Goldman Sachs Group Inc. — 3Q 2021 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited quarter and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Goldman Sachs operates through Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. The business environment featured continued economic recovery, strong investment banking activity, stable equity markets, generally range-bound volatility, higher long-term government bond yields, and continuing COVID-19, inflation, supply-chain and geopolitical uncertainties.
Financial performance and key metrics
| Metric | 3Q 2021 | 3Q 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total net revenues | $13.61 billion | $10.78 billion | $46.70 billion | $32.82 billion |
| Pre-tax earnings | $6.84 billion | $4.30 billion | $22.02 billion | $6.94 billion |
| Net earnings | $5.38 billion | $3.37 billion | $17.70 billion | $4.95 billion |
| Net earnings applicable to common | $5.28 billion | $3.23 billion | $17.34 billion | $4.55 billion |
| Diluted EPS | $14.93 | $8.98 | $48.59 | $12.65 |
| ROE | 22.5% | 16.2% | 25.7% | 7.6% |
| ROTE | 23.8% | 17.3% | 27.2% | 8.1% |
| Efficiency ratio | 48.4% | 57.5% | 52.8% | 70.3% |
Approximate net margins were 39.5% in 3Q 2021 and 37.9% for the first nine months; approximate pre-tax margins were 50.3% and 47.1%, respectively.
- Non-interest revenues increased to $12.04 billion in 3Q and $42.03 billion in 9M, while net interest income increased 44% year over year in 3Q to $1.56 billion and 40% in 9M to $4.68 billion.
- Investment banking revenue increased 83% in 3Q to $3.55 billion and 65% in 9M to $10.56 billion, driven by financial advisory and underwriting activity.
- Global Markets revenue increased 23% in 3Q to $5.61 billion and 7% in 9M to $18.09 billion. Equities strength more than offset weaker or lower-volatility results in several FICC products.
- Asset Management revenue declined 18% in 3Q to $2.28 billion because of public-equity investment losses, but increased substantially in 9M to $12.03 billion due largely to private-equity gains and debt-investment gains.
- Consumer & Wealth Management revenue increased 35% in 3Q to $2.02 billion and 27% in 9M to $5.50 billion, supported by higher wealth-management, deposit and credit-card balances.
- Provision for credit losses was $175 million in 3Q 2021 versus $278 million in 3Q 2020, and $13 million for 9M 2021 versus $2.81 billion in 9M 2020. The 2021 provision primarily reflected portfolio growth, especially credit cards, partly offset by improved economic conditions.
- Operating expenses increased 6% in 3Q to $6.59 billion and 7% in 9M to $24.67 billion. Compensation, technology, transaction-based expenses, professional fees and market development costs increased, while litigation and regulatory provisions fell materially.
Balance sheet, liquidity, debt and capital
| Balance-sheet item | September 30, 2021 | December 31, 2020 |
|---|---|---|
| Total assets | $1.443 trillion | $1.163 trillion |
| Cash and cash equivalents | $211.83 billion | $155.84 billion |
| Loans, net | $143.62 billion | $116.12 billion |
| Deposits | $333.04 billion | $259.96 billion |
| Unsecured short-term borrowings | $48.99 billion | $52.87 billion |
| Unsecured long-term borrowings | $242.78 billion | $213.48 billion |
| Total shareholders’ equity | $106.30 billion | $95.93 billion |
- Cash flow from operating activities was negative $23.98 billion and investing cash flow was negative $16.53 billion for 9M 2021. Financing cash flow was positive $96.49 billion, producing a $55.99 billion increase in cash.
- Funding increased through $74.61 billion of net deposit inflows and $68.80 billion of unsecured long-term debt issuance, partly offset by $38.37 billion of long-term debt repayments.
- Average global core liquid assets were $356.08 billion in 3Q 2021, up from $329.40 billion in 2Q 2021. Average daily liquidity coverage ratio was 127%, above the 100% minimum; the filing states that the net stable funding ratio also exceeded its minimum.
- Standardized CET1, Tier 1 and total capital ratios were 14.1%, 15.5% and 17.7%; Advanced ratios were 13.9%, 15.3% and 17.1%. The standardized stress capital buffer requirement was reduced to 6.4% effective October 1, 2021.
- The firm’s Tier 1 leverage ratio was 7.3% and supplementary leverage ratio was 5.6%, compared with minimum requirements of 4.0% and 5.0%, respectively.
- Book value per common share was $277.25 and tangible book value per common share was $263.37 at September 30, 2021, versus $236.15 and $222.32 at year-end 2020.
Material changes versus comparable periods
- Profitability improved sharply, primarily because of higher investment banking revenue, stronger equities activity, higher investment gains, lower credit-loss provisions and substantially lower litigation and regulatory provisions.
- Net provisions for litigation and regulatory proceedings were $352 million in 9M 2021 versus $3.40 billion in 9M 2020; the filing states that 2020 provisions reduced diluted EPS by $9.46 and ROE by 5.5 percentage points.
- Total assets increased 24% from year-end 2020, with significant growth in collateralized agreements, cash, customer receivables and loans. Deposits increased 28%, while long-term borrowings increased 14%.
- Loans grew to $146.96 billion gross from $119.99 billion, led by corporate, wealth-management, residential real-estate and credit-card balances. Nonaccrual loans declined to $2.71 billion from $3.55 billion, and past-due loans declined to $483 million from $804 million.
- Regulatory feedback increased standardized risk-weighted assets by approximately $23 billion and reduced the firm’s standardized CET1 ratio by approximately 0.5 percentage points as of September 30, 2021.
- The firm repurchased $4.70 billion of common stock and declared $1.59 billion of common dividends during 9M 2021. The quarterly common dividend increased from $1.25 to $2.00 per share.
Guidance, outlook, risks and unusual items
- Management expected the 2021 effective tax rate to be approximately 20% to 21%, excluding potential changes in current tax rates.
- Investment banking backlog remained elevated at September 30, 2021 but declined from June 2021. Management cautioned that backlog transactions may be delayed, modified or cancelled.
- Goldman Sachs announced pending acquisitions of NN Investment Partners and GreenSky, both expected to close by the end of the first quarter of 2022, subject to customary conditions and approvals. The firm also expected to acquire the General Motors co-branded credit-card portfolio by the first quarter of 2022.
- Risks include weaker economic or market conditions, reduced client activity, higher inflation and interest rates, supply-chain disruptions, COVID-19 variants, credit deterioration, market and liquidity stress, cyber and operational failures, model risk, regulatory changes and higher litigation costs.
- The firm reported an upper end of reasonably possible aggregate legal loss of approximately $1.8 billion in excess of reserves for matters that could be estimated. Management stated that other proceedings are not expected to materially affect financial condition, although individual-period results could be materially affected.
- The 1MDB-related guarantee requires the Government of Malaysia to receive at least $1.4 billion of seized assets and proceeds by August 18, 2025. Approximately $450 million had been returned as of August 2021.
- At September 30, 2021, a two-notch downgrade could have required approximately $1.35 billion of additional collateral or termination payments on derivatives, in addition to $30.65 billion of collateral already posted.
- IBOR and LIBOR transition remains a material operational and legal consideration. Most commonly used U.S. dollar LIBOR settings were scheduled to cease after June 30, 2023, with other settings ceasing after December 31, 2021.
Most important facts for investors to verify
- Whether investment banking backlog, equities activity and private-equity realizations remain strong enough to offset potential normalization in market revenues.
- The sustainability of unusually high 2021 ROE, ROTE and profit margins after the benefit of lower litigation provisions, reserve releases and investment gains.
- Credit performance in the growing credit-card, consumer, commercial-real-estate and corporate lending portfolios, including allowance adequacy under adverse economic scenarios.
- Execution, regulatory approval, purchase price and integration risks for the General Motors portfolio, NN Investment Partners and GreenSky acquisitions.
- The effect of higher risk-weighted assets, future stress capital buffers and possible G-SIB surcharge increases on capital distributions.
- Liquidity and funding resilience, including deposit stability, secured-financing rollover risk, credit-rating sensitivity and access to parent-company liquidity.
- Developments in the 1MDB guarantee, Archegos-related claims, antitrust matters, underwriting litigation and other regulatory investigations.
- Reliability of fair-value estimates for level 3 assets and liabilities, private-equity positions, derivatives and other instruments using significant unobservable inputs.