高盛 (GS) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen.

My name is Paul and I will be your conference facilitator today.

At this time I would like to welcome everyone to the first quarter 2004 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.

As a reminder this call is being recorded today, March 23rd, 2004.

Thank you.

Mr. Andrews, you may begin your conference.

Paul, thank you very much, and good morning.

This is John Andrews, the Director of Investor Relations at Goldman Sachs and I would like to welcome you to our first quarter earnings conference call.

Let me get rid of the intros here before I turn it over the David.

Today's call, as you know, may include forward-looking statements.

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

The firm's actual results and financial conditions 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 affect the firm's future results please see the description of "certain factors that may affect our business" in our current annual report on Form 10-K for the fiscal year ended November 2003.

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

You should also read the information on the calculation of non-GAAP financial measures that is posted on the Investor Relations portion of our website, www.gs.com.

This audio cast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent.

I would now like to turn the call over to David Viniar, our CFO who will review the quarter's results.

David?

Thanks, John.

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

I'll give a brief review of our results and then take your questions.

Before I talk about each of our businesses, I'll say a few words about the quarter overall.

We're obviously extremely pleased with the first quarter results, which included record net revenues, record net earnings, and record earnings per share.

Net revenues of $5.9 billion were up 46% from the fourth quarter.

Net earnings were up 33% to $1.3 billion, or $2.50 per diluted share.

And annualized return average tangible equity was 30.4%.

Let me share three thoughts about this performance.

First, please do not annualize the first quarter results.

As you know, our earnings vary from quarter to quarter and we do not expect $2.50 of earnings per share each time.

Second, however, you should not underestimate the earnings power of Goldman Sachs.

This quarter again indicates the breadth and depth of our franchise.

And third, we continue to focus on the operating leverage in our business.

Even as the economic environment improves, we will strive to maintain our cost discipline.

I'll now review each of our businesses beginning with Investment Banking.

Net revenues in Investment Banking were $763 million, up 18% from the fourth quarter 2003.

Advisory net revenues were $359 million, also up 18%.

Global announced M&A increased significantly for the second consecutive quarter.

Goldman Sachs once again ranked number one in announced and completed M&A on a global basis.

During the first quarter, we advised on a number of significant transactions, which closed, including the $6.9 billion sale of a 34% stake in Hughes Electronics to News Corp., Kinko's $2.4 billion sale to Fed Ex and Concord EFS's $7.2 billion acquisition by First Data.

We were particularly pleased with the strength of our raid defense franchise with announced mandates including Disney, Comcast, and Sanofi/Aventis.

First quarter underwriting net revenues of $404 million were up 17% from the prior quarter, with equity underwriting up 16% to $219 million and debt underwriting increasing 19% to $185 million.

For the industry, worldwide common stock volumes were up 19% and encouraging follow-on to the 52% sequential increase we saw in the fourth quarter last year.

Our underwriting franchise remains very strong.

For the quarter we ranked second in global common stock and third in worldwide equity and equity-related offerings.

During the quarter we underwrote a number of significant transactions, including Qwest's $1.8 billion offering of senior notes, the Hellenic Republic's 1.8 billion euro inflation link bond offering, Tipco's $473 million secondary offering from Reuters, and Sony's $2.3 billion convertible offering.

The firm's Investment Banking backlog increased during the first quarter.

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

Trading and Principal Investments produced net revenues of $4.1 billion in the first quarter, up 57% from the strong fourth quarter of 2003.

Within Trading and Principal Investments, FICC's record net revenues of $2.1 billion were up 85% from the fourth quarter reflecting exceptionally strong performances from every one of our major businesses.

As you know, the environment for all of our FICC businesses remains very robust, with macro trends continuing to drive high levels of customer activity in every part of the complex.

Within the equities business, first quarter net revenues of $1.7 billion were up 42% from last quarter as equities trading improved 88% to $946 million and equities commission rose 8% to $714 million.

The increase in equities net revenues reflected stronger performance from our global equities products group, as well as higher net revenues within principal strategies.

On a global basis, market indices, share volumes and primary issuance were all up from the fourth quarter.

Turning to risk, average daily value of risk in the first quarter was $71 million up 25% from the fourth quarter of 2003.

We regard risk as a scarce resource to be allocated to opportunities which increased during the first quarter.

Given the significant increase in customer activity, it would be surprising if our own risk had not increased.

As we have said before when we see opportunities we will take more risk where we believe it is prudent to do so.

Principal Investments produced net revenues of $359 million in the first quarter.

This number was primarily driven by an unrealized gain of $201 million or 13 cents per share on our convertible preferred investment in Sumitomo Mitsui Financial Group.

Principal Investments also benefited from gains from other corporate investments and the recognition of merchant banking overrides.

At quarter end our investment in SMFG was carried at fair value of $1.9 billion, our corporate portfolio had a carrying value of $1.3 billion, and our real estate portfolio, $800 million.

Now I'll turn to asset management and security services which reported record net revenues in the quarter of $1 billion up 34% from the prior quarter.

Within this segment, asset management net revenues were up 48% to $761 million.

This record performance reflects above all, a significant increase in incentive fees.

These fees are the result of strong investment performance which we also know is important to increasing our assets under management over time.

In the first quarter our total assets under management increased 10% to $412 billion with $24 billion of net inflows across the asset classes, as well as $15 billion of market appreciation.

Year-over-year assets under management were up 19%.

Security services net revenues were $282 million in the first quarter, up 6% from the prior quarter as customer balances increased.

Now I'll turn to expenses.

Compensation expense in the first quarter was $3 billion accrued at 50% of net revenues.

Non-compensation expenses of $1 billion were down 17% from the fourth quarter of 2003.

In the first quarter we took a provision for certain litigation and other regulatory proceedings of $60 million and incurred real estate exit costs of $35 million.

This compared to charges in the fourth quarter for litigation regulatory proceedings, real estate exit costs and asset impairments totaling $243 million.

We also saw increases in activity-related expenses like brokerage and clearing which was up 5% in the quarter.

However, we continue to focus very hard on cost discipline for controllable expenses.

Headcount at the end of the first quarter was approximately 19,300, essentially flat compared to the end of 2003.

Our tax rate for first quarter was 33%, up from 32.4% for fiscal 2003.

During the quarter, the firm repurchased 4.7 million shares.

Including the Board's additional repurchase authorization during the quarter, approximately 19.4 million shares remain under the firm's authorization.

As you know, in May and June a number of shares owned as of the time of our IPO and shares to be delivered pursuant to IPO awards will become eligible for sale similar to what we have seen in the last two years.

Approximately 55 million shares will become available for sale on May 10th and 44 million on June 23rd.

In addition, 10 million options issued at the time of the IPO to employees will become exercisable in June.

Substantially all of the shares available for sale in June will be subject to compliance with blackout procedures and volume restrictions.

This means that as of June 23rd all of the shares owned as of the IPO and all of the shares and options to be delivered pursuant to IPO awards will have become eligible for sale.

In conclusion, the first quarter of 2004 leaves us with an interesting challenge for the rest of the year.

The environment for our FICC trading businesses remains exceptionally favorable across the five major businesses.

Global credit, interest rate products, mortgages, currencies and commodities.

The yield curve is steep, credit spreads are tight, activity levels are high, and macro economic factors are causing continued volatility and directional change in global currency and commodity markets.

We have said each year since 2001, and I'll repeat now, that we cannot expect the environment to remain this robust indefinitely.

While we see no signs of imminent change you should remember that the environment for this business can turn very rapidly.

On the equity side, we are pleased that we are finally benefiting from the improved markets and activity levels.

However, the general picture for corporate activity is still mixed.

While we have certainly seen increase in announced M&A and some large strategic transaction announcements, it is too early to call for a full M&A activity.

In asset management our performance continues to help drive results.

Of course, incentive fees are seasonally skewed to our first quarter and will not recur in as material a way through the rest of 2004.

Finally, with our return on intangible equity above 30% for the first time in some years, we can be pleased with the firm's performance.

As I said earlier, though, we will likely not repeat this every quarter.

However, given the strength and breadth of the Goldman Sachs franchise, I'm very confident in our position now and for the long term.

With that, I'd like to answer all your questions.

As a reminder, ladies and gentlemen, if you would like to ask a question, press star then the number one on your telephone keypad.

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

Our first question comes from Guy Moszkowski with Merrill Lynch.

Good morning, David.

Hey, Guy.

How are you?

I'm good, thanks.

Question about the principal strategies versus the customer business in both FICC and equities.

You referred to it in your comments and also in the release, and was just wondering if could you give us a sense for relative to last quarter or relative to last year, whether the principal revenues or the customer revenues were increasing at a faster rate.

Guy, let me just clarify.

I assume when you say principal revenues you really meant proprietary revenues, because as you know our customer revenues in trading are largely principal trades.

So do I have that right?

Yeah, I think that's right.

I was just trying to reflect the language in the release where you talked about customer-driven activity revenues were significantly higher but net revenues were also significantly higher in the firm's principal strategies business.

Right.

What I would tell you, Guy, and we've said this before, the majority of our trading revenues comes from trading with customers.

And, the activity level with our customers is what drives most of our activity and most of our revenues.

We do take proprietary risk as well, and really results across all of the businesses were strong, but the bulk of our trading revenues come from our customer-driven businesses.

That's completely fair.

What I was just trying to do was see whether the rate of increase in one was significantly faster than the rate of increase in the other.

I would say that they both increased fairly well over the course of the quarter, and I would say the rate of increase in our customer businesses across the board was probably a little bit bigger, but they both increased well.

Okay.

That was helpful.

On the VaR, which you alluded to having increased, to what extent would you expect that that might decline somewhat seasonally as the year progresses or if the number of trading opportunities were to tail off?

I would not say that there is seasonality in that, Guy.

I think that is driven by activity levels and opportunities, and we saw opportunities in the first quarter, and, of course, our customers saw opportunities in the first quarter, and that's really what drove our VaR levels.

Okay.

Fair enough.

Can you give us a little bit of a sense for -- a little bit more color on the backlog versus say three months ago?

You said they're generally up, but maybe you could parse it a little bit, M&A, equities, fixed income?

I would say it's pretty well up across the board.

In all areas of Investment Banking.

And finally, that comp ratio at 50%, we saw a number of other firms report last week with comp ratios that tended to be below that and sort of below where they've typically been in the first quarter.

And also you had a lot of revenues such as PIA and some of the overrides which might not attract quite as high a comp ratio typically.

Should we expect that you're just trying to be conservative in establishing the reserve at this point in the year?

I can't comment on what our competitors do.

I will tell you that we've told you in the past that we expect to pay 50%, plus or minus a couple of percent, and unless we know something that causes us to accrue differently, that's where we're going to accrue, and that's where we are right now.

Fair enough.

Thanks very much.

Okay.

Our next question is from William Tanona with J.P. Morgan.

Hey, David.

Good morning, Bill.

Just a follow-up on Guy's question.

Could you give us a little bit more color as to the sequential improvement in trading, how much of that was due to your principal business and how much of it was customer flow driven?

Well, again, we don't break out those numbers specifically, but as I said to Guy, most of the trading we do comes from trading with our customers, and the customer activity was quite high in the quarter, and our trading picked up.

Okay.

And can you tell us how your VaR ended the quarter relative to its average?

The actual number will be in the 10-Q which comes out shortly, but you should know that it was a little bit lower at the end of the quarter than the average.

Okay.

And in terms of the asset management fees, obviously that was significantly higher than the typical run rate what we could expect.

Is kind of the 56 basis points what we should expect as a normalized rate?

Again, I don't think you're terribly far off there.

I would tell you that a great majority of the increase was from the increase in performance fees, incentive fees, not all of the increase, and it was a record quarter, and it would have been a record quarter without the incentive fees because the assets continued to grow.

Great.

And just lastly, in terms of expenses, you still had what I would consider to be some nonrecurring expenses with the real estate as well as litigation.

I mean, if you X those out you're kind of working at a 940-type million dollar run rate would.

That be kind of a good bogey to use.

You'll never hear me use the word non-recurring, because they recur, but I think that somewhere in the $950 million to $1 billion range is where we're running right now.

Okay.

Said a little differently, do you expect those charges to decelerate or stop anytime soon?

The legal environment and regulatory environment is very hard to predict, so, I can't say that they will or won't, but we'll let you know whenever we have them so we can break them out separately.

And, I think that the real-estate charges are likely to decelerate.

Great.

Thank you.

Our next question is from Glenn Schorr with UBS.

[Inaudible].

Question on margins.

We normally have to wait for the Q, but looking for any color.

If you want to give us the number, go for it.

If not, just comparisons and maybe full year.

I'll go out on a limb and say that this quarter was better than the 7% you put up in Investment Banking last year, but anything on margins would be helpful.

Glen, I'm sorry, can I ask to you repeat the question?

We had a little technical problem here.

Not a problem.

The question is on margins.

We normally to have wait for the Q for segment detail on margins and, obviously being such a great quarter I know which direction it was going, but any color would be helpful.

I'll go out on a limb and say that the 7% you put up in Investment Banking was better this quarter.

I think you will find -- you're talking about segment P&L?

Correct.

I think you'll find that it was broadly in line with what you saw in '03.

Broadly in line with '03, including the banking margin?

Yes.

Interesting.

Okay.

On the private equity side, not the biggest of deals, but the $71 million bump on the private component, is that a function of as things get maybe closer towards liquidity events the orderers make you do it?

In other words, because obviously if you had it your way you wouldn't bother marking it, you would keep it at a conservative mark.

That's additional investments.

Additional investments.

Yeah.

Got it.

Then final thing is, on loan and loan commitments, just maybe the change in the quarter, was it positive, and if you can give us any detail there?

Glen, I'm sorry again, on which business?

Just a general number for loans and loan commitments in the quarter, the sequential change?

The street [ph] and loan commitments?

Correct.

You saw up a little bit kind of in line with the growth of our business in general, nothing out of the ordinary.

Okay.

Great.

Thanks.

Thank you.

Our next question is from Mark Constant with Lehman Brothers.

Good morning, David.

Hey, Mark.

Just a couple things I wanted to follow up on.

You don't typically speak to the current quarter on these calls, but since you did use the current tense [ph] in your prepared remarks in talking about the environment for FICC businesses remaining robust, and I think, with respect to equity, I think you said something about benefiting from the environment.

Just wondered if you could speak to the sort of subsequent to quarter end changes, a little bit of surprising move for most folks in terms of rates, certainly may be against the crowded trade, if you will.

And then on the equity side negative market levels.

Is that still consistent with those comments in terms of your experience so far, the environment still as favorable as it was in the first quarter, notwithstanding those developments?

Mark, I won't comment on our performance so far this quarter, but as far as the environment goes, if you look at FICC you still have low rates, steep yield curve, tight credit spreads, volatility in currency markets and commodity markets, the same thing I mentioned before, are still in existence today.

The equity markets, while they've certainly been down over the last couple of weeks, activity levels are still pretty high.

Now if we have more external events and the equity markets continue to decline, that will not be good for the equity-related businesses, but at least so far the activity level is still pretty high, and so as we sit here right now the activity in both is still pretty good.

Good, okay.

On the SMFG convert, if you held, say, the stock price, the common stock price, constant and credit card risk constant, would you or should we expect that mark to continue to become more favorable as it approaches its -- just for liquidity purposes, as it approaches the restriction eliminations?

Yes.

Okay.

And on the asset management side, the flows this quarter, I assume that the U.K. pension outflows are done now.

Is that right?

Yes.

Was there any particularly large positive mandate this quarter in either of the alternative investment or equity categories, anything that maybe hit three-year track record or five-year numbers, something like that that you got a lump from, or was it just business doing well across the board there?

The business was very strong across the board.

It was very robust.

There was no one particular inflow.

It was quite broad.

Thank you very much.

You're welcome.

Our next question is from Richard Bove with Hoefer & Arnett.

Hi.

This question is a little bit different in that I'm wondering what could be done about guidance concerning assisting us investors to understand better how this company earns its money.

Basically, over the last year the multiple on the stock has come down relatively sharply because clearly no analysts has a clue as to how to estimate the earnings of this company.

We estimated 225 for the quarter and we were still off by more than 10%.

The Company doesn't pre-announce, which I would think is almost an obligation when you have a number this high relative to estimates, and it would seem to me that no matter what the Company does going forward earnings-wise, the multiple will continue to fall since there's no guidance as to what the key elements are to drive the Company's earnings in any given period.

How do you address those issues?

Well, you said a lot of things which are kind of tough to comment on, but we don't give guidance, we're not going to give guidance, nor do we pre-announce.

And, figuring out our earnings, we have a very broad complex, a very broad franchise.

Our earnings do not come from one place or another.

We are quite strong in all of our major businesses across Investment Banking, across the entire trading complex, which in itself is quite broad, and, of course, the asset management business.

In different environments, different parts of the businesses may do well.

It is business as we have said that each of our businesses is certainly a cyclical business, when you combine them all we hope they will be less cyclical, although the earnings will vary from quarter to quarter, and this was a quarter where all of the businesses did quite well.

Isn't it possible though that the stock will drop to eight to ten times earnings because no one can get a feel for where the Company's earnings are going?

You are the judge of that better than I am.

I would be disappointed if our multiple dropped to eight to ten times.

I would think people would focus much more on the earnings power of the firm and the fact that it continues to be quite strong as opposed to the fact that you might not be able to figure out what our earnings are going to be.

Thank you.

Sure.

Our next question is from Richard Strauss with Deutsche Banc.

Good morning, David.

Let's see.

You said, "Don't underestimate the earnings power of Goldman Sachs."

Which that sounds very bullish for you.

I'm just wondering, I know you said you raise your VaR based on where the opportunities are and if there's opportunities, you're going to do it.

Let me ask you this, is there any kind of cutoff, is there any kind of internal speed limit?

I mean, you might have an infinite number of opportunities, let's say.

I'm just wanting to know if there's a cutoff at all internally.

I'll answer your second question first.

Yes, we have limits.

We have VaR limits overall for the firm, as well as by individual business units, individual divisions, individual traders, so, yes, we do have limits, and we would not exceed the internal limits.

And to stop you from the next question, no, I will not tell you what the limits are, but, yes, we do have limits and we moderate them quite closely.

And on your first comment, yes, my saying, "Don't underestimate the earnings power of Goldman Sachs" was bullish, and it was hard not to be bullish this quarter.

Okay.

In terms of your balance sheet, did it, percentage wise, maybe you could just give us color directionally what we should be looking for there.

I assume it went up.

Balance sheet you will see in the Q was up between 5 and 10%.

Okay.

And also, I mean, actually kind of just away from this, on the issue of soft dollars, the fidelity letter to the SEC, the MFS pronouncement, maybe you could just give us your sense in terms of cost implications here and how you see this evolving.

First of all, one of the things I'll say is it's too early to tell, you started to see a bunch of comments from some of the big funds in the last few weeks.

How this will all unfold is a little bit hard to tell.

I will tell you for us, soft dollars is a very immaterial part of our overall expenses.

So that's not going to change things one way or the other.

Right.

I guess I'm talking more about unbundling of research and if that were to be paid for actually with hard dollars, I mean, obviously research budgets have been -- well, they've been coming down, but now it looks like they'll be going up again, perhaps, or not.

I guess what I'm trying to figure out is, some buy-siders are feeling strong about what the value of research is.

The sell side obviously has a view, and so I guess I'm talking more about research than Bloomberg's.

Is your question where do I think research is going to go?

We've talked about this before.

We are very committed to research.

We think research is very important to our franchise.

We're focused on value-added research and making sure that the reports that we give people are useful to them and provide information as opposed to just general updates.

And we're continuing to be committed to it, and how that might change because of unbundling, as I said, is too early to tell.

Okay.

Great.

Thank you.

You're welcome.

Our next question is from Reilly Tierney with Fox-Pitt Kelton.

Hey, David.

Hey, Reilly.

Great quarter.

Thank you.

The thing that really stood out to me in the quarter was the equity trading numbers.

Some of the other guys had pretty nice increases but you had something -- something very different was going on at Goldman Sachs during the quarter it seemed like.

It's kind of a broad question, but could you elaborate on maybe if you guys are doing anything differently in the equities business to either gain share or have more customers direct business to you?

Something's very, very clearly going on there that's very powerful and I think it has a big impact on this company.

Look, I think our equities trading business is very strong and has been strong for a long time.

We, as you know, have put a lot of effort into making sure that we had the business organized as best we can, making sure the businesses that should be near each other are near each other, making sure that the sales forces that should be talking to each other are talking to each other.

Our customer franchise across the board at Goldman Sachs is strong and we have synergies among them.

Our ability to make sure that we can provide the right solutions to our customers, wherever they want them, are very strong, and I think as the market starts to pick up you're seeing the effect of the strength of our franchise.

Okay.

Let me ask you, during the quarter, obviously you had a pretty decent size increase in VaR in that business.

Of the increase in VaR, where VaR increased, was it related more towards an increase in VaR on the customer side or on the the principal side?

I would tell you that our VaR increased both, but our VaR increase was more skewed to customers than it was to proprietary.

Okay.

Lastly, can you just give kind of a broad overview of the vast number of FICC businesses that you're in?

Could you give us maybe a handful that really had truly outstanding quarters and maybe a couple that were on the flatter side?

The real answer to that, Reilly, is they all had outstanding quarters.

The five big complexes within FICC, credit products, interest rate products, mortgages, currencies and commodities, all had very, very good quarters.

There were none that didn't.

Okay, that's great.

Thanks, David.

You're welcome.

Our next question is from Jeff Harte with Sandler O'Neill.

Good morning.

Nice quarter.

Thank you, Jeff.

Looking at the gain on Sumitomo, can you walk me through how we're getting from a $200 million gain to a 13 cent bottom-line number?

I'm having trouble getting to that.

Sure.

I'll do it, the real rough numbers, without a calculator, I'll just use round numbers. $200 million of revenues, 50%, comp-to-net revenues, so that gives you $100 million after comp. $65 million after tax.

And, round numbers, 500 million shares so that gets you at 13 cents.

Okay.

So 50% comp rate is reasonable to assume there.

Yes.

Revenues are revenues.

Okay.

Secondly, you mentioned the Investment Banking backlog being strong across FICC categories.

I want to make sure I understand that correctly.

That includes fixed income, correct?

Probably weakest among fixed income, but that is the lowest revenue part of our business, but pretty strong across everything.

And as we look out kind of longer term, I guess, you have an environment where you've said and everyone seems to say fixed income can't be sustainable at these levels, eventually needs to slow down, can you discuss a little bit how that would affect your capital management, if we would actually see a decline in fixed income which I'm generically labeling as being a more capital intensive businesses and whether that would imply potential share buybacks or are there other high return areas to investor capital?

I guess I have to say, I've probably been saying that for three years and I've been wrong, so I probably don't have a lot of credibility in saying that anymore, but eventually it will turn down.

Clearly the FICC businesses, and remember, we talk about FICC as a business, and it's not, it's many businesses so.

Whether they would all turn down at the same time, pretty unlikely.

You have some businesses that are pretty counter-cyclical, so let's take the commodities business where we can use a lot of capital, that's not necessarily tied, and sometimes deemed to be counter-cyclical to interest-rate businesses.

You could certainly see some of those businesses pick up when others decline.

You also have a circumstance where, maybe, you don't know what circumstance it's going to be, that you see the economy booming so the fixed income market is not as good, and so equity businesses are able to use to more capital, the principal investing business could be able to use more capital, so when we sit here today, we have no shortage of ability to use our capital profitably, and I don't really see that in the future.

We'd address it if it did, but we don't see that looking forward.

Okay.

Thanks.

You're welcome.

Our next question is from Carol Berger with CREF Investments.

Hi, David.

Hi, Carol.

Could you talk a little bit about the power business, specifically give us some sort of color since we're not used to looking at the cost side in terms of how variable it is, either seasonally or to fuel costs, and beyond that, if you want to talk about what kind of leverage you can get off of that on the revenue side.

Are you talking about that cost of power line, Carol?

Yes.

I don't think it's very seasonal.

I think you'll see that, I think, be fairly steady over time, and the revenues are within the commodities trading business, so it will be within FICC trading from the power generation.

And then, our expectation, the reason we bought that, is to increase the ability to do trading around having a physical plant.

Would you say that you're already seeing that leverage in this quarter?

Some, but I think it will get bigger over time.

Remember, we just closed on that right at the end of last year, but, yes, you're seeing some of it this quarter.

Do you think you have enough capacity now for at least your intermediate plans in this business?

I think we are happy with where we are, and that doesn't mean we won't continue to look at opportunities over time.

Thank you.

You're welcome.

Again, ladies and gentlemen, press star then the number one on your telephone key pad if you do have any questions.

Our next question is from James Mitchell with Buckingham Research.

Yeah, good morning.

Just a quick follow-up on the performance fees in the asset management business.

Is there any way you can break down how much of that is just directionally was from alternative investments versus institutional?

And could you give some break down on the asset classes in the alternative investment space?

Well, I would tell you that alternative investments was the biggest part of the incentive fees.

First the institutional.

So I would say that.

And we give you the breakdown of all the asset classes in the press release.

I don't know if you saw it.

No, within alternative investments.

We don't break it down any farther than that.

Okay.

Okay, thanks.

No problem.

Our next question is from Guy Moszkowski with Merrill Lynch.

Hi, just like to follow up first of all on Mark's question about the inflows to the asset management business, the $24 billion, which obviously was pretty hefty.

Can you give us a sense for regionally or globally how that broke down?

Was a large part of it from offshore versus the U.S.?

I think, Guy, it was basically across the board.

We had asset inflows really in all regions.

There was no one that stood out.

Okay.

Fair enough.

And then just wanted to follow up on PIA.

Of the $158 million or so which was the non-Sumitomo portion, can you give us a sense for how much of that was gains versus overrides?

The majority was gains.

Okay.

Great.

Thanks very much.

You're welcome.

There are no further questions at this time.

I'd now like to turn the conference back over to Mr. Andrews for any further comment.

We'd like to thank you all for calling in today.

This call will be available on replay commencing around 1:00 this afternoon.

The details for getting into it can be found on our website at www.gs.com.

Thanks a lot.

Thank you, ladies and gentlemen, for your participation in today's call.

You may now disconnect.