Goldman Sachs Group, Inc. — 1Q 2023 Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended March 31, 2023, compared with the three months ended March 31, 2022, and the balance sheet as of March 31, 2023, compared with December 31, 2022. Goldman Sachs operates through Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
Key financial metrics
| Metric | 1Q 2023 | 1Q 2022 or Dec. 2022 |
|---|---|---|
| Total net revenues | $12.224 billion | $12.933 billion; down 5% |
| Pre-tax earnings | $3.993 billion | $4.656 billion; down 14% |
| Net earnings | $3.234 billion | $3.939 billion; down 18% |
| Net earnings to common | $3.087 billion | $3.831 billion; down 19% |
| Diluted EPS | $8.79 | $10.76 |
| ROE / ROTE | 11.6% / 12.6% | 15.0% / 15.8% |
| Operating expenses | $8.402 billion | $7.716 billion; up 9% |
| Efficiency ratio | 68.7% | 59.7% |
| Provision for credit losses | $171 million benefit | $561 million provision |
| Cash and cash equivalents | $229.327 billion | $241.825 billion at Dec. 31, 2022 |
| Total assets | $1.538 trillion | $1.442 trillion at Dec. 31, 2022 |
| Total shareholders’ equity | $117.509 billion | $117.189 billion at Dec. 31, 2022 |
Non-interest revenues were $10.443 billion, including investment banking revenue of $1.578 billion, investment management revenue of $2.289 billion, commissions and fees of $1.088 billion, market-making revenue of $5.433 billion, and other principal transactions revenue of $55 million. Net interest income was $1.781 billion.
Operating expenses included approximately $355 million of impairments related to consolidated real estate investments, approximately $35 million of capitalized software impairments, approximately $220 million of severance-related costs, higher technology and transaction-based expenses, and the inclusion of NN Investment Partners and GreenSky-related activities.
Operating cash flow was positive $9.404 billion, compared with negative $19.534 billion in the prior-year quarter. Investing cash flow was negative $1.978 billion and financing cash flow was negative $20.544 billion. Cash decreased by $12.498 billion during the quarter.
Funding at March 31, 2023 included deposits of $375.531 billion, collateralized financings of $262.217 billion, unsecured short-term borrowings of $64.603 billion, unsecured long-term borrowings of $240.794 billion, and shareholders’ equity of $117.509 billion. Average global core liquid assets were $398.903 billion, and the average liquidity coverage ratio was 125%.
Regulatory capital remained above requirements. The standardized CET1 ratio was 14.8% versus a 13.8% requirement; the advanced CET1 ratio was 14.5% versus a 10.0% requirement. The standardized total capital ratio was 18.8%, and the standardized supplementary leverage ratio was 5.8% versus a 5.0% requirement.
Material changes versus comparable periods
- Global Banking & Markets net revenues declined 16% to $8.444 billion, with investment banking fees down 26%, FICC net revenues down 17%, and Equities net revenues down 7%. The decline reflected weak industry-wide mergers and acquisitions and underwriting activity and less favorable market-making conditions in currencies, commodities, and certain equity products.
- Asset & Wealth Management net revenues increased 24% to $3.216 billion and moved from a $9 million pre-tax loss to $613 million of pre-tax earnings. The improvement reflected gains in equity investments, higher management and other fees, and higher debt investment revenues.
- Platform Solutions net revenues increased 110% to $564 million, but the segment remained loss-making, with a $306 million pre-tax loss. Higher consumer-platform revenue was more than offset by credit-loss provisions and operating expenses.
- The firm sold approximately $1.0 billion of Marcus loans and transferred the remaining $2.88 billion Marcus portfolio to held for sale. The transaction generated an approximately $470 million net revenue loss, largely offset by an approximately $440 million credit-loss reserve reduction.
- The allowance for loan losses declined to $5.032 billion from $5.543 billion at year-end 2022. Nonaccrual loans increased to $3.533 billion from $2.710 billion, while past-due loans increased to $1.381 billion from $1.168 billion.
- Trading assets increased $106.150 billion to $407.395 billion, while deposits declined $11.134 billion to $375.531 billion. Repurchase agreements increased to $197.387 billion from $110.349 billion.
- The firm repurchased 7.1 million common shares for $2.546 billion and declared common dividends of $2.50 per share. In February 2023, the Board authorized a new $30 billion repurchase program, inclusive of 2023 repurchases.
Guidance, outlook, risks and unusual items
- Management expects a 2023 effective tax rate of 21% to 22%, compared with 19.0% for the first quarter.
- Firmwide through-the-cycle targets were reaffirmed: ROE of 14% to 16%, ROTE of 15% to 17%, and an efficiency ratio of approximately 60%.
- Asset & Wealth Management targets annual management and other fees above $10 billion, including more than $2 billion from alternatives, in 2024; medium-term targets include mid-twenties pre-tax margins and mid-teens ROE.
- Platform Solutions targets an efficiency ratio below 100% in 2023 and pre-tax profitability by the end of 2025. Goldman Sachs is exploring a sale of GreenSky and intends to sell the remaining Marcus consumer-loan portfolio.
- Assets under supervision were $2.672 trillion, including $57 billion of first-quarter net inflows and $68 billion of market appreciation. The firm targets $225 billion of gross alternative-investment inflows from 2020 through 2024.
- Management cited continued risks from inflation, geopolitical conditions, banking-sector stress, interest-rate volatility, commercial real estate, consumer credit deterioration, lower investment-banking activity, regulatory changes, and potential deposit outflows.
- A 100%-weighted adverse economic scenario would have increased the allowance for credit losses by approximately $1.0 billion as of March 31, 2023; management cautioned that actual losses could differ materially.
- Goldman Sachs deposited $2.5 billion with First Republic as part of an $11-bank consortium. Following First Republic’s May 1, 2023 receivership, potential FDIC special assessments were uncertain and could materially affect results.
- The firm had an estimated upper end of reasonably possible aggregate litigation losses of approximately $2.5 billion in excess of reserves for matters where a range could be estimated. The filing states that other matters could be material to results in a particular period.
- The firm continues transitioning approximately $5 trillion of USD LIBOR-linked derivatives and approximately $26.4 billion of USD LIBOR-linked unsecured benchmark debt and preferred stock to alternative reference rates, primarily SOFR-based rates.
Most important facts for investors to verify
- Whether investment-banking volumes and the disclosed backlog recover, and whether market-making performance remains resilient amid banking-sector and interest-rate volatility.
- The execution, pricing, and accounting consequences of the GreenSky sale process and remaining Marcus-loan sales.
- Credit performance in credit cards, point-of-sale lending, commercial real estate, and corporate loans, including nonaccrual trends and reserve adequacy.
- The effect of potential FDIC special assessments and other regulatory responses to recent bank failures.
- Progress toward the 2023 tax-rate, efficiency, ROE, Asset & Wealth Management, and Platform Solutions targets.
- Capital and liquidity levels after share repurchases, dividends, deposit changes, regulatory-capital developments, and any increase in required buffers.
- Potential outcomes and reserves for 1MDB-related obligations, securities-offering litigation, consumer investigations, and other regulatory proceedings.
- The completion and economic impact of the USD LIBOR transition and any related contract, valuation, or operational issues.