Goldman Sachs Reports First Quarter Earnings Per Common Share of $3.39

The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $9.43 billion and net earnings of $1.81 billion for its first quarter ended March 27, 2009. Diluted earnings per common share were $3.39 compared with $3.23 for the first quarter ended February 29, 2008 and a diluted loss per common share of $4.97 for the fourth quarter ended November 28, 2008. Annualized return on average common shareholders’ equity ⁽¹⁾ was 14.3% for the first quarter of 2009.

Business Highlights

• Goldman Sachs ranked first in worldwide completed mergers and acquisitions for the calendar year-to-date. ⁽²⁾
• Fixed Income, Currency and Commodities (FICC) generated record quarterly net revenues of $6.56 billion, 34% higher than its previous record, reflecting strength across most businesses, including record results in interest rate products and commodities.
• The firm’s Tier 1 Ratio under Basel II ⁽³⁾ was 16.0% at the end of the first quarter of 2009, up from 15.6% as of November 28, 2008. The firm’s Tier 1 Ratio under Basel I ⁽³⁾ was 13.7% at the end of the first quarter of 2009.
• The firm’s average global core excess ⁽⁴⁾ liquidity was $163.74 billion for the first quarter of 2009, up from $111.43 billion for the fourth quarter of 2008.

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"Given the difficult market conditions, we are pleased with this quarter's performance,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. "Our results reflect the strength and diversity of our client franchise, the resilience of our business model and the dedication and focus of our people. We believe these attributes position the firm to continue to create value for our clients and actively fulfill our role in the capital markets.”

Net Revenues

Investment Banking

Net revenues in Investment Banking were $823 million, 30% lower than the first quarter of 2008 and 20% lower than the fourth quarter of 2008.

Net revenues in Financial Advisory were $527 million, 21% lower than the first quarter of 2008, reflecting lower levels of deal activity. Net revenues in the firm’s Underwriting business were $296 million, 42% lower than the first quarter of 2008. Net revenues in equity underwriting were significantly lower, primarily reflecting a significant decline in industry-wide equity and equity-related offerings. Net revenues in debt underwriting were also significantly lower, primarily due to a decline in leveraged finance activity. The firm’s investment banking transaction backlog decreased from the end of fiscal year 2008. ⁽⁵⁾

Trading and Principal Investments

Net revenues in Trading and Principal Investments were $7.15 billion, compared with net revenues of $5.12 billion for the first quarter of 2008 and negative net revenues of $4.36 billion for the fourth quarter of 2008.

Net revenues in FICC were $6.56 billion, more than double the amount in the first quarter of 2008. These results reflected particularly strong performance in interest rate products, commodities and credit products, as FICC operated in a generally favorable environment characterized by client-driven activity, particularly in more liquid products, and high levels of volatility. However, illiquid assets generally continued to decline in value. Net revenues in currencies were solid, but lower compared with a particularly strong first quarter of 2008. Results in mortgages were higher compared with a difficult first quarter of 2008. During the quarter, credit products included losses from corporate debt and private equity investments, and mortgages included a loss of approximately $800 million (excluding hedges) on commercial mortgage loans and securities. In the first quarter of 2008, credit products included a loss of approximately $1 billion, net of hedges, related to non-investment-grade credit origination activities, and mortgages included a net loss of approximately $1 billion on residential mortgage loans and securities.

Net revenues in Equities were $2.00 billion, 20% lower than the first quarter of 2008. Net revenues in the shares business were lower compared with the first quarter of 2008 due to lower commissions, primarily reflecting lower levels of activity outside of the U.S. Net revenues in derivatives were solid, but lower compared with the first quarter of 2008. Results in principal strategies were also lower compared with the first quarter of 2008. During the quarter, Equities operated in an environment generally characterized by continued weakness in global equity markets and high, but declining, levels of volatility.

Principal Investments recorded a net loss of $1.41 billion for the first quarter of 2009. These results included net losses of $640 million from real estate principal investments and $621 million from corporate principal investments, as well as a $151 million loss related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC).

Asset Management and Securities Services

Net revenues in Asset Management and Securities Services were $1.45 billion, 29% lower than the first quarter of 2008 and 17% lower than the fourth quarter of 2008.

Asset Management net revenues were $949 million, 28% lower than the first quarter of 2008, due to lower management and other fees, reflecting lower assets under management, principally due to market depreciation, and lower incentive fees. During the quarter, assets under management decreased $27 billion to $771 billion ⁽⁶⁾, due to $16 billion of market depreciation, primarily in equity assets, and $11 billion of net outflows.

Securities Services net revenues were $503 million, 30% lower than the first quarter of 2008. The decrease in net revenues primarily reflected the impact of lower customer balances compared with the first quarter of 2008.

Expenses

Operating expenses were $6.80 billion, 10% higher than the first quarter of 2008.

Compensation and Benefits

Compensation and benefits expenses (including salaries, discretionary compensation, amortization of prior year equity awards and other items such as payroll taxes, severance costs and benefits) were $4.71 billion, 18% higher than the first quarter of 2008, primarily due to higher net revenues. The ratio of compensation and benefits to net revenues was 50.0%, compared with 48.0% for the first quarter of 2008. Employment levels decreased 7% compared with the end of fiscal year 2008.

Non-Compensation Expenses

Non-compensation expenses, excluding consolidated entities held for investment purposes ⁽⁷⁾, were $1.62 billion, 21% lower than the first quarter of 2008 and 25% lower than the fourth quarter of 2008. More than one-half of the decrease compared with the first quarter of 2008 was attributable to lower brokerage, clearing, exchange and distribution fees, principally reflecting lower transaction volumes in Equities. The remainder of the decrease compared with the first quarter of 2008 generally reflected lower levels of business activity, the impact of reduced employment levels and the effect of expense reduction initiatives. The increase in non-compensation expenses related to consolidated entities held for investment purposes primarily reflected impairment charges of approximately $300 million related to real estate assets during the first quarter of 2009. Including consolidated entities held for investment purposes, non-compensation expenses were $2.08 billion, 5% lower than the first quarter of 2008 and 17% lower than the fourth quarter of 2008.

Provision for Taxes

The effective income tax rate for the first quarter of 2009 was 31.0%, up from approximately 1% for fiscal year 2008 and 29.5% for the first quarter of 2008. The increases in the effective tax rate were primarily due to changes in geographic earnings mix.

Capital

As of March 27, 2009, total capital was $252.08 billion, consisting of $63.55 billion in total shareholders’ equity (common shareholders’ equity of $47.05 billion and preferred stock of $16.51 billion) and $188.53 billion in unsecured long-term borrowings. Book value per common share was $98.82 and tangible book value per common share ⁽⁸⁾ was $88.02, both essentially unchanged from November 28, 2008. 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 476.1 million at period end.

Under the capital guidelines applicable to the firm when it was regulated by the SEC as a Consolidated Supervised Entity, the firm’s Tier 1 Ratio under Basel II ⁽³⁾ was 16.0% as of March 27, 2009. Under the regulatory capital guidelines currently applicable to bank holding companies, the firm’s Tier 1 Ratio under Basel I ⁽³⁾ was 13.7% as of March 27, 2009.

Other Balance Sheet and Liquidity Metrics

• Total assets ⁽⁹⁾ were $925 billion as of March 27, 2009, up 5% from November 28, 2008.
• Level 3 assets ⁽¹⁰⁾ were approximately $59 billion as of March 27, 2009 (down from $66 billion as of November 28, 2008) and represented 6.4% of total assets.
• Average global core excess ⁽⁴⁾ liquidity was $163.74 billion for the first quarter of 2009, up from $111.43 billion for the fourth quarter of 2008.

Dividends

The Board of Directors of The Goldman Sachs Group, Inc. (the Board) declared a dividend of $0.35 per common share to be paid on June 25, 2009 to common shareholders of record on May 26, 2009. The Board also declared dividends of $234.38, $387.50, $250.00 and $250.00 per share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, respectively (represented by depositary shares, each representing a 1/1,000th interest in a share of preferred stock), to be paid on May 11, 2009 to preferred shareholders of record on April 26, 2009. In addition, the Board declared dividends of $2,500 per share of Series G Preferred Stock to be paid on May 11, 2009 to preferred shareholders of record on April 25, 2009 and dividends of $12.50 per share of Series H Preferred Stock to be paid on May 15, 2009 to preferred shareholders of record on April 30, 2009.

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The Goldman Sachs Group, Inc. is a leading global financial services firm providing investment banking, securities and investment management services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in London, Frankfurt, Tokyo, Hong Kong and other major financial centers around the world.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see "Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended November 28, 2008 and "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

Certain of the information regarding the firm’s Tier 1 Ratios, risk-weighted assets, total assets, level 3 assets and average global core excess liquidity consist of preliminary estimates; these estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its quarterly financial statements.

Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see "Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the fiscal year ended November 28, 2008 and "Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the firm’s Annual Report on Form 10-K for the fiscal year ended November 28, 2008.

Conference Call

A conference call to discuss the firm’s results, outlook and related matters will be held Tuesday, April 14, 2009 at 7:00 am (ET). The call will be open to the public. Members of the public who would like to listen to the conference call should dial 1-888-281-7154 (U.S. domestic) or 1-706-679-5627 (international). The number should be dialed at least 10 minutes prior to the start of the conference call. The conference call will also be accessible as an audio webcast through the Investor Relations section of the firm’s web site, www.gs.com/shareholders. There is no charge to access the call. For those unable to listen to the live broadcast, a replay will be available on the firm’s web site or by dialing 1-800-642-1687 (U.S. domestic) or 1-706-645-9291 (international) passcode number 91133807, beginning approximately two hours after the event. Please direct any questions regarding obtaining access to the conference call to Goldman Sachs Investor Relations, via e-mail, at gs-investor-relations@gs.com.

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
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NON-COMPENSATION EXPENSES
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES
RESULTS FOR THE ONE MONTH ENDED DECEMBER 26, 2008
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Footnotes