Goldman Sachs Group Inc. 2022 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2022, with fourth-quarter 2022 information where disclosed. Goldman Sachs is a global financial institution serving corporations, financial institutions, governments and individuals. Beginning in the fourth quarter of 2022, management reorganized reporting into three segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions. Prior periods were conformed to the new presentation.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net revenues | $47.365 billion | $59.339 billion | Down 20% |
| Pre-tax earnings | $13.486 billion | $27.044 billion | Down 50% |
| Net earnings | $11.261 billion | $21.635 billion | Down 48% |
| Net earnings applicable to common | $10.764 billion | $21.151 billion | Down 49% |
| Diluted EPS | $30.06 | $59.45 | Down 49% |
| ROE | 10.2% | 23.0% | Down 12.8 points |
| ROTE | 11.0% | 24.3% | Down 13.3 points |
| Operating expenses | $31.164 billion | $31.938 billion | Down 2% |
| Efficiency ratio | 65.8% | 53.8% | Up 12.0 points |
| Provision for credit losses | $2.715 billion | $357 million | Material increase |
Net interest income increased 19% to $7.678 billion as higher interest rates and loan balances increased interest income, partly offset by higher funding and deposit costs. Interest income was $29.024 billion and interest expense was $21.346 billion.
Cash and cash equivalents declined to $241.825 billion from $261.036 billion. Cash flow from operating activities was $8.708 billion, while investing activities used $75.960 billion and financing activities provided $59.602 billion. Management states that traditional cash flow analysis is less meaningful for a global financial institution than liquidity and asset-liability measures.
Total assets were $1.442 trillion, down from $1.464 trillion. Total shareholders’ equity was $117.189 billion, up from $109.926 billion. Unsecured long-term borrowings were $247.138 billion, and total deposits were $386.665 billion. The leverage ratio was 12.3x and the debt-to-equity ratio was 2.1x.
Average daily liquidity coverage ratio was 129% for the fourth quarter of 2022, above the 100% minimum. Average global core liquid assets were $408.818 billion in the fourth quarter and $398.082 billion for the full year.
Regulatory capital remained above requirements. The year-end CET1 ratio was 15.0% under the Standardized Rules and 14.4% under the Advanced Rules, compared with requirements of 13.3% and 9.5%, respectively. The supplementary leverage ratio was 5.8%, above the 5.0% requirement.
Material changes versus the prior comparable period
- Global Banking & Markets: Net revenues declined 12% to $32.487 billion and pre-tax earnings declined 18% to $14.168 billion. Investment banking fees fell 48% to $7.360 billion amid lower equity and debt underwriting volumes and fewer completed mergers and acquisitions. FICC revenues increased 38% to $14.676 billion, benefiting from higher client activity in interest rates, currencies and commodities. Equities revenues declined 6% to $10.988 billion.
- Asset & Wealth Management: Net revenues declined 39% to $13.376 billion and pre-tax earnings fell to $1.307 billion from $10.728 billion. Equity investment revenues fell sharply because of public equity mark-to-market losses and lower private equity gains; debt investment revenues also declined. Management and other fees increased to $8.781 billion. Assets under supervision increased to $2.547 trillion, including $316 billion from acquisitions, but market depreciation was $305 billion.
- Platform Solutions: Net revenues increased 135% to $1.502 billion, driven by credit cards, point-of-sale financing and transaction banking. However, the pre-tax loss widened to $1.989 billion from $1.047 billion because credit-loss provisions rose to $1.728 billion and operating expenses increased 78% to $1.763 billion.
- Credit costs: The allowance for loan losses increased to $5.543 billion from $3.573 billion. Consumer credit card loans increased to $15.820 billion from $8.212 billion, partly reflecting the General Motors co-branded portfolio acquisition. The total net charge-off ratio rose to 0.5% from 0.3%.
- Headcount and acquisitions: Year-end headcount increased 10% to 48,500. Goldman Sachs completed acquisitions of GreenSky, NN Investment Partners and NextCapital, with aggregate purchase price of approximately $3.83 billion.
- Shareholder returns: The firm returned $6.70 billion to shareholders, including $3.50 billion of common stock repurchases and $3.20 billion of common dividends. In February 2023, the Board approved a new $30 billion repurchase authorization.
Guidance, outlook, commentary and unusual items
- Management targets a medium-term efficiency ratio of approximately 60%; the 2022 ratio was 65.8%.
- Asset & Wealth Management targets annual management and other fees above $10 billion in 2024, including more than $2 billion from alternatives. It also targets $225 billion of alternative-investment gross inflows from 2020 through 2024.
- Management expects significantly less benchmark debt issuance in 2023 than the approximately $28 billion issued in 2022.
- The firm intends to maintain capital ratios 50 to 100 basis points above regulatory requirements. The G-SIB surcharge increased from 2.5% in 2022 to 3.0% for 2023 and 2024.
- The process to cease offering new unsecured loans through Marcus is underway. Consumer and Platform Solutions activities remain a significant source of operating losses and credit-risk exposure.
- A 100% adverse economic scenario would have increased the allowance for credit losses by approximately $1.0 billion as of December 2022, before any qualitative adjustments.
- The firm faces significant legal and regulatory exposure. Management estimated the upper end of reasonably possible aggregate legal losses at approximately $2.3 billion above recorded reserves. Litigation provisions were $576 million in 2022.
- Goldman Sachs guarantees that Malaysia will receive at least $1.4 billion in assets and proceeds related to 1MDB by August 2025. The firm and Malaysia dispute whether a required $250 million interim payment was due as of August 2022; unresolved matters could proceed to arbitration.
- USD LIBOR transition remains material: approximately $6 trillion of USD LIBOR-based derivative notional existed at year-end, with approximately $5 trillion maturing after June 2023. USD LIBOR-linked benchmark debt and preferred stock totaled approximately $29.0 billion, and USD LIBOR-based loans approximately $33.1 billion.
- Management identified market volatility, inflation, recession risk, higher rates, geopolitical conflict, Russia-related sanctions, U.S.-China tensions, credit deterioration, liquidity stress, cyber threats, operational failures, regulatory change and litigation as principal risks.
Most important facts for an investor to verify
- Whether investment banking activity and backlog recover after the 2022 market-driven decline.
- Whether Platform Solutions can reduce its losses as credit card and point-of-sale portfolios mature and credit costs normalize.
- Credit performance, charge-offs and allowance adequacy, particularly for unsecured consumer and commercial real estate exposures.
- The sustainability of higher net interest income amid deposit repricing, funding costs and changing interest rates.
- Progress toward the approximately 60% efficiency-ratio target and the cost benefits of strategic locations and acquisitions.
- Actual 2023 capital distributions, benchmark debt issuance and the effect of the higher G-SIB surcharge and evolving Basel requirements.
- Resolution of the 1MDB guarantee dispute, pending legal proceedings and the approximately $2.3 billion estimated excess reasonably possible legal loss range.
- Execution of the USD LIBOR transition and potential contractual, valuation or litigation effects.
- The final impact of the business-segment reorganization, acquisitions and related goodwill and intangible-asset valuations.