高盛 (GS) 2006 Q2 法說會逐字稿

I would like to welcome everyone to the Goldman Sachs second-quarter 2006 earnings conference call.

After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) The call is being recorded today, June 13, 2006.

Thank you.

Mr. Andrews, you may begin your conference.

Thank you and good morning.

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

I would like to welcome you to our second-quarter earnings conference call.

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 affect the firm's future results, please see the description of risk factors in our current annual report on Form 10-K for our fiscal year ended November 2005.

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

Let me now ask David Viniar, our Chief Financial Officer, to review the quarter's results.

David?

Thanks, John.

I would like to thank all of you for listening today.

I am very pleased to report our second-best quarterly earnings.

Net revenues in the second quarter were $10.1 billion; and excluding non-cash expenses of $138 million related to FAS 123(R), net earnings were $2.4 billion, with earnings per diluted share of $4.97.

On the same basis, annualized return on tangible equity was 41% and return on common equity was 34%.

Included in non-cash expense of $138 million, diluted EPS was $4.78; annualized return on tangible equity was 39%; and return on common equity was 32.5%.

The second quarter largely continued the strong momentum of our first-quarter performance, driving a record first half of the year.

Our returns remain at very high levels, underscoring the firm's ability to capitalize on business opportunities as they arise.

The market environment was quite favorable for much, albeit not all, of the quarter, with high levels of customer activity in all areas.

We believe it is a combination of our business model, which emphasizes the client franchise, a prudent risk appetite, geographic reach, and product breadth, with an attractive environment, that has enabled us to generate these very strong results.

I will now review each of our businesses.

Investment Banking had its second-best quarter ever, producing net revenues of $1.5 billion, up slightly from the first quarter.

While net revenues in financial advisory and debt underwriting declined from a very strong first quarter, significant growth in equity underwriting more than offset this decline.

Advisory net revenues for the second quarter were down 17% from the record first quarter to $608 million as completed M&A declined for the industry.

A number of important transactions did close during the second quarter, including ConocoPhillips' $36 billion acquisition of Burlington Resources, NTL's $8.8 billion acquisition of Telewest, and Hutchison Whampoa's $4.4 billion sale of a 20% stake in Hutchison Port to PSA.

We were also adviser on a number of announced transactions including BellSouth's $67 billion sale to AT&T, Softbank's $16 billion acquisition of Vodafone K.K. in Japan, and Alcatel's $17 billion merger with Lucent Technologies.

Second-quarter underwriting net revenues were a record $918 million, with equity underwriting net revenues up 70% to $482 million and debt underwriting down 4% to $336 million.

The biggest driver of the growth in equity underwriting revenues was a significant increase in IPO activity, including the $11.2 billion IPO of the Bank of China, KKR Private Equity Investors' $5 billion offering, and MasterCard's $2.4 billion offering.

The Investment Banking environment continued to be favorable and our franchise continued to flourish.

For the calendar year to date, Goldman Sachs ranked first in global announced and completed M&A, equity and equity-linked offerings, common stock, and IPOs.

Our Investment Banking backlog grew during the quarter.

I will now turn to Trading and Principal Investments.

This comprises Fixed Income, Currency, and Commodities, or FICC, equities, and principal investments.

Net revenues were a record $6.96 billion in the second quarter.

FICC net revenues were a record $4.3 billion, up 15% from the first quarter, reflecting continued high levels of activity across our franchise.

Higher net revenues in commodities, mortgages, and interest rate products were partially offset by lower, albeit very strong, net revenues in currencies, while credit was essentially flat.

In commodities we benefited from a $700 million gain related to the sale of the Linden cogeneration facility as well as strong results across the business.

Market conditions remained quite favorable for the majority of the quarter, although investors' macroeconomic concerns did lead to more challenging markets toward the end of the quarter.

That said, credit spreads remained generally tight.

Rates globally remained relatively low, while commodities and currency volatility generated high levels of activity; and our mortgage business improved from the weaker environment of the last few quarters.

Equities' net revenues for the second quarter were $2.35 billion, down 4% from the record first quarter.

Equities' trading decreased 12% to [$1.3] billion while equities commissions increased 11% to $936 million.

Overall, global equity prices were higher for much of the quarter, but were mostly flat to down at the end, given the more challenging market conditions in May.

This primarily affected our principal strategies business, which produced solid results that were nevertheless significantly lower than the record first quarter.

We were particularly pleased with the growth in our equities commissions.

Despite the continued decline in commission rates for the industry, the strength of our equities franchise across both high and low touch business has allowed us to continue to gain market share.

Average daily value at risk in the second quarter was $112 million, compared to $92 million for the first quarter, reflecting the continuing high level of opportunities across our trading businesses for most of the quarter.

In principal investments, net revenues were $293 million in the second quarter, compared to $695 million in the first quarter.

This decline was driven by the mark-to-market of our convertible preferred investment in Sumitomo Mitsui financial group, where we recognized an unrealized loss of $61 million or $0.04 per share.

Gains in overrides from corporate and real estate investments increased to $354 million as we continue to benefit from strong investment performance.

At quarter end, our investment in SMFG was carried at fair value of $4.6 billion, of which approximately 50% is hedged.

Our corporate portfolio had a carrying value of approximately $3.1 billion, and our real estate portfolio of $600 million.

As you know, during the quarter we made an investment in the Industrial and Commercial Bank of China.

This had a carrying value at quarter-end of $2.6 billion, which includes approximately $1.65 billion attributable to investment funds managed by Goldman Sachs.

Asset Management and Securities Services reported second-quarter net revenues of $1.61 billion, down 19% from the record first quarter.

Asset Management produced net revenues of $954 million, down 36% from the record first quarter.

Management and other fees were a record $850 million, up 13% sequentially.

Incentive fees were also very strong at $104 million.

As you know, incentive fees are seasonally weighted to the first quarter of the year, so the significant decline from last quarter's result was no surprise.

At the end of the second quarter, we had record assets under management of $593 billion, reflecting net inflows across all asset classes of $15 billion and market appreciation of $7 billion.

In Securities Services, second-quarter net revenues were a record $656 million, up 34% from the first quarter.

This exceptional result underscores our continued leadership in global prime brokerage and reflected higher customer balances in securities lending and margin lending, as well as seasonally higher activity levels in Europe.

Now let me turn to expenses.

Compensation and benefits expense in the quarter was $5.09 billion, accrued at 49% of net revenues excluding the $138 million non-cash charge related to FAS 123(R).

Noncompensation expenses excluding consolidated investments were $1.37 billion, up 10% from the first quarter.

The majority of the increase was driven by brokerage and clearing fees and market development, reflecting higher trading volumes and overall business activity during the quarter.

Headcount at the end of the second quarter was up 2% to approximately 24,000.

Our effective tax rate for the second quarter was 34.4%, up from 32.8% for the first quarter, which was driven by lower tax credits.

Our tax rate to date was 33.6%.

During the quarter the firm repurchased 6.5 million shares for approximately $1 billion, leaving approximately $17 million remaining under the firm's existing authorization.

This quarter the pace of our share repurchase activity slowed compared to recent quarters.

As I said when we significantly increased our buyback in the first quarter of 2005, we believed that we were generating equity capital at a pace faster than we could prudently reinvest it.

Since then we have repurchased $10.7 billion of our stock while continuing to invest significantly in opportunities across our businesses.

We will continue to manage our equity to achieve our goals of optimizing returns, investing for growth, and maintaining a prudent capital base.

Our second-quarter performance was a near record, with net revenues, diluted EPS, and returns on equity continuing at very high levels.

We believe that this reflects our long-term investment in building a global business with a unique breadth and depth to serve clients and capture opportunities in many different product areas.

In our Investment Banking business, where we remain the global leader, we benefited in particular from increased equity issuance, including several very large transactions outside the United States.

Indeed, the strength of our international franchise was particularly evident this quarter across all of Investment Banking.

FICC improved on an extraordinary first-quarter result.

Although the performance of the individual components of FICC vary from quarter-to-quarter, at present all are delivering very strong results.

We were also pleased with the performance of our equity business, although it was affected by weaker markets late in the quarter.

In principal investments, our investment in SMFG recorded a modest unrealized loss during the quarter, but the strength of our merchant banking business was demonstrated by the significant gains in overrides in our corporate and real estate portfolio.

Asset Management and Securities Services both recorded outstanding results.

Management and other fees in Asset Management were at record levels; and Securities Services reported outright record net revenues.

In both areas we are benefiting from patient investment in building very strong customer relationships and product offerings.

Overall the firm's performance in the second quarter reflected a market environment that was very favorable for much of the period.

In a largely transaction based business, high levels of activity on the part of corporations and investors are key to our performance.

In our Investment Banking business, activity is driven through time by economic growth, favorable equity markets, and investor and corporate confidence.

In the FICC complex, although our five major businesses are driven by different factors, in each of them the existence of strong price trends and some volatility correlates strongly with high activity levels.

The equities business is of course more dependent on the absolute level and direction of prices.

For most of the second quarter, all of these conditions were broadly favorable, essentially continuing the trends we saw in the record first quarter.

However in the last few weeks of May and continuing in early June, we saw heightened volatility and weakness in various securities markets, particularly in equities, as investors reappraised both the macroeconomic outlook and risk appetite.

While corporate activity remains high, CEO and investor confidence will likely be affected if market weakness and uncertainty persists.

For the time being, we take comfort in having produced very good returns for shareholders during the first half of the year, reflecting ongoing high levels of activity and the strength of our franchise across the world.

It is no accident that in the right market conditions we are able to generate exceptional results.

Goldman Sachs has greater product and geographic diversity and deeper client relations than many others; and the strength of our people and culture has enabled us to sustain those competitive advantages.

I am therefore confident that we will continue to serve our clients well in the quarters ahead.

With that, I would like to thank you again for listening today, and I am now happy to answer your questions.

(OPERATOR INSTRUCTIONS) Glenn Schorr, UBS.

Okay, quick cleanup question on the equities.

Obviously there is a certain Mendoza line of materiality, but if you could give any color on NYSE Arca, just so people can have the perspective.

Obviously it was not as -- probably half as big as the Linden power plant or else you would have probably mentioned it.

It was below the Mendoza line is the first thing I would say.

Here's the only thing I would say, Glenn.

Equities had the second-best quarter we have ever had including the New York Stock Exchange; and it would have had the second-best quarter we ever had excluding the New York Stock Exchange.

Okay, I can do that math.

You mentioned in your comment about the obvious component of -- well, if this continues it is going to affect confidence levels and activity levels.

So I think we see clients taking down risk levels.

Does it go hand-in-hand?

In other words, does Goldman's collective desk also take down risk levels and just react to the market environment?

I will give you -- obviously I am not going to tell you what our risk levels are now versus the end of the quarter.

But suffice it to say you have seen it; when you look at the Q you see our risk levels across the quarter.

When we see more opportunities, we tend to take more risk.

When we see opportunities diminish, we tend to take our risk down.

We are very nimble at doing that.

I think the results show that.

Then in terms of -- someone asked a question I thought was interesting to bring to you.

It is, when you consider all the different businesses you're in, there's a bunch of them that are actually -- you would consider late cycle.

So as much as people are taking down risk, if you look across some of the things that you are great in, like M&A, like FX, maybe even parts of credit, as much as the stocks are falling apart, it doesn't feel like the overall fundamentals are.

Fair enough comment?

What we have seen to date -- and you know I'm always hesitant to predict what is going to happen in the future -- what we have seen so far has been that decline in the equity markets has actually not been mirrored in many other markets.

The credit markets have remained pretty strong.

Credit spreads have widened in some places, but there has not been a dramatic widening.

There has not been a dramatic decline in availability of credit at all.

Deals continue to get done.

To date there has not been a decline in corporate activity levels.

So all those things have remained strong.

The $64,000 question is -- if weak markets persist, how long will they remain strong?

And I don't know the answer to that question.

Sorry, this is the last one, I promise.

Is your comment on buybacks, slower in the quarter, and then what you've done in the past versus your ability to deploy the capital that you generate, I completely understand that.

It is also -- I think, someone on the outside would look and say, well, okay, but so you're buying back stock when you are producing it, but usually that is at a higher level.

In other words, stocks usually reflect the high level of capital generation.

Now that the stock is a lot lower you're still producing an unbelievable return, that you would think you might actually even turn up the heat on the buyback.

But that is not -- it doesn't sound like that is what --

No, look, and we said this in the first quarter of '05 when we announced that we were going to increase it.

What we said was that our capital generation for the several years before had been so fast that we had accumulated so much, we just could not invest it fast enough.

I think what we said then and what we said quarter-over-quarter is that our goal was to slow down that growth, to the point where the opportunities and the capital growth were back in balance.

That we would continually watch it, and if it warranted, we would slow it.

Then if it warranted again, we would speed it up again.

I think I would tell you that now the opportunities and the capital have gotten much more in balance.

So we can have a much more measured buyback program for now.

If that changes in either direction, we will either increase it or decrease it.

We watch it very closely.

Awesome.

Thanks, Dave.

Guy Moszkowski, Merrill Lynch.

Obviously, people have been talking a lot about deleveraging and reduction of risk levels among investors;

I guess especially hedge funds.

One question I would ask you, since you guys sit in such a privileged position in terms of seeing very broadly what those things look like, is -- what have you seen with respect to deleveraging within your Securities Services business?

We don't even need to see it just within the Securities Services business.

There has definitely been risk reduction going on, but there has definitely not been panic or panic selling or anything like that.

I think that people have been reducing risk.

There has not been panic selling.

One of the things you have seen is that -- let's just stay with the hedge funds.

I think a lot of the hedge funds have had kind of tough Mays and probably tough early Junes, but most of that was giving back just a portion of what had been terrific early parts of the year.

So they are not up as much as they used to be in most cases of the hedge funds.

So they are in a risk reduction mode, but not a panic risk reduction mode.

I guess I would take from that comment that your risk management group has not been causing a lot of your clients to have to reduce positions.

I am not sure what you mean by that question.

At some point you'll go to people with margin calls or the equivalent, and force liquidation of positions.

You're not having to create a lot of that?

We have had no problems with margin calls so far.

In terms of the monthly progression of revenues and earnings for yourselves during the quarter, is there any color that you can give us there for the firm as to whether May was appreciably weaker than, say, March and April?

I had a feeling you might ask that question.

We obviously do not disclose quarter-over-quarter results.

But I will certainly tell you that it is not a secret that the environment got weaker starting in the middle of May.

I will just leave it at that.

Okay.

Is there any areas where -- I mean, based on your comments before, I would probably carry away that, given that the equities business overall is more sensitive to market levels and direction, that you probably would have felt it more in equities.

Is that fair?

Yes, that's fair.

Okay.

Your VAR numbers, of course, you present are on an average daily basis.

As you pointed out, they were up.

Can you give us any sense for where the quarter ended relative to the quarterly average of 112?

You will see that in great detail in the Q. As you know, we give day-by-day an average.

I would tell you that it ended the quarter a little bit lower than the 112; and there were points in the quarter where it was higher than the 112.

But it ended a little bit lower.

Okay, thanks.

Finally, can you give us a little bit of flavor as to strategically what you are thinking about with respect to having done the ICBC investment?

How much of a strategic component for Goldman Sachs is there, as opposed to just a straight private equity type investment?

It is really both.

It is a private equity investment, where we are very happy with ICBC; but we expect to develop a very broad strategic relationship with them.

We are spending a lot of time with them, helping them as best we can with things like risk management techniques that we are maybe farther ahead than they are.

We spend a lot of time.

We sent a lot of people over there.

They have sent people over here.

And they spend a lot of time with us helping us meet various clients and opening doors that we could not open up ourselves.

We actually view this as a very important long-term strategic relationship.

Great, thanks.

That's very helpful, David.

I appreciate it.

Chris Mayer, Morgan Stanley.

David, just to follow up on this kind of disconnect between the stock prices and the opportunities you see out there at the moment, I look at your VAR numbers and it would seem to me that you're actually seeing more opportunities out there to create value in the trading business, as VAR has gone up particularly in the equity business.

But maybe just give us a sense, particularly within equity VAR, how much of the increase in VAR was related to just higher market volatility; and how much of it was related to you actually taking risk up in the business?

I think across most of the quarter it was related to there being more opportunities, seeing far more trading activity, and therefore us having higher risk.

Remember as Guy said, it was an average VAR for the quarter.

At the end of the quarter it was somewhat lower.

Okay.

Would you say the VAR numbers, even though it is an average and it is not ideal metric, would you say that is a reasonable indication of the way you feel about the business prospects at the moment in the trading business?

You just cut out a little bit in the middle.

Just I'm trying to understand.

You guys make comments about the healthiness or lack thereof of the business; and the fact that May was a little bit weaker.

But I'm just trying to get a sense.

As you take risk up in the business, does it feel like the statement you want to send to us listening on this call is consistent with the increase in VAR in the quarter?

I.e. you're quite positive about the prospects out there.

Or is it fair to say that some of the weakness you have seen more recently has actually caused you to dial back a bit of that risk?

Again, I think what I said before, I'm not going to comment on exactly where our risk is now.

But I think I was pretty clear when I said that the environment in equities did turn weaker in the middle of May and has continued to be somewhat weaker.

Right, okay.

That's what I've got.

Thanks.

Meredith Whitney, CIBC.

I have two questions for you.

The first being when you look at last year and the interruption in the debt markets, and then look at this year with the interruption in the equity markets -- with the absence of the interruption in the debt markets -- which gives you greater pause?

That is an interesting question.

It would give me a lot less pause if I knew for sure that the interruption in the equity markets would end as quickly as the interruption in the debt market ended last year.

Right.

One week to go.

Exactly.

It is really hard for me to compare.

It was interesting.

If you really think back, when there was what we call -- now it seems like a blip in the debt markets last year, the concern people had was, okay, would it spill over into the equity markets and kind of see general, all markets, kind of slowdown?

And it did not happen.

If you think about it now, if you talk to people, one concern a lot of people have is -- is the decline in the equity markets going to go over to the debt markets?

Are going to see those markets then?

And that hasn't happened yet.

So it is hard to say.

The real question, the reason maybe I would say it gives you a little more pause in the equity market -- well, probably the reason I would say is because we are going through it right now as opposed to a year ago.

But the real question with the equity markets is that, while the numbers reflect good global economic growth and most economists are predicting reasonably good economic growth, the equity markets are suggesting that they are worried about economic growth.

The question -- a period of slower growth would not be good for us.

So I don't know which is right.

Okay.

Then my second question is you guys are very active in taking advantage of great investment restructuring opportunities.

How much do you rely on gains from harvesting funds, those opportunities?

Just give a sense of how you think about that.

If you're specifically focused on the opportunities within our principal investing area, we showed the results.

So you see what the harvesting gains are there.

But we, as you said, we look for a lot of restructuring opportunities really throughout our businesses.

It is not like the harvest funds the next investment.

We look at what we think the opportunities are across Goldman Sachs.

Our dollars are fungible, and we look at where we think the best opportunities are to put our resources, whether that is capital or balance sheet or risk or people.

We are analyzing that and moving that all the time.

One of the things we learned a long time ago is that it is really hard to predict the markets, and we would not tell you that we are very good at it.

But we think we're pretty good at moving our resources to where the opportunities are.

All right, thanks so much.

Daniel Goldberg, Bear Stearns.

Just one additional follow-up on the environment.

You obviously said since mid-May through today things have gotten a bit more difficult.

Would you say the degree of difficulty has worsened through the first two weeks of June versus mid-May?

Boy, that is a question of degree that is hard to answer.

Yesterday it didn't feel very good; and at least up until 11:00 when I walked in here today it didn't feel very good.

There were some bad weeks.

There were a week or two of recovery.

Then it has turned down again.

It is really hard to say.

It is a question of degree.

I think just overall the markets have clearly been more difficult over the last month.

Got it.

Okay.

On the non-U.S. business can you just give us a sense of maybe the percentage of revenues by region or in total; and any trends you're seeing there?

Nothing very different than what I have said in the past.

Again, it is always a little bit hard to measure based on -- we do so many global transactions.

Is a U.S. offering for a Chinese company a U.S. deal or a Chinese deal?

But as best we can measure it, we are still running around 60/40 U.S./non-U.S., with the non-U.S. trending up from there.

Okay.

Then just lastly on the Asset Management business, I know incentive fees were down significantly from the first quarter, which you discussed.

But versus the prior-year quarter, significantly up.

Anything there we should we think about as we look to model that out?

Just clearly you'll always see our highest incentive fees in the first quarter.

In the other quarters they won't be zero, but they are not going to be nearly what they were in the first quarter.

But the assets in the funds that are non-calendar year funds are growing.

The performance has been pretty good, so it has been a little bit better.

This was as a good a quarter, roughly, as good a quarter as we have had outside of a first quarter.

That trend continues, but it is going to be based on continued asset gathering and performance.

I guess from alternative assets as well, in terms of your total AUM?

Yes.

Okay, great.

Thank you.

Douglas Sipkin, Wachovia.

Just a couple of quick follow-ups.

One, you mentioned you had hedged about a half of Sumitomo now; correct?

Correct.

Now you guys could potentially hedge another 16% of that, right?

Another sixth, I think, would get us to two-thirds.

Another sixth would you get you to two-thirds.

Right. (multiple speakers) We can do two-thirds.

Terrific.

Just in terms of -- I know one of your competitors sort of gives an update on sort of the environment for debt origination.

I was just curious your perspective.

We are sitting at a record M&A backlog.

I think it is like over $2 trillion, something in that vicinity.

Wouldn't that imply that in order to close a lot of those transactions there is going to be a big need for debt, high-grade, high-yield leverage loan activity in the second half of the year, to facilitate all that?

Absolutely.

Okay.

So generally then we can say, and obviously things change by the day, but considering that outlook, it would imply that the fixed income business, even in a tougher market, there is still pent-up demand, would it not?

Sure.

As you sit here today, that environment looks pretty good.

Their question is, will that pent-up demand end up getting realized?

If you have continued very difficult markets, then some of those deals will go away.

If the markets stabilize, then I think that will do well in the second half.

Can you talk specifically about the Securities Services business?

I know seasonally it is a good period for you.

But it just looked like it was even bigger than I even thought.

Are you guys seeing some market share gains despite the fact that you're one of the largest prime brokers in the world?

Or is it just seasonally it is just a very strong period, particularly in Europe?

I will tell you it is three things.

It is the seasonality.

The second quarter is traditionally the strongest quarter.

It is the strength of our franchise.

We continue to win a very high percentage of the mandates.

It is also the growth in the hedge fund industry.

So it is all three of those things that combined to make it such a good quarter.

Just finally, last one I promise, you didn't talk too much about the outlook for expenses going forward, sort of headcount goals and things of that magnitude.

Can you just give a little color around that?

Sure.

We said at the beginning of the year that we thought our headcount growth would be roughly what it was last year, which is in the high single digits.

There is no change in that.

That's about we expect it to be still this year.

As far as expenses, we watch them very carefully.

We are very vigilant on expenses.

Most of the increase was activity based; and we are trying very hard not to take our eye off that ball.

Terrific.

Thanks a lot.

(OPERATOR INSTRUCTIONS) Mike Mayo, Prudential Equity Group.

Can you comment on commodities growth linked-quarter, excluding the onetime gain?

Was it up or down?

It was down a little bit.

Just a little?

Yes, but from what was a record quarter.

It was still very, very strong performance.

On international can you give anymore detail about linked-quarter growth?

Which regions did the best or might have gotten hurt since the May correction?

It is very hard to do that precisely, for the reason that I mentioned.

A one-off trans -- a Bank of China transaction, which was during the second quarter, could have an effect on that.

So I guess what I would say is pretty much what I was saying before.

We are still roughly 60/40, but the non-U.S. businesses are growing faster than the U.S. businesses, with Asia growing the fastest.

Did the May correction hurt Europe or Asia disproportionately more?

No.

With regard to VIX, it is at a two-year high.

Shouldn't that be good for you?

If it isn't, why is it not?

That is always a question that comes up.

Does the increase in volatility in equities just help the equities business?

What I would tell you is it might have a short-term positive impact on a small piece of the equities business; but overall it will not even come close to offsetting a big decline in the equities business, in the equities markets.

Your gain on the NYSE, based on what you said before, it is somewhere under $300 million.

That is all you're saying?

I don't think I used a number, but I said that our business -- it was the second-best quarter in equities with it; and it would have been without it.

Okay.

You're always saying read the papers to find how things are.

In today's paper they're talking about some Italian IPOs getting pulled and some French IPOs that have gotten pulled.

Is your guidance -- or not guidance -- but that the Investment Bank backlog is actually higher than it was last quarter, does that include all these things I am reading in the paper today?

What I would tell you is the backlog was higher at the end of the quarter than it was at the quarter before; and there have not been a lot of deals that have been canceled so far.

Most deals that were scheduled to be done either have been done, or are being done, or are in the market.

But what I can tell you is that if market weakness persists for another -- pick the number -- four, eight weeks, they're going to keep getting done.

As we speak now, though, it is still higher?

We don't tell you what our backlog is on a day-to-day basis.

Last question.

With the change in CEO, when are we going to hear from the new CEO?

And any nuance changes, the strategy, or anything else?

I don't think you'll see any changes in strategy at Goldman Sachs.

When will we hear from the new CEO?

I'm not sure what you mean by that.

Usually when you have a CEO change, you have the old CEO go on and everyone wishes him well; and the new CEO -- get a chance to ask questions.

I am not sure that we will operate any differently than we have always operated.

Okay.

Fair enough.

Thank you.

At this time, there are to further questions.

I will now turn the call back over to Mr. Andrews for closing remarks.

Great.

We like to thank you all for calling in today.

Obviously for those who want to relisten to or missed this call, it will be on replay in a short time on our website.

The contact details can be found at the end of the press release.

Again, thanks for calling in.

Thank you all for joining today's Goldman Sachs second-quarter 2006 earnings conference call.

You may now disconnect.