高盛 (GS) 2008 Q2 法說會逐字稿

Good morning.

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

I would like to welcome everyone to the Goldman Sachs second-quarter 2008 earnings conference call.

(Operator Instructions).

Also, this call is being recorded today, Tuesday, June 17, 2008.

Thank you.

Mr.

Holmes, you may begin your conference.

Hello.

This is Dane Holmes, Head of Investor Relations at Goldman Sachs.

Good morning and welcome to our second-quarter earnings conference call.

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 the fiscal year ended November 2007.

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.

And you should also review information on the calculation of non-GAAP financial measures that is posted on the Investor Relations portion of our website at 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 firm's second-quarter results.

David?

Thanks, Dane.

Good morning.

I would like to thank all of you for listening.

I will give a brief review of our results and then would be happy to take your questions.

I'm pleased to report strong results for Goldman Sachs, particularly in light of the challenging operating environment.

Second-quarter net revenues were $9.4 billion.

Net earnings were $2.1 billion.

And earnings per diluted share were $4.58.

Annualized return on common equity was 20.4%.

Let me now review each of our major businesses.

Investment Banking produced net revenues of $1.7 billion in the quarter, up 44% from the first quarter.

These strong results continue to demonstrate the breadth and depth of our client franchise.

Second-quarter advisory revenues were $800 million, up 21% sequentially as the pace of our completed M&A transactions accelerated during the quarter.

Industry-wide announced M&A also improved during the quarter.

We once again ranked first in announced global M&A for the calendar year to date.

In an increasingly global marketplace, we're particularly pleased that we've advised on three of the top five cross-border transactions this year.

Our year-to-date performance also demonstrates the flexibility of our franchise from a sector perspective as we have been well positioned to serve our clients across various industries around the globe.

We advised on a number of important transactions that closed during the quarter, including Millennium Pharmaceuticals' $8.8 billion sale to Takeda Pharmaceutical; Commerce Bancorp's $8.6 billion sale to Toronto Dominion Bank; and BEA Systems' $8.5 billion sale to Oracle Corporation.

We're also advisor on a number of significant announced transactions, including Novartis' purchase of a $38.2 billion stake in Alcon from Nestle; Wrigley's $23.2 billion sales to Mars; and Endesa Italia's EUR9.1 billion sale of a majority stake to E.ON.

Underwriting revenues were $885 million, up 74% from the first quarter.

Equity Underwriting revenues were $616 million, our second-best quarterly performance and the highest in eight years.

Debt underwriting revenues were down 20% from the first quarter to $269 million.

Our equity financing business was particularly robust in the financial institutions industry, where we underwrote a number of transactions during the quarter.

Debt underwriting activity declined as the broader credit market disruption continued to weigh on the origination market.

During the quarter, we participated in a number of significant underwriting transactions, including the $19.7 billion IPO by Visa; the $7 billion private placement of convertible preferred and common stock by National City; and the GBP1.3 billion IPO of New World Resources.

Our Investment Banking backlog declined during the quarter.

While it is very difficult to predict the broader near-term environment for this business, the longer-term outlook will continue to be driven by global economic growth trends, equity market stability and CEO confidence.

Let me turn to Trading and Principal Investments, which includes FICC, Equities and Principal Investments.

Net revenues in this segment were $5.6 billion in the second quarter, up 9% from the first quarter.

FICC net revenues were $2.4 billion, down 24% from the first quarter.

Rates, currencies and commodities all produced strong revenues that were down from our record or near-record results in the first quarter.

These macro businesses were impacted by shifting price trends and customer activity levels that were solid but lower than during the first quarter.

Mortgage revenues increased from significantly depressed levels in the first quarter as trading activity in more liquid products improved.

Credit revenues were weak as robust client activity was largely offset by approximately $775 million of losses associated with our leveraged lending business, including $500 million on our hedges.

Turning now to Equities, net revenues for the second quarter were $2.5 billion, down slightly on a sequential basis.

Equities trading net revenues were $1.3 billion, down 2% from the first quarter.

Our cash equities business produced strong results that were up sequentially on robust customer activity levels.

Derivatives revenues were solid, although down from the first quarter, due to lower volatility in certain products.

Principal strategies results remained weak.

Equities commissions of $1.2 billion in the quarter were strong, but relatively flat on a sequential basis.

Turning to risk, average daily value at risk in the second quarter was $184 million compared to $157 million for the first quarter.

Interest rate VaR increased due to wider spreads and higher volatility in certain products, partially offset by a reduction in positions.

Our commodity VaR increased due to higher volatility in prices during the quarter.

VaR in our equity category declined as we reduced average position sizes during the quarter.

Let me now review Principal Investments, where we recorded net revenues of $725 million for the second quarter.

This includes a $214 million gain on our ICBC investment, as well as gains primarily from other corporate principal investments.

We produced very strong results in Asset Management and Securities Services, with record net revenues of $2.1 billion up 5% from the first quarter.

Asset Management produced net revenues of $1.2 billion, consisting mostly of record management and other fees, which were up 3% sequentially.

Assets under management increased to a record $895 billion at the end of the second quarter.

During the quarter, assets under management increased $22 billion, reflecting $6 billion of inflows and $16 billion of market appreciation.

Net inflows primarily reflected inflows in money market and fixed income assets, partially offset by outflows, largely in equity assets.

Securities Services produced record net revenues of $985 million, up 36% from the first quarter.

These results reflected the seasonally stronger second quarter and continued growth in customer balances.

Now let me turn to expenses.

Compensation and benefits expense in the second quarter was $4.5 billion, accrued at 48% of net revenues.

Second-quarter noncompensation expenses were $2.1 billion, a 6% decrease from the first quarter.

The largest driver was lower brokerage clearing, exchange and distribution fees.

Headcount at the end of the second quarter was approximately 31,500, down 1% from the first quarter.

Our effective tax rate was 26.3% for the second quarter.

The decrease in the effective tax rate was largely due to the geographic mix of earnings.

During the quarter, the firm repurchased 1.2 million shares for approximately $200 million.

We currently have approximately 62 million shares remaining under the firm's existing stock repurchase authorization.

For the first time this quarter, we are disclosing our risk-based capital ratio under the Consolidated Supervised Entity, or CSE framework.

We've been regulated as a CSE by the SEC since 2005, which has included a requirement to maintain capital consistent with the rules of the Basel Committee on Banking Supervision -- in our case, the so-called Basel II framework.

We believe the CSE implementation of Basel II provides an important metric to assess the risk-based capital adequacy of a financial institution such as Goldman Sachs.

It is much more meaningful than leverage or adjusted leverage ratios, which do not reflect the risk of individual assets or off-balance-sheet risk.

As of the end of the quarter, our Tier 1 ratio was approximately 10.8%.

This level is somewhat higher than that which we typically maintain, given the current challenging operating environment.

We will have further disclosure regarding our CSE ratios, as well as a detail of component parts, in our second-quarter 10-Q.

We continue to operate in a volatile and uncertain time.

As I have said many times over the past year, Lloyd, John, Gary and I are of two minds in this environment.

First, we are defensive risk managers, working to ensure that our franchise and reputation are protected.

At the same time, we are externally focused and opportunistic.

As risk managers, we have been focused on strengthening our capital liquidity levels while simultaneously right-sizing troubled asset classes such as leveraged loans.

Our performance through the last several quarters leaves us well positioned to take advantage of market opportunities as they arise.

We continue to execute on our fundamental strategy of serving our clients and expanding our footprint in higher-growth and more profitable markets around the world.

In the current challenging environment, we have seen the increasing value of our diversified global and client-focused business model.

While I cannot predict the near-term earnings environment for our business, we remain committed to long-term value creation for our shareholders.

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

(OPERATOR INSTRUCTIONS).

Guy Moszkowski, Merrill Lynch.

First question I have for you is just if you could give us a little bit more color on the decline in backlog.

Maybe you could give us a sense for what product and some quantification, if possible?

Well, you know we don't quantify.

But as far as products, what we actually saw was a decline in the M&A backlog, and it was somewhat offset by an increase in the equity backlog.

And debt was kind of flattish.

Okay, thanks for that.

You mentioned, I think in your press interview, that you have been buying some NPLs, and I was wondering if you could give us a sense for where geographically and what kind?

I don't want to overstate it, Guy, because it's not like we saw tremendous opportunities to buy.

But we saw -- no specific geographic area was dominant in where we saw.

We saw a few portfolios in different places, so really nothing that was that dramatic.

And you mentioned that rate risk was up in your VaR, and of course we can see that in what you've published.

You did mention that it wasn't because balances were up, but because of greater risk.

And obviously, rates have been a pretty treacherous area of late.

Can you comment on conditions since the quarter ended and whether you are able to exploit the greater volatility profitably?

Or should we expect to see you actually trying to pull exposures down there?

Well, it has only been two weeks since the quarter ended.

So I wouldn't read anything into anything that happens in the first two weeks of the quarter.

But what we will do with our exposures and our risk will really depend on the opportunities we see in the market.

Remember, within the rates category includes things like mortgages.

So there's a lot of thing within the rates category.

But if we see opportunities, we will take advantage of it at an increased risk, and if we think the opportunities are not as good we will decrease risk.

We're very fluid with that, as you know.

And then if you could, because I saw that you were commenting on some of these numbers also during your press interview, could you give us some kind of a roll-forward walkthrough on positions in resi and commercial mortgages and leveraged finance versus last quarter?

Sure.

Let me do all of it so we can get it all out on the table.

I will do it in the order you asked about it.

Residential loans, first of all -- end of the first quarter, we had about $19 billion.

And the breakdown, and these are all rough round numbers, was $12.2 billion in prime, %5 billion in Alt-A and $1.8 billion in subprime.

At the end of the second quarter, that's $8.5 billion in prime, $4.7 billion in Alt-A, $1.8 billion in subprime, so $15 billion.

In the resi market particularly, we make active markets.

So while there was a net reduction of about $4 billion, multiples of that were bought and sold during the quarter.

Commercial loans, about $19.4 billion at the end of the first quarter, $17 billion at the end of the first -- I'm sorry -- $19.4 billion, end of the first, $17 billion at the end of the second, so about $2.5 billion sold.

And leveraged loans, let's first focus on what I would call the legacy loans, Guy.

So those are the ones that we had at the end of the third quarter of last year.

So it would have the terms and conditions that were in existence through the height of the market.

We had about $52 billion total between funded and unfunded at the end of the third quarter of '07.

At the end of the second quarter of '08, of those $52 billion, we had about $14 billion left, $22 billion total left, so $8 billion that were put on since the end of the third quarter at various times.

And again, there were lots of other loans that we actually put on and fully distributed over the course of the first and second quarter as the terms got a lot better.

So $14 billion out of the $52 billion legacy, and since the end of the quarter, one in particular -- I mean, you saw the Alltel deal announced, which allowed us to sell out of a lot of that position, and that was about $3 billion.

So we are really down to about $11 billion now.

Okay, that's great.

Thanks very much for the detail.

Appreciate it.

Glenn Schorr, UBS.

On the buying of distressed assets, I actually thought -- who knows -- there was a chance that some of these balances, especially on the commercial side, might actually go up as there's distressed sellers out there.

Is it the capital raises and too wide a bid/ask that's keeping that from happening right now?

There have been some sellers, but not a lot.

So we have seen more lately, but still not a lot of what we would consider big portfolios of distressed assets being for sale at prices that we would think are reasonable.

I guess you've got to stop doing all that equity underwriting.

And then on the corporate and real estate gains, other than Sumitomo -- I'm sorry, ICBC, were there actual sales and gains, or are these marks to a market or models of private versus public?

It was largely marks, not many sales, and on the corporate side more than half of the marks were public securities.

Okay.

And then maybe lastly, on the commercial side, we pick apart at other companies, so it's only fair to give you a little bit.

Can you help us with a little bit more of composition?

I think it's mostly whole loans for you guys, but a little bit of a composition of how you marks the positions, how they're -- we don't seem to have seen any gross marks in the last couple of quarters.

So how do you think about the commercial book in general?

Right.

So it is mostly loans.

There are some securities, some CMBS trading in there, but it is mostly loans.

We mark, as you know, we spend a tremendous amount of time looking at the marks on our loans.

We mark things basically to the market price, where they could be sold, not where they could all be sold tomorrow, but where they could be sold over a reasonable period of time.

Again, to put it into context of what we sold during the quarter, virtually all -- not 100%, but virtually all were sold above the marks.

So it kind of validates what our marking process was.

We have some of the retained $17 billion that were marked down over the course of the quarter, because markets deteriorated and we got bids in on other assets, which informed us that we couldn't sell the ones we held at those prices, and so we then marked them down.

So it was a combination of sales and markups or markdowns.

But what we have seen, and I can go through as much as you want on how we mark things, but we spend a lot of time on it.

But one of the most important things we do when things don't have very active trading markets is we look back at where we sold things versus where they were marked.

And across this quarter, virtually everything that we sold was sold slightly above the marks.

Cool.

And because mostly loans, I am assuming there is not much, if any, in equity.

And then maybe if you could just give one last comment on senior versus any mezz or B notes?

It's really, within those commercial mortgages, we have every tranche there is.

So we have, if you look at some of the big loans, and you could pick them out -- Hilton, one that's known to everybody, I think there are nine tranches from the most senior to the most junior.

So even the mezz has three tranches of mezz, and then there's A loans and B loans and C loans.

So we have every tranche.

Every tranche is marked differently.

And the sales -- someone asked me this question before -- the sales that we made were really across different tranches, because we find some examples where buyers want the lower tranche because they like yield, and some where they want the higher tranches because they like the safety, and where we have all different types, so we sell depending on where the market is.

Okay.

Final one, David, is just a quickie on tax rate.

Do we go float back to a best guess of where you have been hanging out, in that 31%, 32% range?

Well, where we are, the 27.7% year to date, is our best estimate of what it will be for the year.

I am not going to tell you that is where it is always going to be, but that's how the tax rate is calculated, based on, as best we can do, a roll-forward for the year, which of course can change.

And so that is our best estimate for the year.

James Mitchell, Buckingham Research.

Mr.

Mitchell, your line is open.

That question has been withdrawn.

Roger Freeman, Lehman Brothers.

I guess can you maybe talk to the total amount of delevering or balance sheet shrinkage during the quarter?

It looks like, from some of the leverage ratios that came out on your call earlier, that you maybe sold $100 billion or so down.

And you've talked to some of the components here within resi, commercial and loans.

Where was most of the balance?

Any buckets you can give us around that?

First, I will start with my disclaimer, which I have to do, and you have heard this before.

We don't think leverage ratios are a particularly good measure of risk.

You know that.

I can give the example I give frequently -- like many others, we could sell $100 billion of treasuries and buy $10 billion of subprime.

We could delever, have lower leverage ratios and be a lot riskier.

But we also know that there is some risk to being bigger.

If you own more of the same thing, it's riskier than owning less of the same thing.

We know that as well.

We are also sensitive to the views of our shareholders.

And every meeting I have, I get asked about leverage within the first couple questions, and the views of our regulators, because they are important to us.

And I get asked by them all the time as well.

So we are sensitive to that.

We want to do the smart things.

And so, over the course of the quarter, we did reduce asset size.

We went from a little bit under $1.2 trillion to a little bit under $1.1 trillion.

There's no particular category, and I gave you some of the sales, but maybe you will see the balance sheet when it comes out in the Q.

And I wouldn't tell you there's any particular category that you're going to say, aha, that's where the reduction was.

It was really across the balance sheet.

Given that reduction, and given the increase in our equity during the quarter, what you will find is that our gross leverage ratio declined from 27.9 times at the end of the first quarter to 24.3 times at the end of the second quarter, and the adjusted leverage ratio declined from 18.6 at the end of the first quarter to 14.7 at the end of the second.

Okay.

But I think, if I think back to last quarter, I thought I recalled you saying you didn't think you needed to shrink the balance sheet, really, at all.

And I guess is it fair to say that, given your comments there, that you have sort of an eye towards what the rating agencies and the regulators are looking at, and it's really from that standpoint that that's maybe driven a bit of that?

And is there any more to come?

And I realize that there is no limits to the effectiveness of the leverage ratio.

We have an eye towards the rating agencies, the regulators, and maybe even more importantly, our shareholders, who care about it as well.

And we are sensitive.

And again, we understand that there is some risk to being bigger, and so we are sensitive to that.

We have been through a pretty tough environment.

And so being a little bit smaller we thought was a sensible thing.

Right.

Now, as you've sold down assets during the quarter, and especially even in the resi area, did the incremental price discovery in areas that were sort of less liquid, maybe a little more so in the second quarter, that didn't lead to any additional write-downs?

And particularly I guess I would have thought around Alt-A there might have been some additional write-downs.

You had them last quarter; Alt-A deteriorated during March.

Any thoughts there?

We were -- I talked a little bit about this before when I talked about what we sold -- in the resi area, we were very active in making markets.

So we were buying and selling at the same time.

We net sold about $4 billion total in resi, most of that in prime on a net basis, but we were very active buyers and sellers.

And again, I was only giving you the gross long positions, which in residential mortgages are not necessarily that meaningful, because over the course of a quarter we change the positioning around a lot based on long different parts of the capital structure versus short other parts of the capital structure, long or short in general, based both on our views of the world, but also based on what our customers are telling us and what we end up with based on our customer trade.

So over the course of the quarter, when you look at resi and commercial together, mortgages was a profitable business -- not dramatically profitable, but profitable.

Okay, and I guess one more here.

So you told us what the Tier 1 ratio is under the new Basel II framework.

What do you think -- how useful is that to us?

And it seems that there is already some discussion about -- that the calculations here around risk-weighted assets don't capture liquidity risk.

Specifically they don't factor illiquidity in.

And some of that framework is already being reworked.

How much do you think those ratios could come down if you really factored liquidity into the equation?

Look, I happen to think that the ratio is a very useful tool.

I think the Basel II ratio is actually a sensible capital ratio.

It's not perfect.

I think there is no ratio that ever will be perfect.

I think it does a pretty good job of taking into account market risk, credit risk, operational risk.

There are add-ons for volatility of things.

So I actually think it's a pretty good ratio of risk to assets.

I think it's, again, not perfect, but pretty thoughtful.

Is it going to have to be revised from here, do you think?

It took a long time to come up with Basel II.

I don't know if it is going to be revised from here.

(Operator Instructions).

Jeff Harte, Sandler O'Neill.

You talked a little bit about kind of your deleveraging, and we've been hearing about it from peers.

This is somewhat of a 30,000-foot question, but can you talk a little about deleveraging in the overall marketplace, maybe what you're seeing from clients?

And I think more specifically, if there's a lot of deleveraging out there, what does that do to revenue opportunities for Goldman Sachs if clients and counterparties away from you are deleveraging?

I think that the world did delever over the last several months.

There is a lot of cash sitting on the sidelines.

And I think of course that was sensible, in a way.

The world was a riskier place in the last nine months than it was in the time before that.

And I think in some ways, the amount of leverage that was taken out of the system muted some of the volatility that we otherwise might have seen.

Now, I don't think that necessarily mean there are fewer opportunities.

Given how much cash is sitting on the sideline, I think that when financial players start to believe that conditions are going to improve -- not that they have improved, but they're going to improve, because the markets are forward-looking -- I think that there will be a lot of opportunities because there's so much cash sitting on the sideline.

And so I think transaction volumes could be high.

It's just a question of when it happens.

Okay.

In Principal Investments, the Other line coming in at a $476 million gain, I know that this is a tough thing to ever nail down in a quarter, but just looking at overall asset levels, that is a pretty nice revenue yield on that portfolio.

Were there any specific large gains that contributed to that?

That line is going to be lumpy.

And we don't, unless something was sold and publicly announced, we wouldn't tell you what it was.

It was not driven by one or two things.

There were a whole series of things within Principal Investments.

And as you know, that business has been a very good business for Goldman Sachs.

There will be quarters when it's not, but you look over time, the returns to us on that business have been quite high.

The investments we have made over time have been very good.

The structure of the business, we try and mute the risk as much as we can, although there is risk to it.

And so it's not like there are one or two things.

It was really across various parts of the portfolio.

Michael Hecht, Banc of America.

Just a quick follow-up on the exposures you went through on the resi, commercial and LBO side, were those gross or net?

They were all gross.

All gross.

Okay, that's what I thought; I just wanted to doublecheck.

And then as you guys reduced your total assets and the exposure to some of the troubled maybe illiquid assets in particular, any color on the appetite you're seeing out there, like who's buying them?

It varies.

In the leveraged loan market, where there was probably the most appetite, there was a combination of distressed funds that had been set up to buy, but also what we would call the real money players, the traditionally long-only money players who were out there buying.

I think there has been a little less appetite in the commercial real estate market, although some -- and again, it's a mixture of distressed funds and real money buyers.

And the resi market was more liquid.

There were more sales, more buyers, real money flowed into that market, and so a combination of both.

Okay, that's helpful.

And then Level 3 assets at the end of the quarter, and any color you can give us on the drivers, what came in, what went out in terms of transfers?

I got all the way here without anyone asking me about that.

I am surprised.

Yes, Level 3 assets went down.

It went down from about $96 billion at the end of the second quarter to $78 billion at the end of the -- I'm sorry -- $96 billion at the end of the first to $78 billion at the end of the second, which brings us from roughly 8% of the balance sheet to roughly 7% of the balance sheet.

It was driven -- really, the biggest areas were a combination of leveraged loans, commercial and residential mortgages.

It was kind of half sales and half things moving back from Level 3 to Level 2 based on the prices that were informed by the sales and by the activities in the market.

But there were also some increases.

There were some portfolios we bought that went into Level 3.

As you know, if we could find more distressed portfolios, if there were more sellers, that might increase Level 3 assets, and we would actually view that as a good thing if we could find them.

Okay, that's helpful.

And then the 30% year-over-year growth you guys saw in Securities Services was pretty impressive.

Is that more a function of share gains over kind of growth in the market?

Where are you guys seeing the best traction by region?

Is it U.S., Europe, Asia?

The answer to the last question is yes.

We are seeing it really across the globe.

And we have been gaining market share, and our balances continue to grow in that business.

Okay.

And then GSPS and Equities, I think you mentioned in your remarks, was weak this quarter.

Any more color on what drove that?

Is it more Goldman Sachs-specific or environmental?

And then I guess any color on the impact that the team that I guess you guys moved to GCM earlier this year, and is that having some impact on what is going on at GSPS?

And how is the performance of the new fund that you guys raised in GCM?

GSPS really has been weak for the whole first half of the year.

And I don't know exact comparisons, but I think that whole sector has been weak.

I think if you look at relative value hedge funds, especially in the equity space, which is what they really are, I think it has been weak.

I don't think it has been affected at all by the movements to GSIP.

The people who -- we roughly split the team -- the people who went to the hedge fund within our Asset Management business are great.

The people who stayed are great.

They have all been very successful over time.

It has been a business that has made a lot of money for Goldman Sachs for many, many, many years, and I expect that it will in the future.

Okay.

And then Asset Management flow trends were kind of mixed to being very strong in some of the lower-margin areas like money funds and fixed income, but you continue to see outflows in Equities and Alternatives.

Can you maybe walk us through some of the areas of weakness in Equities and then whether you see the outflows as performance related and how long you think it may take to turn things around?

I think it really reflected what was going on in the world.

There was definitely a flight to quality in the world.

I think basically investors wanted to be more invested in less risky assets.

And so I think that was not unusual and not unexpected in this environment, that we would see outflows largely from equities and inflows into fixed income and money markets.

And I think it is really environmentally driven more than performance.

Some of the performance in our alternative investments has not been great.

Some of the others has actually been pretty good, and some of the ones that had performed poorly last year recovered a lot this year.

So I think it has largely been environmental, and I think that when the flows change will largely be based on the environment as well.

Okay, that's helpful.

And then headcount down 1% quarter over quarter -- should we expect any further reductions for the year, and what's the outlook?

And was there any element of past severance running through the numbers this quarter, and should we see that as a bigger factor in the second half?

No unusual severance numbers, and I don't think you should expect anything.

That will be within our normal comp, nothing different there.

And you should expect, as we sit here today, unless things change dramatically, that our headcount for the full year, if you exclude our acquisition of Litton, will be up low single digits by the end of the year.

Most of that will come on probably next quarter, when all the people arrive from the schools.

Okay.

And then just last one -- share repurchase slowest in a while.

Can you talk about the appetite for share repurchase here and why the slowdown in the quarter?

Sure.

Again, you heard me say that our CSE ratio was higher than we would normally run it.

Our liquidity, which is as strong as it has ever been, is higher than we would need it in a more normal environment.

And basically, in this environment, which is a stressed, difficult environment -- and again, we recognize that -- we thought it made more sense to preserve both capital and liquidity.

So we slowed down our buybacks dramatically.

If the world becomes a safer place, then we might accelerate those again.

Okay, makes sense.

Great.

Thanks a lot.

James Mitchell, Buckingham Research.

I will try this again.

Can you hear me?

I can hear you perfectly.

A lot of the questions have been asked and answered, but maybe two things on FICC in particular.

Could you talk about -- you gave some indication of the sequential declines.

Can you sort of rank them in terms of what was the biggest decline or what was the least decline, and I don't think you mentioned commodities, just to kind of get a better sense of the trends in the quarter?

You know, that is more detail than we give when we rank declines.

But I think we talked a little bit about, and when I said in my remarks that the big macro businesses were all still strong, but they were weaker than what was record or near-record numbers in the first quarter, but still strong, mortgages not particularly great, but a lot better than where they were in the first quarter, and credit products, given the loss in leveraged loans, were challenged.

How was commodities in the quarter?

Commodities was good, but not as good as the first quarter and not the biggest business within FICC, which is pretty normal for the business.

It is usually, quarter to quarter things do change sometimes, but usually rates and credit are the two biggest businesses.

Fair enough.

Was there any material liability losses or resi mortgage write-downs in the quarter that we should be cognizant of?

No.

The only -- if you mean this by liability, the marking of our own debt that we do, we lost about $200 million in the quarter on that, based on our spreads tightening.

Okay.

And just lastly, can you maybe not specifically speak to fixed income, but talk about just the general environment, May versus March?

We've heard from a number of your peers that May was materially better.

Did you see that as well, and was it across most businesses?

Look, without going through month by month or week by week, because I don't think you can tell a lot, it is pretty obvious that March was a really difficult period in the financial markets.

And so the world has certainly improved since March.

And again, on a call before someone asked me, and I said March was definitely the low point through now.

I can't tell you it's going to be the low point going forward, but it certainly has been the low point through now.

There are no further questions.

I would now like to turn the conference back to Mr.

Holmes.

Great.

Thank you very much for listening to the call.

If you have any questions, please feel free to contact me at Investor Relations.

And once again, thanks for your attendance.

Ladies and gentlemen, this does conclude Goldman Sachs' second-quarter earnings call.

You may now all disconnect.