高盛 (GS) 2002 Q2 法說會逐字稿

Welcome to the second quarter, 2002 Goldman Sachs earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer period.

If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

I will now turn the conference over to Mr. John Andrews.

Mr. Andrews, you may begin your conference.

Good morning and welcome.

This is John Andrews, Director of Investor Relations at Goldman Sachs.

I would like to thank you for joining us on our second quarter earnings call.

Before we hand the proceedings over to David, let me remind you that today's call may include forward-looking statements.

These statements represent the Firm's belief regarding future events that, by their nature, are uncertain and outside of the Firm's control.

The Firm's actual results and financial condition may differ, possibly materially from what is indicated in those forward-looking statements.

For a discussion of some of the risks and factors that could effect the Firm's future results, please see the description of certain factors that may effect our business in our current annual report on Form 10K, for our fiscal year ended November 2001, and item 5 in our quarterly report on Form 10Q for our first quarter of fiscal 2002.

I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to our investment banking transaction backlog.

I'd now like to ask David Viniar, our Chief Financial Officer to review the financial results for the second quarter.

David? Thanks, John.

I'd like to thank all of you for listening today.

I'll start with a brief review of our results, and then I'll take your questions.

This morning, we reported net earnings in the second quarter of $563 million or $1.06 per diluted share.

Up 8% from the first quarter.

Annualized return on tangible equity was 16.3% for the second quarter and 15.8% for the first half of fiscal 2002.

In investment banking, net revenues of $762 million were 15% lower than the first quarter. Caused principally by a 23% decrease in underwriting.

Within investment banking, financial advisory net revenues of $428 million a decline of 6% from the first quarter.

Despite an increase in global completed M & A during the second quarter, the absolute level of corporate activity continues to be very low.

Nevertheless, we continue to rank number one in completed global M & A for calendar 2002 through May.

During the second quarter, we advised on a number of significant closed transactions, including the $5.3 billion sale of Security Capital Group to GECC, and HP's $23.5 billion merger with Compaq.

Announced transactions in the second quarter include the $8.9 billion merger of Sinera and Telya, as well as the $5.6 billion sale of Golden State Bank Corp to Citigroup.

Underwriting net revenues in the second quarter of $334 million were down 23% from the prior quarter.

Debt underwriting net revenues were essentially unchanged. While equity underwriting net revenues declined.

In this difficult market environment, we ranked second in global common stock offerings for calendar 2002 through May.

At the end of the second quarter, our overall investment banking backlog was down slightly from the first quarter.

This reflects an ongoing weak environment in both M & A and equity underwriting, as uncertain economic conditions and inward corporate focus on accounting and governance continued to dampen activitiy.

Let me now turn to trading and principal investments, which consist of fixed income, currency and commodities or FICC, equities, and principal investments.

Trading and principal investments generated net revenues of $1.4 billion in the second quarter, up 8% from the first quarter.

Within this, FICC continued to perform strongly.

Net revenues were $1.1 billion. Our second highest quarter ever, reflecting strong performances across the FICC businesses. As you know, it is particularly difficult to predict how the operating environment for FICC will change through 2002.

But we continue to benefit from current favorable conditions and the diversity and strength of our franchise.

Our equities trading business reported net revenues of $418 million up significantly from the first quarter when results were affected negatively but single block trade.

Increases in equity derivatives and European shares, offest declines in equity arbitrage in U.S. shares, as well as the effect of a full quarter during which the bulk of our Nasdaq revenues were reported in commissions.

In general, conditions in the equities market remained weak. With low volumes, volatility, levels of corporate activity and absolute price levels.

Principal investments produced negative revenues of $125 million as a result of mark-to-market losses largely on private investments in technology and telecom.

The carrying value of our corporate portfolio at the end of the second quarter was $1.2 billion. While our real estate portfolio was approximately a billion dollars.

Now I'll turn to Asset Management and Security Services.

Net revenues were $1.65 billion in the second quarter, up 20% from the first quarter.

Asset Management once again produced record net revenues which at $443 million were up 5% from the first quarter.

Quarter end assets under management were $350 billion. A small increase over the first quarter, reflecting net inflows in all asset classes except money markets.

Security Services net revenues in the second quarter were $262 million up 27% from the first quarter.

This reflected increased revenues from the fixed income match book, as well as higher average customer balances.

Commissions in the second quarter also rose 27% to $948 million.

This reflected increased overrides within private equity funds, the inclusion of Nasdaq commissions, and slightly increased commissions across several equity businesses.

Now I'll turn to expenses.

As in the first quarter, we accrued compensation expense in the second quarter at 50% of net revenues.

Noncompensation expense, excluding amortization of goodwill and other intangible assets, were $909 million, up 13% from the first quarter, but down 4% over the second quarter last year.

Noncompensation expense fluctuates from quarter-to-quarter.

But we remain focused on the trend.

During the first half of fiscal 2002, noncompensation expense, excluding the amortization of goodwill and other intangibles was 8% lower than in the same period last year.

Head count at the end of the quarter was a little over 21,000, down 4% from the first quarter and 7% from the end of fiscal 2001.

As we indicated at the end of last quarter, we expect to end fiscal 2002 with head count down versus fiscal 2001.

Our tax rate for the quarter was 37.5%. In line with the rate for the first quarter of 2002 and fiscal 2001.

During the second quarter, the Firm repurchased 4.2 million shares leaving approximately 15 million shares available under our repurchase authorization.

On June 21st, 2002, approximately 39 million shares of common stock related to the firm's initial public offering and subsequent acquisitions become eligible for sale.

In addition, approximately 12 million employee stock options become exerciseable.

Separately, in connection with the firm's ongoing policy of facilitating the orderly entry of shares into the market, up to an additional 14 million shares of common stock may become eligible for sale during the third quarter.

Substantially, all share sales are subject to compliance with blackout procedures and volume restrictions.

In conclusion, as we look into the third quarter, we continue to operate in a challenging environment. Characterized by low levels of executive and investor confidence, despite the increasing signs of economic recovery.

Investment banking activity and equity markets remain very subdued, even as we move into the traditionally slow summer months.

Certainly the catalysts for recovery are not yet evidence.

In contrast, the fixed income, currency and commodities markets have been robust so far during 2002, and for now conditions remain favorable.

Of course we will continue to take advantage of the breadth and strength of our franchise across all of our businesses whatever the environment we face.

We remain absolutely focused on serving our clients and our shareholders. And we believe that the fundamental drivers of corporal rat activity, consolidation, globalization, equification, and deleveraging are intact.

So while the environment continues to be challenging, we remain confident about the long-term prospects of Goldman Sachs.

Thank you, and now I'll be happy to take your questions.

At this time, I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad.

We'll pause for just a moment to compile the Q & A roster.

Your first question comes from Guy Mozkowski of Salomon, Smith Barney.

Good morning, David.

Hi, Guy.

Question on if you could just characterize the comment you made about the backlog having declined.

First of all your definition of backlog, I just want to make sure that we understand what that is.

That's where you have an engagement letter or something else that basically confers a mandate even if there isn't a deal announced?

Our backlog really has nothing to do with announced transactions.

It's a, first of all it's a revenue number, not a volume number.

And it's basically our estimate, you know, there's some complicated metrics we use as to percentage of belief that it's going to close, the timing of when it's going to close,

but it's, you know, our estimates of the revenues we are going to get from the investment banking transactions we have inhouse.

OK. Thanks for the clarification.

Can you give us a sense, when you say that you're down slightly during the quarter, is that more on the M & A side, the equity side, the debt underwriting side?

We don't usually break that out.

But, you know, you can certainly look at filed equity underwritings and you'll see that those numbers were up somewhat.

So you can conclude M & A was probably down a little bit more.

Okay.

Thanks.

Can you give us a sense for, given you had about a 885 decline in head count versus last quarter, where those people came out of?

There was no specific area, or region.

It was pretty much, you know, level across the various regions and it came from many different places as far as divisions go.

So no concentration in say, M & A or equities or anything like that?

No substantial concentration.

In terms of the private equity, if this is theoretical, I recognize.

But if Coopman had been done on May 31st, how different might that $125 million number been?

We don't disclose individual transaction gains or losses.

But I will tell you that in the second quarter, it was not one big thing that caused the decline, it was actually, you know, really write-downs of quite a number of small tech and telecom investments. Almost all private.

And largely because of just reflecting what was going on in Nasdaq? And kind of projecting that on valuations?

Well, it's not just Nasdaq, I mean, it's looking at continued deterioration in the sector.

We evaluate each of the companies, look at their prospects, at their business model, at their funding, and, you know, go through comopany by company and see what we think they are worth.

And obviously the public market exit was worse. But I think more importantly, just the environment for those companies deteriorated.

OK. Fair enough.

One last question on the Nasdaq commission.

Yep.

At this point, what percentage of your Nasdaq trading customers are on commission basis?

And would you say that the Nasdaq commissions that you generated this quarter reflect, then, a pretty much a full quarter run rate on Nasdaq commissions?

Yeah.

I would answer the two questions shortly with most of the customers are now on commissions, and it's pretty much a full quarter.

You won't see much variation from here.

Great.

Thanks very much, David.

Your next question comes from Mark Constant of Lehman Brothers.

Good morning, David.

Hi, Mark.

The 39 million shares eligible for sale is 4.4 million lower than what the most recently disclosed table had indicated.

Is it safe to conclude that means that those are shares that were sold 144s, et cetera, in advance or is there something else going on?

Correct.

Okay.

On the Asset Management flow side, you suggested that money fund outflows, or money fund flows were still negative. Is it safe to conclude those had slowed in the quarter?

Um -- I'm actually not sure of the exact number.

They weren't very material during the quarter.

You know, we had thought at beginning of the year, we told you last year that the inflows last year were largely money market. We didn't expect to keep all as asset.

We had some outflows of them in the first quarter, some more in the second quarter, not a really big number, but some outflows during the quarter.

But they moderated, though?

Yeah, they did moderate somewhat.

Okay.

And your backlog definition comment. Were you being specific then, I assume, to third quarter revenues, when you, as opposed to just general forward-looking?

No, our backlog does not only look at the next quarter's revenues.

Likelihood of closing at some point in the future? As opposed to...

Correct.

Okay.

And lastly, can you give us a sense, your thoughts given your multiple angles on various segments of the equities business, the implications of the CN consolidations, and the introduction of Super Montage, how that will impact your various lines of business?

You know, we don't necessarily think that either of those are going to have a material affect on the business.

As you said, we participate at multiple points in that business.

We really wanted to make sure we could serve our customers kind of at all price points.

You know, both of those things were expected and anticipated, and so we don't think there's going to be any material change.

Okay.

Thank you.

You're welcome.

Your next question comes from Judah Kushar of Merrill Lynch.

Hi David, how are you?

Two or three issues. First of all, I think you were quoted on the tape talking about the commodities trading business not being a particularly big swing factorthis quarter.

But I wonder if you amplify on that or talk to that?

And, it seems like it would be true that if you excluded the commodities area, fixed income trading was generally up in a period where some of your peers had some slippage.

I would just wonder what's going on, why you are being so differentiated on the underlying fixed income side, and particular whether you talked to proprietary trading and foerign exchanges this quarter?

Any big step ups there?

OK. Let me just talk about FICC in total. And I'll talk about commodities a little within that.

You know, as I mentioned, our FICC business was strong across the board.

Virtually every business, and I could probably take out the word virtually and say every business across FICC performed well in the quarter.

And, as usual, you know, it was a, we take proprietary risk, but we also do a lot of customer business.

And, it was a mix of those two things, and, you know, we always say that while people tend to look at trading and look at FICC as a business, it is a very, very diverse business.

There are many businesses, and one of the strengths of Goldman Sachs is the fact that we are strong across a broad number of businesses.

The environment for FICC was quite good.

I know, you know some had problems, but we found it continued to be quite attractive, and we performed well both on the, you know proprietary side as well as in transactions with our customers.

And that included, you know, all of the businesses.

And I would include commodities.

I said with various press calls this morning, I'll say here, you know, clearly given the turmoil in the industry, there was lower levels of activity than we have seen in certain prior quarters.

It was, you know, not the best quarter we ever had in commodities, but we were pleased with the result in commodities.

It had a good quarter, like all the other businesses in FICC.

We had no substantial credit issues at all within the quarter.

And so we are pleased with the performance of that business.

When you say every business was up, were you referring to commodities, too?

I didn't say every business was up versus last quarter.

I wasn't making -- I was really making an absolute statement that we thought every business performed well.

You know, businesses, remember the first quarter was a record quarter.

So, you know, there were some businesses within the quarter, I'm not going to say which ones, which had somewhat lower revenues than they had in the first quarter.

But all of them were still really -- performed really well, including commodities.

It was a dollar this quarter that's creating a lot of both customer flow and proprietary opportunities.

Did the foreign exchange side have a particularly large jump this period?

Again, I'm not going to say what was up and what was down.

Foreign exchange continues to be quite a good business for Goldman Sachs as it has been for awhile.

You know, the important things for us in both the FICC businesses and the equities businesses, to drive our business are levels of activity.

You know, and what is driving the FICC businesses today, is that there is just a lot of activity.

There's a lot of activity in the fixed income markets, the fixed income derivative markets, in the currency markets, while there was less in the commodities markets we have seen before.

There's still a lot of activity in the commodities markets.

And that's driving that business.

It's the opposite in the equities markets.

What's, you know, what's keeping equity trading down is just a lack of corporate activity in that market.

I'd like to shift over to the Security Services side.

You had, I think you had a very big swing, 27% growth in revenues.

I wonder if you would amplify on that?

But the broader question, I guess, is that at one time I think you suggested the Security Services business and Asset Management businesses might be opportunities to enhance valuations because of smoothing of earnings and so forth.

When you see short-term volatility of revenues of that magnitude, and that was without the commission transfer for Security Services, does that in your mind help or detract from the argument that Security Services ought to you know, sort of enhance your multiple over time?

You know, you don't really give us profitability trends, but I'm curious whether the share of earnings over tha last yearor two, whether there's an underlying case of improving profitability in Security Services?

A couple of things I'd say.

One, I don't think I ever made the argument that it should enhance our multiple.

Maybe I did.

I don't opine on what our multiple should be.

But, look, it's a very good business for the firm.

We are clearly one of the leaders.

We do, in that segment, also include the match book and those revenues are up and balances were up across the quarter.

So that helped the business.

You know, what has kept that a little bit down, and what caused it to be down last quarter and, you know, a little down from where we have seen it, is just the opposite level of the market.

That hurts that business, not as much as it hurts some others, but it does hurt the Securities business somewhat.

And it will restrain growth in that business if the absolute level of the market stays down.

Now, offsetting that as we continue to get, gain quite a number of new clients in that business, which is what is keeping the balances higher.

On asset management in the past you talked about a 20 to 30% margin goal.

I think the last I heard was sort of one to three years out.

Do you think you could get to that level either this year or next year, a least somewhere within that range, and would it be fair to assume that year-to-date you might be about halfway towards that margin goal?

We are making progress towards that margin goal.

I don't think we will get there this year.

And I think it is conceiveable we could get there on a run rate basis towards the end of next year, or the following year.

But we are on the way.

But you are materially profitable now?

Yes.

Okay.

All right.

Thank you.

Your next question comes from Joan Solitar of Credit Suisse First Boston.

Good morning.

Hi, Joan.

Hi. A few questions.

Going back to the backlog issue, not really focusing on deals that are already out there, and known, but the last time we spoke you said the chatter level was up.

I have heard that at other firms as well.

Can you just update us on that?

Sure.

I would actually tell you it's probably even stronger now.

And some of the things that are causing the business environment to be weaker are what's causing that to be up.

CEO's want advice today.

There is, you know, they're very inward focused.

They're very concerned about their accounting, their businesses.

What they are going to tell their boards. Getting their houses in order.

But they also want a lot of help and advice.

And so we are having a lot of dialogue.

There is a big pent-up demand to do transactions, but people are just not willing to do the trigger until they are comfortable with their own internal organizations.

And is that true outside of the U.S. as well?

Yes.

I think it's true outside the U.S. as well as inside the U.S. .

OK. And then second question, just on the share lock up.

I just wanted to understand the logic in allowing the additional shares to come in.

When you talk about improving the orderly sale.

I mean, it just seems counter intuitive to me that adding on 14 million shares improves that.

Well --

Is it you want to get it out there, while you're doing it you might as well do more?

No.

Basically what it is is, is that we have pretty severe volume limitations to make sure that not more than a -- what we consider a pretty reasonable amount of shares can come in and be sold in any one day.

If there are more orders than our volume limitations, we just prorate people and they have to try the next day.

So, you know, there'll never be enough shares coming in in anyone day that would effect the market at all.

And so, the thought was really just that if we're able to get those sales done in the quarter, we've given those volume limitations, and people would like to sell more, still within the volume limitations, we'll let them because we don't want to have big pent-up demand for when shares would then be unlocked at the end of the second year or third year.

If we can continue to sell them slowly, day-by-day, small amounts each day and people would use up what would otherwise have been available to them. Then we'll let them sell small amounts more.

And then is there a prioritization between the former nonpartner MDs and the additional shares that you allowed in?

We don't really talk about how we prioritize who can sell when.

But suffice it to say, it is an overall volume limitation that we would allow to be sold in any one day. Everybody who can sell.

And then tying into that somewhat, this is more a technical question.

I don't really understand why the amortization of the initial awards bounces around.

I could understand that trending down, which it did pretty dramatically in the quarter, but that was after being up in the first quarter.

Some of it has to do with forfeitures.

Who forfeits, how much.

And that's why I understand the downward movement.

But the first quarter was up a lot from the fourth quarter.

If you remember back to the fourth quarter of last year, and you look at our head count going from the third quarter to the fourth quarter of last year, you will see it was down somewhat.

So I think you see a fourth quarter down is really what affected it more than the first quarter being up.

Okay.

And I just had one other question.

You mentioned private equity overrides as being one of the driving factors in the increase, in Securities Services.

How significant is that?

And really --

In commissions.

In commissions, excuse me.

It was a -- it was a reasonable factor.

And is that seasonal?

No, it has to do when certain transactions happen.

Okay.

Thank you very much.

Your next question comes from Riley Tierney of Fox, Pitt, Kelton.

I have two questions.

First, David, can you comment at all on what the trend in the equity trading revenues would have been, kind of adjusted for the vendy?

Maybe just directionally.

I suppose you are probably unwilling to give us the exact amount.

Without giving you the actual number, but adjusted for both the single large block trade, as well as the shift of commissions out of equities trading into commissions, it would have been, probably, up a real little bit.

Okay.

So I'm kind of flattish?

Yeah, up a little, but just a little.

Okay.

Let me ask you one more question.

As we go into the summer, this is obviously kind of a tough quarter because of the seasonal slowdown in the business.

Do you think that seasonal slowdown will be bigger or less than normal, given that we're coming into it with pretty little momentum?

And what does that make you feel, just in terms of the trajectory of overall revenues going into this quarter?

Well, I'll -- you know, the answer to your first question, Riley, is really I'm not sure.

It can take one of two paths.

One is, as you said, that it's been so slow it 'sl not going to slow down very much more.

In fact, maybe, you know, you had a little bounce.

The other is, it's been so slow, and the environment has been so difficult, that people just say, you know, it's the summer, let's come back in September and really hope things get better.

And I just don't know.

I don't have a crystal ball.

I don't know which path it 's going to take.

But, you know, given that we certainly don't expect, you know, a big pick-up during the summer, and given the environment, we're very cautious about the third quarter.

Are you more optimistic about the fourth quarter then?

Again, you know, it's hard to say.

We think there will be a recovery.

We think, you know, the economy has picked up.

You know, when investor confidence and CEO confidence gets better, the business environment will pick up.

Likely to be towards the end of this year, beginning of next year.

But exactly when, it's hard to pinpoint.

OK. Thanks a lot, David.

Your next question comes from Henry McVeigh of Morgan Stanley.

Good morning.

Can you hear me?

Good morning, Henry.

Just a couple a couple quickies.

On the 14 million shares is that from '02 or '03 or '04?

Can you give us clarity on that?

Largely '03.

Okay, '03.

OK. Couple of things.

On the looking at the banking versus the M & A.

On M & A obviously we're going to continue to trend down.

Are we getting towards, just given the level of business at the M & A do you feel like the fee rate is starting to bottom? Or we still have downside here just given the activity?

I wish I could answer that question.

I would say it seems like it's going to bottom.

But I might have said that in certain other quarters leading up to now, too.

You know, it's hard to say.

I mean the activity level is very low.

It's as low as we've seen it in a really long time.

But is that in the income statement right now?

You see what I'm trying to say?

If business picked up from here, would we still have another down draft just given the recognition of revenues?

I think you kind of saw -- I think in the last quarter, I have the statistics right you saw announced about the same as completed for the first time in awhile.

So I think it's likely that if you saw things pick up, you would probably see things start to pick up in the income statement, but it would take a little while to cycle through.

Just a couple other quickies.

Is the severance in the P&L and did you accrue using restricted stock and options, are you fully locking and loading?

Any severance is within our comp and benefits.

Our comp and benefits expense number is at 50%.

Whatever the mix.

It would be at 50%.

We don't know, yet, what the mix will be at the end of this year.

Okay.

And just one other.

When I was looking at the asset management, you continue to have, kind of two questions here.

One is you still have a very nice mix in terms of fees, as a percentage of AUM's trending up, I think it was this quarter around 51 basis points.

I guess first question, is there anything you're targeting there?

Second, if you look at the mix of your assets, I was just going back to third quarter of '00 the proprietary assets have gone from 308 to 350. your other assets have gone from 273 to 136. So one's up 14% over the same period, and one's down 50%.

Can you just help us understand that a little bit better?

Sure.

The -- um -- the assets under management are something we are very happy with.

I think the fees keep trending up because our mix keeps getting better.

I mean, we've got more equity and alternative investments and fixed income and lost some money market assets.

So, you know, the fee levels are going up.

And we are pleased with that.

The assets under management versus other client assets, they are two very different things.

Other client assets are purely assets held in client's brokerage accounts, generally equity assets on which we just earn commissions.

So, I mean, there's no management fee, or largely no management fee on that.

What you found -- what we found, certainly, is a lot of that was driven by, you know, some individual companies where we have clients, lots -- for example, one of the things we saw several quarters ago was, you know, when Microsoft stock went down by a fair amount, that number went down a lot.

That's really been driven solely by the movement in the S & P and Nasdaq.

All right.

Thank you.

Your next question comes from Justin Hughes of Robertson Stevens.

Good morning.

I just wanted to ask a little bit about the expense side.

Noncomp expenses were up a little bit sequentially despite the cut in head count.

It looks like it was driven by professional and brokerage and clearing.

Was the professional part of litigation that was ongoing in the quarter?

There was no single item that was material enough to mention.

It was just a whole range of different items in that, you know professional fees, services, other, it was a whole range of small items.

No single item was material.

Small items that are more of a recurring nature or more of a one-time nature?

Many of them would be one-time, but it's hard to say.

Okay.

Thank you.

Your next question comes from Steven Gavios of Dreyfus.

Hi, David.

Sorry for being dopey on this.

I didn't understand your answer to Joan about the IP amortization.

Could you clarify that for me?

Sure.

What I said to her was the IPO amortization has to do with amortizing of stock awards.

When those stock awards vested over periods of time when people leave, they forfeit some of those awards.

And so you'll see somewhat of a decline in the amortization.

And the first quarter was up versus the fourth quarter because more people left in the fourth quarter of last year.

So left voluntarily, I would assume?

A mix.

If you let someone go, I'm assuming their stock doesn't go away.

Is that a fair assumption?

No, stock is based on their service at Goldman Sachs.

Okay.

So employee reductions, regardless of how, would lead to forfeiture of awards?

Yes.

Okay.

Thank you.

Your next question comes from Robert Sobani of Bank of America.

Hi, thanks.

Just following up on that quickly.

Is the $83 million of amortization sort of a good level to go forward if we assume no lay-offs from here, or no employee --

It is good, but it will trend down as the stock all vests.

So over the next couple years it will trend down a little bit.

We will not see the 125 level, again, most likely?

I would not expect it.

Then just sort of building on that with the head count issue.

Do you expect the head count to drift down a little more or maybe an uptick in Q2 with the college recruiting?

You might see a little bit of an uptick with the recruiting, but I would not expect it to change materially.

Okay.

Switching real quick to the Asset Management business.

You mentioned pretty much long-term assets had positive flows, money markets had negative flows.

How about overall, when you net the two, overall did you have positive or negative?

Yes, positive.

Okay.

Lastly on the Nasdaq business.

The commissions switch.

Can you characterize sort of the profit dynamic since, let's say relative -- now that you are fully on the commissions with customers, profitability-wise, are we better than the last few quarters?

Can you also characterize it versus pre decimalization?

Clearly when we went to commission, it was better than before we had gone to commission where the business was not profitable for anybody.

It's probably about the same as it was before.

It's not a big profit business, but it's a good business.

Okay.

Terrific.

Thanks.

You're welcome.

At this time I would like to remind everyone, in order to ask a question press star then the number one on your telephone keypad.

Your next question comes from Adam Herwich of Ulysses.

Can you break down the components of the spread in the quarter.

It was actually high compared to previous quarters, and what it should look like going forward.

When you say the spread income.

Sorry.

Net interest income.

Oh.

You know, we could probably have someone get back to you.

We don't -- we look at our net interest income, really, as part of the businesses.

We don't actually do a lot of analysis of breaking that down because it's really part of our general businesses.

I could have someone get back to you with more details on that.

I appreciate it.

No problem.

At this time, there are no further questions.

We will go back to Mr. Andrews for any closing remarks.

We would like to thank you all for taking the time to listen in today.

This call will be available on rebroadcast commencing in a few hours.

It will only be available for a few days.

The rebroadcast information for domestic callers is 1-800-642-1687.

For international callers 706-645-9291.

The pass code for both calls is 4448748.

Thanks.

This concludes today's Goldman Sachs second quarter earnings conference call.

You may now disconnect.