposed to market, counterparty, credit, operational, model, cyber, legal, compliance, conduct, reputational, and regulatory risks. Average daily VaR was $89 million in Q1 2021; period-end VaR was $84 million.
- Material contingencies include 1MDB-related matters, mortgage-related litigation, antitrust and underwriting litigation, regulatory investigations, and other legal proceedings. The estimated upper end of reasonably possible aggregate litigation losses was approximately $1.0 billion above recorded reserves for matters where a range could be estimated.
- Under the 1MDB settlement, Goldman guaranteed that Malaysia would receive at least $1.4 billion in assets and proceeds by August 18, 2025. Approximately $220 million had been returned as of March 31, 2021.
- The firm continued its LIBOR and other IBOR transition program. Certain LIBOR settings are scheduled to cease after December 31, 2021, while commonly used U.S. dollar LIBOR settings are scheduled to cease after June 30, 2023.
Most important facts for investors to verify
- Whether unusually strong Q1 gains from private-equity investments, trading inventory, and other principal transactions persist or reverse.
- Whether reserve releases continue as COVID-19 support programs unwind, particularly given the growth in loans, lending commitments, consumer credit, commercial real estate, gaming and lodging, and airline exposures.
- The effect of the expired leverage-ratio temporary amendment on Q2 2021 SLR, TLAC, and external long-term-debt ratios.
- The timing, profitability, and credit-loss impact of the planned General Motors co-branded credit-card portfolio acquisition, expected in Q3 2021.
- Whether investment-banking backlog converts into completed transactions and revenue, especially amid elevated SPAC and IPO activity.
- Progress and ultimate cost of 1MDB obligations, legal proceedings, regulatory investigations, and related remediation requirements.
- Actual 2021 debt issuance, liquidity levels, capital distributions, tax rate, and regulatory capital requirements compared with management’s stated expectations.