Goldman Sachs Group, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited quarter and nine months ended September 30, 2022, with comparative periods ended September 30, 2021. Goldman Sachs is a global financial institution operating through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The interim financial statements were reviewed by PwC and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total net revenues | $11.98B | $13.61B | $36.77B | $46.70B |
| Pre-tax earnings | $3.76B | $6.84B | $11.96B | $22.02B |
| Net earnings | $3.07B | $5.38B | $9.94B | $17.70B |
| Net earnings to common | $2.96B | $5.28B | $9.58B | $17.34B |
| Diluted EPS | $8.25 | $14.93 | $26.71 | $48.59 |
| ROE | 11.0% | 22.5% | 12.2% | 25.7% |
| ROTE | 12.0% | 23.8% | 13.1% | 27.2% |
| Efficiency ratio | 64.3% | 48.4% | 62.7% | 52.8% |
- Q3 revenue declined 12% year over year; nine-month revenue declined 21%.
- Net interest income increased 31% in Q3 to $2.04B and 20% for the nine months to $5.60B, driven by higher interest rates, larger loan balances, and higher interest income on collateralized agreements and deposits with banks.
- Market-making revenue increased 18% in Q3 to $4.64B and 19% for the nine months to $15.56B, led by currencies and interest-rate products.
- Investment banking revenue fell 57% in Q3 to $1.54B and 48% for the nine months to $5.46B, reflecting lower underwriting and completed M&A activity.
- Other principal transactions revenue fell to $478M in Q3 and $338M for the nine months, versus $1.57B and $9.76B, respectively, in the comparable periods, primarily due to weaker investment marks.
- Provision for credit losses rose to $515M in Q3 and $1.74B for the nine months, versus $175M and $13M, respectively, primarily reflecting consumer portfolio growth and macroeconomic concerns.
- Operating expenses were $7.70B in Q3, up 17%, and $23.07B for the nine months, down 6%. Q3 expenses included $191M of net litigation and regulatory provisions.
- Nine-month net cash provided by operating activities was $23.71B, compared with $23.98B of cash used in the prior-year period. Investing cash outflow was $69.67B, primarily for investments and loans; financing cash inflow was $69.18B.
Balance sheet, debt, liquidity, and capital
- Total assets were $1.56T at September 30, 2022, up from $1.46T at December 31, 2021. Cash and cash equivalents were $284.25B, loans were $176.67B, trading assets were $383.98B, and investments were $126.96B.
- Total shareholders’ equity was $119.29B, including common shareholders’ equity of $108.59B. Book value per common share was $308.22 and tangible book value per common share was $284.80.
- Deposits increased to $394.73B from $364.23B. Collateralized financings were $219.11B, unsecured short-term borrowings were $51.85B, and unsecured long-term borrowings were $239.97B.
- Average global core liquid assets were $416.92B during Q3. Average daily liquidity coverage ratio was 124%, above the 100% minimum. Management stated that its liquidity position was appropriate.
- Standardized CET1, Tier 1, and total capital ratios were 14.3%, 15.9%, and 18.1%, respectively; the standardized supplementary leverage ratio was 5.6%.
- The firm returned $1.89B to common shareholders in Q3 through $1.00B of repurchases and $893M of dividends. The common dividend increased from $2.00 to $2.50 per share.
Material changes versus prior comparable periods
- Global Markets was the principal earnings contributor: Q3 net revenue rose 11% to $6.20B and nine-month net revenue rose 14% to $20.54B.
- Asset Management deteriorated materially: nine-month net revenue fell 71% to $3.45B and produced a $799M pre-tax loss, compared with $7.37B of pre-tax earnings in the prior-year period, due principally to investment markdowns.
- Consumer & Wealth Management revenue rose 18% in Q3 and 21% for the nine months, but higher credit provisions and growth spending reduced pre-tax earnings to $38M in Q3 and $337M for the nine months.
- Loans increased to $176.67B from $158.56B, driven by corporate, consumer, and wealth-management growth. Credit-card loans increased to $13.69B, partly reflecting the General Motors co-branded portfolio acquisition.
- During the first nine months, Goldman completed the GreenSky, NN Investment Partners, and NextCapital acquisitions. Goodwill increased to $6.29B from $4.29B and identifiable intangible assets increased to $1.96B from $418M.
- Beginning in Q4 2022, the firm planned to report three segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
Guidance, outlook, commentary, risks, and unusual items
- Management described the environment as marked by inflation, monetary tightening, geopolitical uncertainty, the Russia-Ukraine war, supply-chain complications, lower equity prices, and elevated market volatility.
- Management indicated that further deterioration could reduce investment-banking volumes, market-making activity, asset prices, and credit quality, while increasing credit-loss provisions.
- The firm’s medium-term efficiency-ratio target is approximately 60%. Management also targets annual management and other fees above $10B in 2024, including more than $2B from alternatives, and gross alternative-investment inflows of $225B from 2020 through 2024.
- The credit-loss forecast was weighted toward baseline and adverse scenarios. A hypothetical 100% adverse-scenario weighting would have increased the allowance by approximately $1.0B, excluding potential qualitative adjustments.
- The firm settled communications-recordkeeping investigations with the SEC and CFTC in September 2022, paying $125M and $75M, respectively, and agreeing to retain a compliance consultant and improve policies and procedures.
- Goldman guaranteed that Malaysia would receive at least $1.4B in assets and proceeds related to 1MDB. The firm disputed whether a $250M interim payment was due following Malaysia’s August 2022 recovery report; unresolved matters could proceed to arbitration.
- Management estimated the upper end of reasonably possible aggregate litigation losses, in excess of reserves, at approximately $2.3B. It stated that other proceedings are not expected to materially affect financial condition, although individual-period operating results could be materially affected.
- USD LIBOR exposure remained significant: approximately $7T of derivative notional, including approximately $5T maturing after June 2023, plus approximately $29.0B of benchmark unsecured debt and preferred stock exposure.
Most important facts for investors to verify
- Whether investment-banking volumes and Asset Management investment marks recover or remain pressured by rates, valuations, and geopolitical conditions.
- Whether consumer and credit-card growth produces sufficient returns to offset rising charge-offs, provisions, and operating investment.
- The sustainability of elevated market-making and net-interest-income performance as volatility and interest rates change.
- Allowance adequacy under adverse economic scenarios, including the sensitivity to unemployment, GDP, credit spreads, and consumer delinquencies.
- Progress and final financial impact of litigation, regulatory investigations, the communications-recordkeeping settlement, and 1MDB-related obligations.
- Execution and profitability of the GreenSky, NNIP, and NextCapital acquisitions and the transition to the new three-segment reporting structure.
- Capital-distribution capacity after the October 2022 regulatory changes, including the higher 2023 G-SIB surcharge and the one-percent excise tax on certain share repurchases beginning after December 31, 2022.