Cast your mind back to Goldman’s results for the second-quarter of 2009, which at the time provoked a certain amount of anti-Goldman rage.
The bank was getting too risky, the bankers were being paid too much.
But all of the traditional ‘outrage triggers’ are conspicuously absent from Goldman’s just-released third-quarter results.
Compensation has declined:
Compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as payroll taxes, severance costs and benefits) were $5.35 billion, which was higher than the third quarter of 2008, due to higher net revenues. The ratio of compensation and benefits to net revenues was 43.3% for the third quarter of 2009 (compared with 48.3% for the second quarter of 2009), resulting in a ratio of compensation and benefits to net revenues of 47.0% for the first nine months of 2009. This ratio was 49.0% for the first six months of 2009 and 48.0% for the first nine months of 2008.
Non-compensation expenses increased – but hey, that’s attributable to charitable giving:
Non-compensation expenses were $2.23 billion, 2% higher than the third quarter of 2008 and 7% higher than the second quarter of 2009. The increase compared with the third quarter of 2008 reflected the impact of a $200 million charitable contribution to The Goldman Sachs Foundation and $36 million of net provisions for litigation and regulatory proceedings during the third quarter of 2009, partially offset by the impact of lower transaction volumes in Equities.
VaR, a crude measure of how risky the bank’s trading is, and which provoked a bit of controversy in Q2, is down from the second quarter:
And taxes are being paid:
The effective income tax rate for the first nine months of 2009 was 32.2%, up slightly from 31.5% for the first half of 2009.
Level 3 assets – also known as mark-to-make-believe, or sometimes toxic assets – are decreasing:
Level 3 assets (6) were approximately $50 billion as of September 25, 2009 (down from $54 billion as of June 26, 2009) and represented 5.7% of total assets.
And capital has increased:
As of September 25, 2009, total capital was $255.07 billion, consisting of $65.35 billion in total shareholders’ equity (common shareholders’ equity of $58.40 billion and preferred stock of $6.96 billion) and $189.72 billion in unsecured long-term borrowings. Book value per common share was $110.75 and tangible book value per common share (4) was $101.39, an increase of 4% and 5%, respectively, during the quarter. Book value and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 527.3 million at period end. . . .
Under the regulatory capital guidelines currently applicable to bank holding companies, the firm’s Tier 1 capital ratio under Basel I (3) was 14.5% as of September 25, 2009, up from 13.8% as of June 26, 2009. The firm’s Tier 1 common ratio (3) under Basel I was 11.6% as of September 25, 2009, up from 10.9% as of June 26, 2009. The firm’s ratio of tangible common shareholders’ equity (4) to Basel I risk-weighted assets (3) was 13.1% as of September 25, 2009, up from 12.4% as of June 26, 2009.
All of which means, we think, that Goldman Sachs is at least conscious of its public image, in particular the “vampire squid” imagery conjured up by journalist Matt Taibbi, and is perhaps working to repair it.
Whether investors will appreciate the new (friendly) Goldman Sachs is open to question. When the bank released its second-quarter results, a number of analysts thought, for instance, that it had become overcapitalised with a Tier 1 tangible common equity to risk-weighted assets ratio of 12 per cent, and should think about returning some (more) money to shareholders.
While we wait for analyst/investor reaction, though, the public should get better acquainted with its new cuddly vampire squid friend:
Related links:
Wall Street rewind and the coming bout of ’squid’ outrage – FT Alphaville
A credibility problem for Goldman – FT