NEW YORK--(BUSINESS WIRE)-- The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $8.84 billion and net earnings of $613 million for its second quarter ended June 30, 2010. Diluted earnings per common share were $0.78 compared with $4.93 for the second quarter of 2009 and $5.59 for the first quarter of 2010. Annualized return on average common shareholders’ equity (ROE) ⁽²⁾ was 7.9% for the second quarter of 2010 and 13.1% for the first half of 2010.

Excluding the impact of the $600 million related to the U.K. bank payroll tax and the $550 million related to the SEC settlement, diluted earnings per common share were $2.75 ⁽¹⁾ for the second quarter of 2010 and annualized ROE was 9.5% ⁽¹⁾ for the second quarter of 2010 and 14.8% ⁽¹⁾ for the first half of 2010.

Highlights

• The firm continued its leadership in investment banking, ranking first in worldwide announced and completed mergers and acquisitions ⁽³⁾ for the year-to-date.
• Despite the $1.15 billion of additional expenses related to the U.K. bank payroll tax and the SEC settlement, book value per common share and tangible book value per common share ⁽⁴⁾ each increased 1% during the quarter to $123.73 and $112.82, respectively.
• The firm continues to manage its capital conservatively. The firm’s Tier 1 capital ratio under Basel I ⁽⁵⁾ was 15.2% as of June 30, 2010. The firm’s Tier 1 common ratio under Basel I ⁽⁶⁾ was 12.5% as of June 30, 2010.
• The firm’s global core excess liquidity ⁽⁷⁾ averaged $163 billion for the second quarter of 2010 and was $168 billion as of June 30, 2010.
• On July 15, 2010, the firm announced a settlement, subject to court approval, to resolve the SEC’s pending case against Goldman, Sachs & Co., including the payment of $550 million.

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“The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Looking ahead, we remain focused on helping our clients to raise capital, manage risk and invest for the future, which are all important to economic growth.”

Net Revenues

Investment Banking
Net revenues in Investment Banking were $917 million, 36% lower than the second quarter of 2009 and 23% lower than the first quarter of 2010.

Net revenues in Financial Advisory were $472 million, 28% higher than the second quarter of 2009, primarily reflecting an increase in client activity. Net revenues in the firm’s Underwriting business were $445 million, 58% lower than the second quarter of 2009. Net revenues in equity underwriting were significantly lower than a strong second quarter of 2009, primarily reflecting lower levels of industry-wide activity, as the second quarter of 2009 included significant capital-raising activity by financial institutions. Net revenues in debt underwriting were also significantly lower, primarily reflecting a decline in industry-wide activity. The firm’s investment banking transaction backlog increased during the quarter. ⁽⁸⁾

Trading and Principal Investments
Net revenues in Trading and Principal Investments were $6.55 billion, 39% lower than the second quarter of 2009 and 36% lower than the first quarter of 2010.

Net revenues in Fixed Income, Currency and Commodities (FICC) were $4.40 billion, 35% lower than a strong second quarter of 2009. During the second quarter of 2010, FICC operated in a challenging environment generally characterized by lower activity levels and wider corporate credit spreads. The decline in net revenues compared with the second quarter of 2009 reflected significantly lower results in credit products, interest rate products and currencies. These decreases were partially offset by higher net revenues in mortgages and, to a lesser extent, commodities. During the second quarter of 2009, mortgages included a loss of approximately $700 million on commercial mortgage loans.

Net revenues in Equities were $1.21 billion, 62% lower than a strong second quarter of 2009. During the second quarter of 2010, Equities operated in a challenging environment characterized by a significant decline in global equity prices, a sharp increase in volatility levels and lower activity levels. The decline in net revenues compared with the second quarter of 2009 primarily reflected significantly lower results in derivatives and, to a lesser extent, principal strategies. In addition, net revenues in shares were lower compared with a solid second quarter of 2009. Commissions declined slightly compared with the second quarter of 2009.

Principal Investments recorded net revenues of $943 million for the second quarter of 2010. These results included a gain of $905 million related to the firm’s investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), primarily reflecting the expiration of transfer restrictions related to these shares, a net gain of $34 million from corporate principal investments and a net loss of $10 million from real estate principal investments.

Asset Management and Securities Services
Net revenues in Asset Management and Securities Services were $1.37 billion, 11% lower than the second quarter of 2009 and 2% higher than the first quarter of 2010.

Asset Management net revenues were $976 million, 6% higher than the second quarter of 2009, primarily due to changes in the composition of assets managed. During the second quarter of 2010, assets under management decreased $38 billion to $802 billion, due to $24 billion of net outflows, primarily reflecting outflows in money market and equity assets, and $14 billion of net market depreciation, primarily reflecting depreciation in equity assets.

Securities Services net revenues were $397 million, 35% lower than the second quarter of 2009. The decrease in net revenues primarily reflected tighter securities lending spreads, principally due to the impact of changes in the composition of securities lending customer balances, partially offset by the impact of higher average customer balances.

Expenses
Operating expenses were $7.39 billion, 15% lower than the second quarter of 2009 and 3% lower than the first quarter of 2010.

Compensation and Benefits
The accrual for compensation and benefits expenses was $3.80 billion for the second quarter of 2010. The ratio of compensation and benefits to net revenues was 43.0% ⁽⁹⁾ for the first half of 2010, down from 49.0% for the first half of 2009.

U.K. Bank Payroll Tax
During the second quarter of 2010, the United Kingdom enacted legislation that imposed a non-deductible 50% tax on certain financial institutions in respect of discretionary bonuses in excess of £25,000 awarded under arrangements made between December 9, 2009 and April 5, 2010 to “relevant banking employees.” Operating expenses for the three and six months ended June 30, 2010 included an estimate of $600 million related to this tax.

Non-Compensation Expenses
Non-compensation expenses were $2.99 billion, 44% higher than the second quarter of 2009 and 41% higher than the first quarter of 2010. The increase compared with the second quarter of 2009 was primarily attributable to the impact of net provisions for litigation and regulatory proceedings of $615 million in the second quarter of 2010 (including $550 million related to the SEC settlement), as well as higher professional fees and brokerage, clearing, exchange and distribution fees.

Provision for Taxes
The effective income tax rate for the first half of 2010, excluding the impact of the $600 million U.K. bank payroll tax and the $550 million SEC settlement, substantially all of which is non-deductible, was approximately 32.8% ⁽¹⁰⁾, essentially unchanged from the first quarter of 2010 and fiscal year 2009. Including the impact of these amounts, the effective income tax rate for the first half of 2010 was approximately 38.4%.

Capital
As of June 30, 2010, total capital was $252.40 billion, consisting of $73.82 billion in total shareholders’ equity (common shareholders’ equity of $66.86 billion and preferred stock of $6.96 billion) and $178.58 billion in unsecured long-term borrowings. Book value per common share was $123.73 and tangible book value per common share ⁽⁴⁾ was $112.82, each increasing 1% 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 540.4 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 ⁽⁵⁾ was 15.2% as of June 30, 2010. The firm’s Tier 1 common ratio under Basel I ⁽⁶⁾ was 12.5% as of June 30, 2010. The firm’s ratio of tangible common shareholders’ equity ⁽⁴⁾ to Basel I risk-weighted assets ⁽⁵⁾ was 13.5% as of June 30, 2010.

Other Balance Sheet and Liquidity Metrics

• Total assets ⁽¹¹⁾ were $883 billion as of June 30, 2010, essentially unchanged from March 31, 2010.
• Level 3 assets ⁽¹¹⁾ were approximately $46 billion as of June 30, 2010 (essentially unchanged from March 31, 2010) and represented 5.2% of total assets.
• Average global core excess liquidity ⁽⁷⁾ was $163 billion for the second quarter of 2010, essentially unchanged from the average for the first quarter of 2010.

Dividends

The Goldman Sachs Group, Inc. declared a dividend of $0.35 per common share to be paid on September 29, 2010 to common shareholders of record on September 1, 2010. The firm also declared dividends of $239.58, $387.50, $255.56 and $255.56 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 August 10, 2010 to preferred shareholders of record on July 26, 2010. In addition, the firm declared a dividend of $2,500 per share of Series G Preferred Stock to be paid on August 10, 2010 to preferred shareholders of record on July 26, 2010.

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The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial 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 U.S. Private Securities Litigation Reform Act of 1995. Forward-looking 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 December 31, 2009 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 December 31, 2009.

Certain of the information regarding the firm’s capital ratios, risk-weighted assets, total assets, level 3 assets and 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 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 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 December 31, 2009 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 December 31, 2009.

Conference Call
A conference call to discuss the firm’s results, outlook and related matters will be held at 11:00 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 83952856, 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.

CONTACT:
The Goldman Sachs Group, Inc.
Media Relations:
Lucas van Praag, 212-902-5400

Investor Relations:
Dane E. Holmes, 212-902-0300