Goldman Sachs Group Inc. — Q2 2022 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three and six months ended June 30, 2022, compared with the corresponding 2021 periods. Goldman Sachs operates through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. Results reflected elevated market volatility, inflation, rising interest rates, the Russia-Ukraine war, wider credit spreads, and weaker underwriting activity. The firm completed the acquisitions of GreenSky and NN Investment Partners during the first half of 2022.
Financial performance and key metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total net revenues | $11.864 billion | $15.388 billion | $24.797 billion | $33.092 billion |
| Pre-tax earnings | $3.544 billion | $6.840 billion | $8.200 billion | $15.177 billion |
| Net earnings | $2.927 billion | $5.486 billion | $6.866 billion | $12.322 billion |
| Net earnings to common | $2.786 billion | $5.347 billion | $6.617 billion | $12.058 billion |
| Diluted EPS | $7.73 | $15.02 | $18.47 | $33.64 |
| ROE | 10.6% | 23.7% | 12.8% | 27.3% |
| Operating expenses | $7.653 billion | $8.640 billion | $15.369 billion | $18.077 billion |
| Provision for credit losses | $667 million | $(92) million | $1.228 billion | $(162) million |
Q2 net revenue declined 23% year over year, while first-half net revenue declined 25%. Approximate Q2 net and pre-tax margins were 24.7% and 29.9%, respectively, compared with 35.7% and 44.5% in Q2 2021. The six-month net and pre-tax margins were approximately 27.7% and 33.1%, compared with 37.2% and 45.9% in the prior-year period.
- Revenue mix: Q2 investment banking revenue fell 48% to $1.785 billion; investment management rose 26% to $2.393 billion; commissions and fees rose 29% to $1.073 billion; market making rose 51% to $4.929 billion; and other principal transactions were a $50 million loss versus $4.297 billion of revenue in Q2 2021.
- Net interest income: Increased 6% to $1.734 billion in Q2 and 14% to $3.561 billion for the first half, reflecting higher rates and larger loan and deposit balances, partly offset by higher funding costs.
- Expenses: Q2 operating expenses decreased 11%, primarily because of lower compensation, but the efficiency ratio worsened to 64.5% from 56.1%. The first-half efficiency ratio was 62.0%, versus 54.6%.
- Segments: Q2 Global Markets net revenue increased 32% to $6.467 billion, while Investment Banking declined 41% to $2.137 billion, Asset Management declined 79% to $1.084 billion and Consumer & Wealth Management increased 25% to $2.176 billion. Asset Management recorded a $436 million pre-tax loss, compared with $3.254 billion of pre-tax earnings in Q2 2021.
Cash flow, balance sheet, debt and liquidity
- Cash and cash equivalents were $288.606 billion at June 30, 2022, up from $261.036 billion at December 31, 2021.
- Six-month operating cash flow was $15.522 billion; investing cash flow was $(55.509) billion, mainly from purchases of investments and increased lending; financing cash flow was $67.557 billion, primarily from deposits and debt issuance.
- Total assets were $1.601 trillion, up $137.236 billion from year-end 2021. Total shareholders’ equity was $117.871 billion, up from $109.926 billion. Book value per common share was $301.88, up from $284.39; tangible book value per common share was $278.75.
- Deposits increased to $391.326 billion from $364.227 billion. Collateralized financings were $228.319 billion, unsecured short-term borrowings were $57.615 billion, and unsecured long-term borrowings were $250.444 billion.
- Average global core liquid assets were $391.267 billion in Q2. Average daily LCR was 125%, above the 100% minimum. Management stated that the firm’s NSFR exceeded the minimum requirement.
- At June 30, 2022, Standardized and Advanced CET1 ratios were 14.2% and 14.3%, respectively; the Standardized total capital ratio was 18.0%; Tier 1 leverage was 7.0%; and SLR was 5.6%.
Material changes versus the prior comparable period
- Market-driven gains in Global Markets and higher net interest income partly offset sharp declines in investment banking and investment-related results.
- Other principal transactions moved from $4.297 billion of Q2 2021 revenue to a $50 million loss, primarily due to mark-to-market losses on public equities and weaker private-equity and debt-investment performance.
- Credit provisioning changed from a $92 million benefit in Q2 2021 to a $667 million expense, reflecting credit-card portfolio growth and more adverse macroeconomic assumptions. The allowance for loan losses rose to $4.562 billion from $3.573 billion at year-end 2021.
- Gross loans increased to $180.500 billion from $162.135 billion, including growth in wealth management, commercial real estate and consumer credit cards. The General Motors co-branded card portfolio contributed approximately $2.0 billion of loans and $15.0 billion of lending commitments.
- GreenSky and NNIP increased goodwill by approximately $1.94 billion and identifiable intangible assets by approximately $1.71 billion. No material goodwill or intangible-asset impairment was recorded.
- Investment banking backlog decreased from March and December 2021, particularly for leveraged-finance debt and initial public offering transactions, although advisory backlog increased versus March.
Guidance, outlook, commentary, risks and unusual items
- Management did not provide formal consolidated earnings guidance in the filing. Stated targets include Consumer Banking annual net revenue above $4 billion by the end of 2024, firmwide management and other fees above $10 billion in 2024, and more than $2 billion of 2024 fees from alternative assets.
- The Board increased the quarterly common dividend from $2.00 to $2.50 per share beginning in Q3 2022. Management stated that capital deployment would prioritize attractive client opportunities and return excess capital through dividends and repurchases.
- Management expects to slow hiring velocity and reduce certain professional fees, although savings will take time to affect results.
- Key risks include further equity-market declines, wider credit spreads, inflation, recession, higher unemployment, supply-chain disruption, escalation of the Russia-Ukraine war, reduced investment-banking volumes, weaker asset prices and consumer-credit deterioration.
- A 100%-weighted adverse economic scenario would have increased the June 2022 allowance for credit losses by approximately $1.1 billion, excluding possible qualitative adjustments.
- Russia exposure was limited: $225 million of credit exposure at June 30, 2022, substantially to non-sovereign counterparties, with non-material market exposure to Russian and Ukrainian issuers. Turkey exposure was $2.35 billion gross and $841 million net after collateral and other mitigants.
- Legal and regulatory matters remain significant. The estimated upper end of reasonably possible aggregate loss for matters where a range could be estimated was approximately $2.0 billion above recorded reserves. The firm was in advanced discussions with the SEC and CFTC regarding electronic communications recordkeeping investigations and was cooperating with a CFPB investigation into GS Bank USA credit-card practices.
- The firm had $396.977 billion of commitments, including $225.619 billion of lending commitments. Nonconsolidated VIE maximum exposure to loss was $22.306 billion, excluding offsetting mitigants.
- USD LIBOR transition remains material: approximately $9 trillion of USD LIBOR-based derivative notional existed at June 2022, including approximately $6 trillion maturing after June 2023. Benchmark unsecured debt and preferred stock with USD LIBOR exposure was approximately $32.0 billion.
Most important facts for investors to verify
- Whether Global Markets’ unusually strong performance can persist if volatility, client activity or commodity-driven revenues normalize.
- The sustainability of investment banking volumes and the conversion rate, timing and economics of the reduced transaction backlog.
- Credit-card growth, delinquency trends, charge-offs and whether allowance increases adequately reflect recession and unemployment risk.
- The performance, integration costs and eventual profitability of GreenSky and NNIP, including goodwill and intangible-asset impairment risk.
- Capital distributions, the effective October 1, 2022 Standardized CET1 requirement of 13.3%, and the potential impact of a higher G-SIB surcharge.
- Liquidity availability at the parent and regulated subsidiaries, including transfer restrictions on subsidiary capital and the sensitivity of funding to a ratings downgrade.
- Developments in 1MDB-related obligations, communications recordkeeping investigations, CFPB matters, underwriting and antitrust litigation, and the estimated litigation loss range.
- Exposure to USD LIBOR transition, Russia-Ukraine developments, commercial real estate, private investments and other Level 3 valuations.