高盛 (GS) 2005 Q3 法說會逐字稿

My name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs third-quarter 2005 earnings conference call. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Also, this call is being recorded today, September 20, 2005. Thank you. Mr. Andrews, you may begin your conference.

Good morning. This is John Andrews, Director of Investor Relations at Goldman Sachs. I would like to welcome you to our third-quarter earnings conference call.

To remind everybody, 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 these forward-looking statements.

For a discussion of some of the risks and factors that could affect the firm's results, please see the description of certain factors that may affect our business in our current annual report on Form 10-K for our fiscal year ended November 2004. 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.

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.

Our Chief Financial Officer, David Viniar, will now review the firm's quarterly results. David?

Thanks, John, and I would like to thank all of you for listing today. I will give a brief review of our results and then take your questions.

We're pleased to announce record net revenues, earnings, and earnings per share for the third quarter. Given how focused you and we are on returns, I am particularly pleased to report that our 32% annualized return on tangible equity is the best quarterly return in five years.

Net revenues of $7.3 billion were up 52% from the second quarter and 14% from the first quarter of this year, the prior record. Net earnings were $1.6 billion, and earnings per diluted share were $3.25, up 90% from last quarter.

This record performance was the result of strength across virtually all of our businesses. While the second quarter was characterized by uncertainties that roiled the interest rate, credit, commodities and equities markets, the third quarter saw trends reassert themselves. Investor and corporate confidence improved and levels of client activity increased.

I will now review each of our businesses, beginning with Investment Banking.

Net revenues in Investment Banking were $1.02 billion, up 25% from the second quarter. This is the first time quarterly net revenues in Investment Banking have exceeded $1 billion since the third quarter of 2001.

Advisory net revenues were up 45% to $559 million, reflecting strong growth in completed M&A for Goldman Sachs and the industry. Industry-wide announced M&A declined during the quarter, but we remain optimistic that the outlook for mergers remains favorable as long as current trends in the capital markets remain intact. Calendar year-to-date as of today we rank number one in announced and number two in completed M&A.

We advised on a number of significant transactions which closed during the quarter including Symantec's $11.9 billion acquisition of Veritas, Pernod Ricard's $18.1 billion acquisition of Allied Domecq, and MetLife's $11.7 billion acquisition of Travelers. Key announced transactions included United Health's $7.4 billion acquisition of PacifiCare, Legg Mason's acquisition of Citigroup's asset management unit, and Providian's $6.5 billion sale to Washington Mutual.

Third-quarter underwriting net revenues were $456 million. Equity underwriting increased 75% to $199 million, while debt underwriting declined 18% to 257 million.

Overall equity underwriting and IPO volumes grew during the quarter as sentiment in the equities markets improved, driving greater levels of primary and secondary equity activity. Year-to-date as of today Goldman Sachs ranks number one in global common stock and equity and equity-related offerings and number two in IPOs. Significant transactions during the quarter included Refco's $583 million IPO, Calpine's $650 million convertible notes offering, and Banking of Communications' $1.8 billion IPO.

The firm's investment banking backlog decrease during the third quarter, but is still higher than at the start of the fiscal year.

Let me now turn to Trading and Principal Investments, which consists of Fixed Income, Currency and Commodities, or FICC, Equities and Principal Investments.

Trading and Principal Investments produced record net revenues of $5.1 billion, up 80% from the second quarter. Within Trading and Principal Investments, FICC produced record net revenues of $2.6 billion, up 73% from the second quarter and 6% above the record first quarter. Strength in FICC was broad based with every major business producing strong results, particularly credit products. Credit spreads tightened significantly during the quarter, driving renewed favorable sentiment and high levels of activity.

The commodities business also performed very well compared to the second quarter, while results in interest rate products, currencies and mortgages remained strong.

Equity's net revenues of $1.6 billion were up 44% from the second quarter. The operating environment for Equities improved meaningfully in the quarter with rallies in global equity markets and increased activity driving stronger results in both our client and principal strategies businesses. Average daily value at risk in the third quarter increased 27% to $76 million. The major driver of this increase was Equities, reflecting the increase in activity and strength in the trading environment for our clients and our principal strategies area.

Principal Investments produced net revenues of $843 million in the third quarter. This was driven by $345 million of gains in overrides from corporate and to a lesser extent real estate investments, as well as a gain of $498 million or $0.34 per share related to our convertible preferred investment in Sumitomo Mitsui Financial Group. At quarter end our investment in SMFG was carried at fair value of $3.3 billion, our corporate portfolio had a carrying value of $1.8 billion, and our real estate portfolio $800 million.

Now I will turn to Asset Management Securities Services, which reported record net revenues in the quarter of $1.2 billion, up 3% from the prior record quarter.

Asset Management net revenues increased 6% to $731 million with higher management fees and incentive fees driving the growth. Our success at gathering assets was again evident as total assets under management grew to a record $520 billion during the quarter with $18 billion of net inflows across equities, alternative investments and fixed income, and $12 billion of market appreciation.

Securities Services' net revenues of $477 million were just 2% below the record second quarter. Global customer balances in securities lending and margin lending continued to grow in the third quarter, but that was offset by a decline in seasonal activity levels in Europe.

Now I will turn to expenses. Compensation expense in the third quarter was $3.6 billion (indiscernible) 50% of net revenues. Non-compensation expenses of $1.24 billion were up 7% from the second quarter. Excluding non-compensation expenses from consolidated investments, non-comp expenses were $1.14 billion, up 3% versus the second quarter.

Headcount at the end of the third quarter was approximately 22,000, up 5% from the second quarter, reflecting the normal seasonal pattern of our hiring from colleges and business schools.

Our tax rate year to date was approximately 31%, giving a rate of 32.8% for the third quarter. Excluding the effect of audit settlements, our tax rate would have been approximately 33% for 2005 to date.

During the quarter, the firm repurchased 16.3 million shares at a total cost of $1.7 billion. Year to date the firm has repurchased approximately 43 million shares. The Board of Directors has approved an additional authorization to repurchase 60 million shares, bringing our total available share repurchase authorization to 63 million. We continue to focus on managing our capital base with the goal of optimizing returns while continuing to grow our business.

As I have said before -- I'm sorry, I have said before that many of our businesses can be difficult to analyze and certainly to predict on a quarter-to-quarter basis. The third quarter was no exception. Although the second quarter was the fourth best in our history in terms of net revenues, we saw a very significant increase this quarter as activity across all key capital markets improved. The breadth of our franchise in investment banking, as well as trading asset classes across equities, interest rates, credit, mortgages, currencies, and commodities was once again evident. We continue to benefit from the investments we've made in our Asset Management and Security Services businesses which were very meaningful contributors to net revenues and profits. We also delivered a strong performance in Principal Investments, reflecting the breadth of our global investing franchise and the more favorable market conditions in the quarter. Our investment in SMFG continues to perform well, validating our confidence in Japan and SMFG itself, and capitalizing on an opportunity that stems directly from the strength of our franchise.

For much of 2005 to date economic data and markets have painted a mixed picture with respect to the overall outlook. Nevertheless, growth in the US and Asia has remained strong, with Europe somewhat behind.

What has clearly changed through the course of the year is the level of corporate and investor confidence. We've alternated between periods where merger announcements and public equity offerings were well received and periods where activity slowed materially. Certainly as I'm speaking today markets appear robust, but this can change quickly. However, we do have confidence in the underlying trajectory of the economy, as well as the health of the corporate sector.

The third quarter demonstrated what can happen when favorable conditions are allied with the strength and breadth of our franchise. We will certainly be working hard in the fourth quarter to deliver on behalf of our clients and shareholders for the remainder of 2005.

Thank you, and now I would like to answer your questions.

(OPERATOR INSTRUCTIONS) William Tanona, JPMorgan.

Just in terms of the investment banking backlog, obviously you guys mentioned that it decreased, and obviously some of your competitors were out there and talked about their backlog being at all-time highs. I know you guys obviously give it as a revenue probability, and I think some of the competitors obviously give it as just kind of volume estimates, but can you give us a sense as to if there was any weakness, particularly across regions or products, in terms of why the backlog is down?

I wouldn't read much into it. There was no weakness anywhere. Backlog is very -- can be very affected by the timing of a transaction closing and another one going into backlog. As you mentioned, it is probably weighted. And what I would tell you is activity levels in investment banking as we sit here today continue to be quite strong. So I would not read anything into the backlog being down a bit at the end of the quarter.

Okay. And in terms of the equities trading, obviously you guys talked about client activity as well as principal strategies being pretty strong in the quarter. But if you look at Security Services net revenues and commissions kind of being down on a quarter-over-quarter basis, it kind of contradicts that a little bit. Was the majority of the -- the high majority of the increase quarter-over-quarter from the principal strategies group or was there also some significant contribution from the client flow business?

I would tell you a slight majority of the increase was from the principal strategies business. There was meaningful contribution from the client business. In the security services business, remember the second quarter is usually the seasonally highest quarter. And this quarter was just a few million dollars behind, so it shows pretty big strength in the client franchise there. And across equities trading the principal strategies business was very strong, but so was the entire client franchise.

Okay. And so I guess on the second part of your point there, you look at the Securities Services business, I think the second quarter always is seasonally strong. I guess that would suggest that with this back-to-back strong quarter it would suggest that your balances are up across the board in the prime brokerage sector.

That would be correct.

And then in terms of lastly, share repurchase, you guys obviously have been pretty aggressive year to date in announcing a 60 million additional share repurchase. Any thoughts on the trajectory we could anticipate with the new 60 million?

I would expect that our anticipation as we sit here today is that we would exit that over approximately the next year. But, you know, we will continue to watch what happens with our results and our capital and other things as we go forward. But that's what we would think right now.

Glenn Schorr, UBS.

So your comments on optimizing returns and (indiscernible) book growth obviously you're doing it, but to Bill's comment, but buyback is big. It's 12% of the outstanding. Maybe if you could just comment on what you would expect in terms of share -- it certainly feels like there would be a reasonably sized net share count reduction. And then maybe importantly, is there much to read into in terms of how you think about the maturity of your business mix and balancing the investment opportunities because you're making all this money?

Let me get to the second piece. No, there's nothing to read into it there. We continue to be extremely bullish on our business and the growth prospects of our business.

If you look at our capital, Glenn, it has grown. Our total equity has grown 23% since the end of 2003 and 40% since the end of 2002. So we've had very, very strong and rapid growth in capital given how much we've earned. And I think as we talked about before, it's hard to put that much capital to work that quickly.

We're still very optimistic. As you can see from the results this quarter, our business continues to grow. We continue to see good opportunities. We will watch this going forward, but right now our view is in order to keep the returns up we have ample capital to grow the business and we need to slow down the growth of the capital.

I completely appreciate that. I was meaning maturity as a good thing, meaning you've made your major investments and now you're reaping the benefits of the harvest.

Look, I think that we -- sure we've invested in the past, but we continue to invest. We continue to see good opportunities. China, let's take one example, is clearly going to be an investment where we will invest and not necessarily anticipate having significant profits for the next several years. So we continue to see great opportunities where we will invest and think we will get great returns in the future, but we've also -- we are reaping the benefits of a lot of the investments we've made in the past.

One question on FICC. Very tough one to ask, but maybe just directional guidance. How important in a quarter like this is the spread tightening, meaning it helps on the marked side, it helps on the increasing client flow, but like if there was ever any chance of saying all else equal in a similar quarter without the spread tightening, how much of a contributor is that in a quarter like this?

No (indiscernible) -- and we have said this before -- our businesses are quite diverse. No single item like that would be a dominant factor. I think as you said, the spread tightening helps in many ways. We would always rather have spread tightening than spread widening. But what's more important is that it trends in one direction or the other, because that is what gets our clients to transact. And the most important thing -- remember, in the second quarter you kind of had the anomaly where there was no trends --spreads were tight; then they would widen; then they tightened again; then they widened again -- whereas this quarter they trended tighter through the whole quarter. Yes, it was good for distressed assets. It was also good for causing clients to want to transact. So I would not tell you that without it -- it would have still been a really good quarter if everything else was equal, but not quite as good.

Guy Moszkowski, Merrill Lynch.

I was wondering if regarding capital management you could elaborate a little bit on your philosophy as it stands regarding the trade-off that you make between maximizing return on equity on the one hand and growing book value on the other. And if I could just elaborate on that a little bit, year-to-date your book value growth is just under 60% of your earnings per share. Historically I think your aggregate is 75 to 80%. Is the 60% a reasonable expectation for us to model in going forward?

You have hit the $64,000 question. There is no magic answer to this question. And I will tell you it's not a science. I can't sit here and tell you that we're going to grow book value at 60% or 75% of our earnings per share growth. We're focused on both. This is a trade-off that we're going to make a quarter at a time, or a week at a time, or a month at a time.

We are focused on our book value per share growth. We know how important that is. We're focused on growing our business. But we're also focused on the returns. That is a trade-off and a calculation that we do. We sit here now and say, okay, how many shares should we buy back on a daily basis this quarter, and given certain projections what will it mean to book value, what will it mean to returns, and we kind of triangulate on what we think is the best for our shareholders.

I am giving you a little bit of a wishy-washy answer because there is no science or magic to it. But we do look at both of those things carefully, and we look at the trade-off, and we make our best estimates of what we think will be most attractive to our shareholders.

Well, that actually helps. Thanks. Now to something much more mundane. You mentioned a $20 million occupancy cost jump due to relocation costs in the release. Should we assume that that is nonrecurring after this quarter, or should we build it in because you're going to be preparing to build a new building, etc.?

No, that one is certainly non-recurring. That was for relocation of our office in Chicago, and that's basically done now. There was a small (indiscernible) it was about 16 million last quarter and 20 million this quarter as we did that, and that is all done.

Chris Meyer, Morgan Stanley.

David, just -- not to beat the horse here, but on buybacks, how much are we missing just the fact that Goldman Sachs will now be able to consistently buy back more stock because -- not just because the environment is good at the moment, but because businesses like Prime Brokerage and Asset Management, which are very cash generative businesses, are now a much bigger part of the overall business?

I think that is part of what is allowing us to do this. In addition to all of our business is performing well, and us producing the revenues and earnings which allow us to buy back the shares while still keeping our capital at good levels, some of the less capital-intensive businesses are doing quite well. Investment Banking has been coming back, Asset Management, Security Services, all those are doing well. Not to say the capital intensive businesses aren't doing well and aren't growing also. But I think there's better performance in some of those businesses, and that is certainly helping.

How do you think about buybacks versus just paying a special dividend?

Our view is that for our shareholders there are more benefits to doing buybacks versus a dividend. There's a whole bunch of reasons for that.

First of all, it helps with share count, as well as with capital. So we think that's a benefit. It is easier to change -- well, obviously a special dividend is only one time whereas an increase in dividend, that's harder to decrease whereas capital is something that can be -- buybacks can be adjusted quarter to quarter. We also think that many of our shareholders actually aren't terribly interested in getting the cash back and reinvesting it. So we think overall for our shareholders buybacks are better than a dividend.

David, just on the -- I don't you encourage us to look at equity trading and equity commissions together when thinking about equity trading, but I just wonder if the strength we saw in equity trading relative to equity commissions -- and it's not just this quarter, but it seems to be fairly consistent -- is that a sign of the equity model moving much more towards being paid on a sort of bid-offer spread, the kind of principal model than the classic agency model within that business?

Absolutely. That is a trend that you've seen. That is a trend that my guess is will continue. Commissions are purely shares times the few cents a share for crossing them. Many more transactions -- again, this is what our clients want -- are being done on a principal basis rather than a pure agency basis. So I think this is not an anomaly. I think this is something that you're likely see going forward.

And on FICC, and I know this is sort of a high-quality problem, but why would commodities not have had a record quarter this quarter given how robust pricing was and how when you look at NYMEX and ICE (ph) volumes how robust those volumes were?

Chris, I think you're right. It shows that we've had a pretty good quarter when you're asking why a certain business didn't have a record. But you know, we've had other good environments in commodities. A lot of it has to do more than anything with when various clients want to do certain trades. If we have a client or two or three that wanted to do more hedging a year ago or three months ago than they happened to do this quarter, that will have a lot to do with when we might have record results. Very strong results this quarter and very pleased with the business, just not a record.

Finally, David, just on the comp to revenue, obviously you have had a tremendous revenue year, not just in the operating businesses, but also in the principal investments line. Should we -- and it's a better year than last year, and last year in the fourth quarter we had a 35% comp to revenue ratio. Should we be expecting something similar this year in the fourth quarter?

Chris, all I can say is that as you know we do our bonus compensation, which is a big piece of our compensation, at end of the year. We do it person by person, and we will calculate what it is. We accrue 50% because it is as good an estimate as any. The best estimate we have right now is to what our compensation will be, and if there is any change it will be in the fourth quarter.

Mark Constant, Lehman Brothers.

One big picture, one little picture. I guess I'll start with the second. Would you expect performance fees to be a bit lower sequentially in 4Q as kind of as they were in the pattern a year ago? I think you attributed that to the timing of when assets get raised or have subsequent inflows and alternatives really changed or smooth that seasonality.

Performance fees in the Asset Management business, just to set your expectations, are not that big of a contributor this quarter; won't be next quarter. The seasonal time when performance fees are the biggest contributor is the first quarter because many of the funds that have performance fees are calendar-year funds, and so the performance fees are earned when the year is over. And that's the end of the calendar year, which is it our first quarter. So they may be up or down a little bit next quarter. That will not be a driving factor in Asset Management. If there is a quarter it is a drive, it's a big factor, it's the first quarter.

I thought there was also a little of that in the fourth, but --

Yes, but a little.

The bigger picture question is if you could kind of aggregate look beyond VAR and kind of include all the other forms of risk you deal with daily -- liquidity, leverage, regulatory, sort of infrastructure, resource commitment, all kind of stuff -- if you could sort of subjectively characterize the change in the firms' overall risk profile or tolerance over the past quarter and year given the business opportunities that you're seeing right now, how would you -- sort of order of magnitude how would you characterize that?

Well, it's hard to do order -- that's a very hard question you ask. We look at all of those things. I think it's fair to say that our risk is higher. Our business is bigger. The firm is bigger. We're seeing more opportunities and we're more global. We're seeing more opportunities around the world, and we're pleased with that. So I'm not sure if I could use a common unit of measurement in order to add them all up and give you percentage changes, but our risk is higher. We're seeing more opportunities in many places and trying to take advantage of them, and our clients are more active.

Slightly differently, I guess, is VAR reasonably correlated to the total if you think about it that way, or is it not indicative?

Again, I'm not sure how to give it a common unit of measurement. I'm not sure I would tell you that numerically it's correlated, but I would tell you directionally it's probably correlated.

Daniel Goldberg, Bear Stearns.

Can you talk a little bit about if you look at your non-comp expenses only up about 7% for the quarter and net revenues obviously up over 50% how we should think about the leverage in the Goldman model? You had pre-tax margins in the mid-30% range, and I think looking back that's closest to the highest you've been in quite a while, if not ever, in the mid-30s. So how should we think about the leverage in the model going forward?

Just to clarify, the way we think about it, our non-comp expenses that are really associated with the operation of the firm, they were only up 3% in the quarter because there is about $100 million of expenses from consolidated investments. Those are expenses that we do have to put in our expenses because we do consolidate those investments, but we will only sell off or take public those investments. They're not really part of the operations of the firm, and we have offsetting revenues in the revenue line. When you really think about the expenses of running Goldman Sachs, they are up around 3% non-comp expenses quarter-over-quarter.

(indiscernible) you know -- as you know, expenses have trended up a little bit because the business is more active. Most of that increase in expenses is actually activity based, which is good. But we spend a lot of time keeping track of our expenses. I spend a lot of time keeping track of our expenses and making sure that we don't spend needlessly, and so we're going to continue to do that. And as you say, that gives us a lot of operating leverage. And we're going to continue to be careful.

I would expect that if the business continues to grow, activity levels continue to grow, you'll see things like brokerage and clearance and market development continue to grow because it should because we're more active, but hopefully not as rapidly as revenues, as long as revenues continue to grow.

I know you don't give guidance obviously, but you think something in the mid-30% is fair assuming the environment remains strong and you have continued contribution from some of the higher-margin businesses like Asset Management and in Banking?

Again, I don't want to give guidance, but if revenues continue to grow and expenses grow slower, then our margins are going to be good and better.

Okay. Within Asset Management, just looking at some of the detail of the flows, it looks like your flows in the alternative assets, particularly annualized organic growth about 23%, if I calculated that correctly, any comment there in terms of why your alternative assets might be growing at such a fast clip or anything Goldman is growing differently?

We are -- as you know, we have a multiproduct global platform. It did, you're right, grow on a percentage basis more than some of the others on an absolute dollar basis. It was pretty evenly spread across what we consider the three most profitable areas -- equity, alternative investments and fixed income currency -- fixed income and currencies. Our performance has been pretty good in the alternative investment area. We offer a broad range of products for our clients. And between those two things we've been able to grow those assets. And they are very good and very profitable for us.

And then just lastly within Trading and Principal Investments, the override of 140 going, any other color there?

That's just overrides starting to kick in on some of the funds that we manage. As we have sold some other investments, we have earned overrides on them as well.

And that is a level that you think is reasonable to continue to model out?

I think that's going to be -- that's going to vary quarter to quarter. It's hard to say what -- there's a base line there; that's going to depend on particular assets that happen to get sold in a particular quarter.

(OPERATOR INSTRUCTIONS) Michael Lipper, Lipper Advisory Services.

Looking at the advisory business, I was wondering why there was greater operating leverage, and the thought came to me is that you may have had some startup costs on some of the new money that you brought in.

On the advisory business?

No, on the Asset Management business.

Okay. Fine. That is absolutely what has happened over time. If you go back -- it's not startup costs so much on the money we brought in as it is costs in creating a big Asset Management platform.

If you remember back to when we went public, when we had a much smaller level of assets under management, we were bringing in revenues and earning -- very little of it was going to the bottom line because we had built a fairly large factory and we didn't have enough product to really flow through the factory. Over the last several years as we continue to gather assets at a rapid clip, given our performance and our relationships, a much bigger percentage of what we are gathering is going to the bottom line because most of infrastructure has been built.

And so that's why there is a lot of operating leverage. It really is the cost of growing, really starting up that business. We were late into the game. But we are as big as others now, and gathering assets at a rapid clip, and so there is a lot of operating leverage there.

But you really didn't get much operating leverage in this past quarter. Are we to interpret your comment that that will come at some point?

I'm not sure -- when you say we didn't get a lot of operating leverage --?

Relative to the flows and the revenues.

You mean revenues didn't go up as much as the flows. Obviously there's a lag. When we bring in revenues we bring them in across the quarter, and the revenues will come in lagging the actual asset growth.

But the earnings also didn't -- I mean, the earnings kept pace with revenues rather than run ahead.

In Asset Management, you're talking about?

Yes.

There's no numbers on earnings in Asset Management in here, so those won't come out until the Q.

William Tanona, JPMorgan.

If you guys look at your revenues historically in the fourth quarter, you've always seen somewhat of a seasonal drop, particularly in the fixed income line. I know you're not in the business of predicting kind of revenues, but is there something we should be thinking about as we look at the fourth quarter here, particularly as it pertains to fixed income results coming off of these record results? Is there some reason why we should be incorporating in a pretty significant drop in FICC revenues this quarter?

You were right at the beginning; we don't generally predict. It's very difficult to predict our revenues on a quarter-to-quarter basis and that is a conversation I've had with many of you over time. When you look at our revenues in FICC or for the firm as a whole, you will see that on a quarterly basis they're pretty volatile. But if you look on an annual basis, they're actually not very volatile. You will see that in both the firm and FICC revenues have been up basically 8 of the last 10 and 16 of the last 20 years. The timing of transactions can affect what quarter revenues go into, and so it's very, very hard for me to predict. So I can't. Unfortunately, it's hard for me to give you guidance on what's going to happen in the fourth quarter.

But is there something seasonally in the fourth quarter that we should look for typically, because if you go back to when you guys were a public company your FICC revenues were down an average of about 30% quarter over quarter third quarter to the fourth quarter. So I guess I'm more or less asking is there something seasonally in the fourth quarter with you guys that may be different?

No, nothing I would say, nothing I could point you to.

Mark Constant, Lehman Brothers.

I know you're always going to have some ongoing legal expenses in every given quarter, but is there a degree to which you can kind of characterize maybe what inning of the game we are in in terms of the elevation of those levels?

Let's put it this way -- I don't foresee them decreasing anytime in the near future.

At this time there are no further questions.

This is John Andrews again. We'd like to thank you for dialing in. This call will be available on replay in a few hours on our public website. In the meantime, thanks for taking the time.

This concludes the Goldman Sachs third-quarter 2005 earnings conference call.