DBRS, Inc. (DBRS Morningstar) confirmed the ratings of The Goldman Sachs Group, Inc. (Goldman or the Company), including the Company’s Long-Term Issuer Rating of A (high) and Short-Term Issuer Rating of R-1 (middle). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for Goldman is AA (low), while its Support Assessment remains SA3. The Company’s Long-Term Issuer Rating is positioned one notch below the IA.
KEY RATING CONSIDERATIONS
The ratings confirmation and Stable trend reflect Goldman’s leading market positions across all of its major businesses, as well as its preeminent risk management, global peer-leading returns and strong balance sheet fundamentals. The ratings also consider Goldman’s exposure to a wide range of trading and investing activities that are integral to the value of its franchise, but also contribute a notable level of market risk that characterizes the Company’s risk profile.
Given Goldman’s current business mix and associated risk profile, a ratings upgrade is unlikely over the intermediate term. Over the longer term, a greater reliance on more stable and predictable sources of revenue would result in an upgrade. Conversely, a sustained deterioration of earnings or balance sheet fundamentals would result in a downgrade. Any indications of significant weakening in Goldman’s franchise due to reputational issues, risk management deficiencies or operational missteps, would also result in a downgrade.
Franchise Combined Building Block (BB) Assessment: Very Strong
Goldman’s core franchises remain very strong. The Company’s Investment Banking (IB) franchise includes a dominant Financial Advisory business that has generated the most revenue globally for more than 20 years running and a global-leading Equity Underwriting platform. In addition, Goldman has made significant market share gains over the past decade in Debt Underwriting, establishing a top-three position globally.
Goldman has a top-two Sales and Trading franchise in Fixed Income, Currency and Commodities (FICC) and Equities. While these businesses are capital intensive and contribute a notable amount of market risk and revenue volatility, they can still generate a substantial amount of revenue even during adverse market conditions, as evidenced in the Company’s results since the onset of the pandemic.
Goldman is a top-five global active asset manager, with more than $2.6 trillion in assets under supervision (AUS) and has a leading ultra-high net worth Wealth Management business, with more than $1 trillion in client assets, both of which provide stability to earnings. Consistent with our expectations, Goldman has made significant progress on the majority of its recent strategic initiatives in its pursuit of steadier revenues, including expanding its AUS in its Asset and Wealth Management segment, increasing firmwide management fees and building out a transaction banking business. Overall, we view favorably the Company’s acknowledgement of its stumbles in the consumer business and the decision to narrow its ambitions in the space.
Earnings Combined Building Block (BB) Assessment: Strong/Good
Goldman’s consistent, top-tier through-the-cycle profitability metrics provide key support to the ratings. For the full year 2022, Goldman reported a 10.2% return on equity (ROE), which was significantly lower compared to the prior year (23.0% ROE in 2021), but solid overall in our view, considering the challenging operating environment. Performance reflected exceptionally strong trading, particularly in FICC, that was more than offset by material declines in Underwriting and in Equity and Debt investments within Asset & Wealth Management. More recently, the Company’s 11.6% ROE in 1Q23 was modestly improved compared to recent quarters and led again by strong trading results.
Risk Combined Building Block (BB) Assessment: Strong/Good
Given Goldman’s extensive exposure to market risk and risks related to its involvement in capital markets activities, we view Goldman’s effective risk management capabilities and cohesive culture as key underpinnings to the Company’s ratings. Notably, the Company utilizes just one integrated, flexible technology system for risk management, which has benefited the Company when adjusting to changes and the evolving environment. These capabilities enable the Company to address the challenges of ensuring effective management, while retaining the streamlined organizational structure that helps keep Goldman efficient and nimble.
Funding and Liquidity Combined Building Block (BB) Assessment: Very Strong/Strong
Goldman has a comprehensive framework in place to manage its funding and liquidity needs. We view favorably the Company’s efforts to further diversify its funding profile, including continuing to grow its deposit base, which now represents more than one-half of its unsecured funding sources. Goldman maintains a substantial amount of liquidity, with global core liquid assets averaging $399 billion during 1Q23, representing more than one-quarter of total assets.
Capitalization Combined Building Block (BB) Assessment: Strong
Goldman’s capital metrics remain robust even with ongoing capital returns to shareholders. Specifically, the Company's Standardized CET1 ratio at the end of 1Q23 stood at 14.8%, or about 100 basis points above its regulatory requirement. Goldman’s board approved a new share repurchase authorization of up to $30 billion in February 2023.
Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/414482
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022)
All figures are in U.S. dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Banks and Banking Organisations: https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations
(June 23, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022).
The following methodology have also been applied, DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support: https://www.dbrsmorningstar.com/research/411694/dbrs-morningstar-global-criteria-guarantees-and-other-forms-of-support (Mar 28, 2023)
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies
The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.
The rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.
This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:
The last rating action on this issuer took place on May 25, 2022 when all ratings were confirmed.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.
For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.
For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.
Lead Analyst Michael McTamney, Senior Vice President - Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: Initial Rating Date: October 29, 1999
For more information on this credit or on this industry, visit www.dbrsmorningstar.com.
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