高盛 (GS) 2008 Q3 法說會逐字稿

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  • Operator

  • Good morning.

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

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

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

  • (Operator Instructions) Also, this call is being recorded today, Tuesday, September 16, 2008.

  • Thank you.

  • Mr.

  • Holmes, you may begin your conference.

  • Dane Holmes - IR

  • Good morning, everyone.

  • This is Dane Holmes, head of investor relations.

  • Welcome to our third-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 our 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.

  • 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 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 third-quarter results.

  • David?

  • David Viniar - EVP, CFO

  • Thanks, Dane.

  • Good morning.

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

  • Before discussing our results for the third quarter, I want to briefly address events surrounding the financial services industry and some of the things that have been said and written about Goldman Sachs and our business model.

  • First, the issues in the mortgage and credit market have affected all financial institutions including investment banks, commercial banks, regional banks, mortgage companies, and insurers.

  • These issues are in no way isolated to the broker dealer sector.

  • Some of the key issues facing the financial services industry have included concentrated sources of revenue generation and outside risk exposure to certain asset classes.

  • Declining market values across these products translated into meaningful investment losses that in many cases resulted in dilutive capital raises.

  • Given our position within the global financial services industry, we have not emerged completely unscathed during this process; and I can assure you that we have made our share of mistakes.

  • That being said, our priority has always been to protect the firm's financial position and franchise at all costs.

  • First and foremost, since going public we have executed on our goal of building a global diversified business model.

  • This goal is not solely a business decision, but also reflected a fundamental risk management strategy.

  • Through our financial performance as a public company, we have repeatedly demonstrated the benefits of having a deep and broad franchise.

  • It is this business model and franchise which, despite the challenging environment, generated a return on equity of nearly 19% over the past four quarters.

  • Second, a key component of our firm-wide risk management process is a disciplined approach to marking our assets to market.

  • Our commitment to daily marking allows us to appropriately measure risk, see problems early, and thus be more proactive in managing our exposures.

  • Our process is dedicated to marking each individual asset at a market clearing level.

  • For example, in the third quarter, we sold approximately $4 billion of nonagency residential mortgages and virtually every trade was at or above our marks.

  • You will never hear from us that we won't sell an asset because we are reluctant to take a loss, since our positions are marked where they can be sold.

  • We recognized early the risks associated with concentrated exposures and aggressively moved to reduce them.

  • As we have discussed before, we had $52 billion in leveraged loans just over a year ago.

  • Now we have $8 billion of these legacy loans, an 85% reduction in our exposure.

  • This risk reduction came at a substantial economic cost, as we incurred losses of over $3 billion.

  • But it was the realization of those losses on a daily basis that strengthened our resolve to continue to reduce our exposures.

  • Let me be clear.

  • Many times over the past year we have sold assets that we believed would ultimately be worth more than where we sold them.

  • The reality was they were too large or too concentrated and therefore needed to be sold.

  • When we have a problem, we try to deal with it.

  • As you have heard me say numerous times, the first loss is often the best loss.

  • Furthermore, as opposed to diluting our shareholders during this cycle, we have actually strengthened our capitalization through the core earnings power of our franchise and business model.

  • Despite the difficult environment, we have grown book value per share by over 17% in the past four quarters.

  • In addition, we continue to have significant financial flexibility, given the fact that 93% of our total shareholders equity is comprised of common equity.

  • Finally, you've heard me talk about the importance of liquidity.

  • We have always approached our liquidity risk management framework with extreme conservatism.

  • Throughout these trying times, we have become even more cautious in our approach.

  • We continue to focus on maintaining the appropriate size, term structure, and diversification of our counterparties.

  • Our global core excess averaged $102 billion during the third quarter, 17% higher than during the second quarter.

  • In addition, the average life of our secured funding book is well in excess of 100 days, with the more difficult-to-fund assets having the longest term.

  • For example, the average life for our bank loan funding is well in excess of six months.

  • It costs a lot of money to manage our liquidity in this conservative fashion.

  • But at Goldman Sachs, this expense has never been up for debate.

  • In addition to this conservative liquidity risk framework, the Federal Reserve's announcement on Sunday has introduced policies that go even further in mitigating our liquidity risk.

  • The Fed has agreed to accept in the PVCF a broad range of collateral that closely matches the assets eligible for tri-party repo, including non-investment-grade debt securities, whole loans, and domestic and international equities.

  • So while our access to funding continues to be quite robust, the Fed's actions greatly diminished the liquidity risk associated with our secured funding book.

  • There is broad-based fear in the markets today, but we believe individual financial institutions that have global diversified business models and that have outperformed through the crisis will be positively differentiated.

  • And that goes for commercial banks, insurers, investment banks, or any other type of financial institution.

  • It is not the business model, it is the performance that matters.

  • While I cannot predict the near-term macro environment, I can assure you that Goldman Sachs has never been closer to our clients or better positioned to face tough markets and take advantage of profitable opportunities.

  • We will continue to manage this firm with our focus utmost on protecting this valuable franchise.

  • Now I'm going to turn to reviewing our third-quarter results.

  • Net revenues were $6 billion.

  • Net earnings were $845 million.

  • Earnings per diluted share were $1.81.

  • Annualized return on common equity was 7.7%.

  • The third-quarter market environment presented significant challenges.

  • We experience meaningful volume declines in many of our businesses and pricing pressure across both equity and credit assets.

  • Despite this difficult backdrop, we remained committed to helping our clients at a time when sound advice and dependable execution were of the utmost importance.

  • Although this quarter was likely the most challenging operating environment we've experienced as a public company, the strength of our franchise and effectiveness of our business model have never been more evident.

  • Let me now review each of our major businesses.

  • Investment Banking produced net revenues of $1.3 billion this quarter, down 23% from the second quarter.

  • Third-quarter advisory revenues were $619 million, down 23% sequentially.

  • We ranked first in announced global and completed mergers and acquisitions for the calendar year to date.

  • We advised on a number of important transactions that closed during the quarter, including Endesa Italia's EUR9.1 billion sale of a majority stake to E.ON; Ingersoll-Rand's $11.5 billion acquisition of Trane; and Novartis's $10.5 billion acquisition of a minority stake in Alcon.

  • We are also adviser on a number of significant announced transactions including Anheuser-Busch's $59.6 billion sale to InBev; Alltel's $28.1 billion sale to Verizon Wireless; and APP Pharmaceuticals' $5.6 billion sale.

  • Underwriting revenues were $675 million, down 24% sequentially.

  • Equity underwriting revenues of $292 million were down 53% from a strong second quarter that included our participation in a number of financial institution capital raises.

  • Significant declines in global equity markets during the third quarter also meaningfully reduced new issue volumes.

  • IPO activity was particularly weak, with industry volumes down more than 50% sequentially.

  • Debt underwriting revenues were up 42% from a weak second quarter to $383 million.

  • Bank loan activity increased, while investment-grade and high-yield underwriting activity levels continued to be soft.

  • During the quarter, we participated in a number of significant underwriting transactions including Wrigley's $4.9 billion debt offering; State Street's $2.9 billion common stock offering; and AngloGold Ashanti's $1.8 billion rights offering.

  • Our Investment Banking backlog increased during the quarter.

  • Let me turn to Trading and Principal Investments, which includes FICC, equities, and principal investments.

  • Net revenues in this segment were $2.7 billion, down 52% from the second quarter.

  • FICC net revenues were $1.6 billion, down 33% sequentially.

  • Rates, currencies, and commodities all produced solid revenues that were up from the second quarter, showing the continued strength of our macro franchise.

  • Credit revenues declined sequentially due to lower client activity, weak investment performance, largely outside the United States, and approximately $275 million of losses associated with our leveraged lending business.

  • Mortgage revenues also declined from the second quarter due to residential and commercial real estate net losses of $500 million and $325 million, respectively.

  • Turning now to equities, net revenues for the third quarter were $1.6 billion, down 37% on a sequential basis.

  • Equities trading net revenues were $354 million, down 72% from the second quarter.

  • Significant declines in global equity markets and higher volatility levels combined to form a challenging environment for this business.

  • In addition, client deleveraging and lower activity levels drove fewer opportunities across various businesses, particularly in August.

  • Principal strategies results were also very weak.

  • Equities commissions of $1.2 billion in the quarter were strong, down approximately 2% on a sequential basis.

  • Turning to risk, average daily value at risk in the third quarter was $181 million, compared to $184 million for the second quarter.

  • Our equity category VaR declined during the quarter due to lower position sizes, while our currency category VaR declined due to lower exposures.

  • Let me review Principal Investments.

  • We recorded $581 million in losses from other corporate principal and real estate investments, largely outside of the US.

  • This was offset by a $106 million gain on our ICBC investment, for a net loss of $453 million in the third quarter.

  • Our investment in ICBC produced a gain during the quarter, despite a decline in their stock price, due to the amortization of our liquidity valuation adjustment as we approached the April 2009 initial lockup expiration.

  • We produced very strong results in Asset Management and Security Services, with net revenues of $2 billion, down 5% from the second quarter.

  • Asset Management produced net revenues of $1.1 billion, which were down 3% sequentially.

  • Assets under management decreased to $863 billion at the end of the third quarter.

  • During the quarter assets under management decreased $32 billion, reflecting $7 billion of outflows and $25 billion of market depreciation, largely in equity assets.

  • Securities Services produced its second best quarterly net revenues of $916 million, down 7% from a seasonally strong second quarter.

  • Now let me turn to expenses.

  • Compensation and benefits expense in the third quarter was $2.9 billion, accrued at 48% of net revenues.

  • Third-quarter non-compensation expenses were $2.2 billion, a 6% increase from the second quarter.

  • Excluding non-compensation expenses related to consolidated investments, costs were up 2% sequentially, largely in other expenses and primarily related to our reinsurance business.

  • Although non-compensation expense fluctuates from quarter to quarter, we are vigilant about controlling costs, especially in light of the more challenging environment.

  • Headcount at the end of the third quarter was approximately 32,600, up 3% from the second quarter, reflecting the normal seasonal pattern of college and business school hires starting in our analyst and associate programs during the summer.

  • Our year-to-date effective tax rate was 25.1%, which resulted in a tax rate of 12% for the third quarter.

  • The decrease in the effective tax rate was largely due to the geographic mix of earnings and an increase in permanent benefits as a percentage of lower earnings.

  • During the quarter, the firm repurchased 1.5 million shares for approximately $270 million.

  • We currently have approximately 61 million shares remaining under the firm's existing stock repurchase authorization.

  • As I mentioned earlier, our liquidity and capital positions are strong.

  • As of the end of the quarter, our Tier 1 ratio was 11.6%.

  • In addition, our global core excess pool of liquidity averaged $102 billion during the third quarter.

  • Given the current challenging operating environment, we are maintaining higher than normal levels of capital and liquidity.

  • The global capital markets have experienced significant turmoil over the past year.

  • Extreme volatility and asset value reductions across both credit and equity markets have presented numerous challenges for Goldman Sachs and our peers.

  • Throughout this period, we have remained focused on protecting the firm and limiting the impact of a dislocated environment.

  • But with challenges come opportunities; and the risk management decisions we have made over time allow us to approach this market from a position of strength.

  • We continue to be outward looking and know that in times of market stress our clients come to Goldman Sachs even more often for our guidance and execution.

  • We will remain focused on our core strategies and be opportunistic about committing capital.

  • While you know me well enough to know that I won't predict when this extended credit crisis will end, I can promise you that it will end.

  • The continued hard work of the people of Goldman Sachs and our unrelenting focus on our clients will leave us well positioned to pursue our goal of 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

  • (Operator Instructions) Prashant Bhatia, Citigroup.

  • Prashant Bhatia - Analyst

  • David, there seems to be a perception that having banks deposits is in some way a cure-all.

  • Even if you were to emerge with a commercial bank again, just theoretically, would you even be allowed to use those deposits in your trading businesses?

  • David Viniar - EVP, CFO

  • Well, look.

  • You made a very good point; you can answer the question for me.

  • You know, our banking competitors also need to fund the capital markets.

  • Bank deposits can basically be used to fund the business of the bank, what a bank does, not the capital markets businesses -- largely not the capital markets businesses that we are in.

  • So I think the answer is there would be some small portion of our business that would probably be able to be funded by bank deposits; but most of the business that we are in cannot be funded by banks.

  • It is one of the reasons -- and you can all look this up -- why if you look at, if you take --.

  • You know, I would ask you a leading question.

  • Take five big financial institutions, four of the biggest, best, banks in the world, Citi, JPMorgan, UBS, Bank of America, and add Goldman Sachs to that list.

  • Which one do you think has the lowest amount of long-term unsecured debt sourced in the capital markets?

  • It is Goldman Sachs.

  • Because while we have big non-bank businesses to fund, so do our competitors.

  • They are very good competitors.

  • They are very good companies.

  • They can access the capital markets, as can we.

  • Prashant Bhatia - Analyst

  • Great, thanks.

  • Also on -- I guess from a risk management perspective, you've talked about liquidity and so on; but what we are seeing in the marketplace right now in some ways is a run on certain stocks.

  • How do you from a risk management perspective deal with that situation?

  • Is there a way to deal with that situation?

  • David Viniar - EVP, CFO

  • I count on you to do that for us.

  • (technical difficulty) tell people what is really going on.

  • Look, there is very little we can do about that.

  • We can't stop rumors and we can't stop fear.

  • I have believed for a very long time that if we perform well our stock price will follow.

  • It may not follow each individual day; and rumors and fear in the market might affect our stock price for a period of time.

  • But if we continue to perform well in all environments -- and of course, we are not going to perform as well in an environment like this as we will in an environment of good global growth.

  • But if we continue to perform well and perform at or near the market, I believe that our stock price will ultimately follow that.

  • Prashant Bhatia - Analyst

  • Okay.

  • Then just finally, I know you don't normally comment on individual clients and so on.

  • But just in terms of Lehman and AIG, could you just help investors understand what kind of exposures you have what each of those entities?

  • David Viniar - EVP, CFO

  • Sure.

  • Without giving exact numbers, let me just tell you how we think about this.

  • AIG and Lehman, big important financial institution counterparties to Goldman Sachs.

  • We did and we do a lot of business with both of them, as we do with all other major financial institutions.

  • The way we do business with financial institutions is by having appropriate daily margin terms.

  • That is how we are able to do the volume of business with each other that we do.

  • And that goes for AIG, Lehman, and also Morgan Stanley, and JPMorgan, and Citi, and UBS, and Credit Suisse.

  • That is how we manage our risk.

  • In addition to the margin terms, we augment our risk management with appropriate hedging strategies.

  • You heard at the beginning of my remarks that we believe one of the biggest challenges we have is to avoid large concentrated exposures; and we took that very much into account in managing our credit exposures to Lehman and to AIG, as well as we do with any other financial institution.

  • Given that, what I would tell you is given the outcome at Lehman and whatever the outcome at AIG, I would expect the direct impact of our credit exposure to both of them to be immaterial to our results.

  • Prashant Bhatia - Analyst

  • Okay, thanks, David.

  • That's very helpful.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Glenn Schorr, UBS.

  • Guy Moszkowski, Merrill Lynch.

  • Guy Moszkowski - Analyst

  • Good morning, David.

  • Okay, to your point about long-term funding, or actually just focusing on current portion of it, you have about $29 billion of long-term debt and short-term coming due; and $21 billion of hybrid instruments.

  • So it looks like about $50 billion out of your total $300 billion debt load, or 16% that is in the next 12 months.

  • At least looking at the last 10-Q; obviously it changed in the quarter.

  • Can you describe to us how you are finding conditions in the debt markets and how you trade off your funding options going forward versus the returns on assets available to you?

  • In other words, does the Lehman bankruptcy mean that your access to funding is going to be more complicated and potentially limit your asset growth and financial leverage over the next 12 to 18 months?

  • David Viniar - EVP, CFO

  • Guy, that is a very good question, and I think time will tell the answer to that question.

  • I'm not going to say anything you don't know.

  • The debt markets have clearly been more challenging in the last few months than they were in the months before that.

  • We have continued to access funding.

  • We have done less long-term debt issuance in the last quarter than we did in the quarters before.

  • That is one of the reasons why we access the markets significantly more than we need when they are open.

  • We did a tremendous amount of long-term debt financing in the first half of this year so that in the second half, if the markets were not as welcoming, we wouldn't have as much to do.

  • We've done more longer secured financing than we had done in the past because that has been more available.

  • I think we recognize the fact that the financing costs have gone up.

  • Frankly, yields on assets have gone up also.

  • The one thing we do when we do longer-term financing, we swap everything back basically at overnight -- or most things back to overnight.

  • So as yields on asset goes up, they tend to match funding costs.

  • So the carry doesn't make that big a difference to us.

  • But it's a more challenging environment.

  • In the more challenging environment you saw that we did kind of constrain the growth of our balance sheet for the last two quarters.

  • We've reduced our concentrated exposures.

  • We have taken less risk, because it is a more challenging environment.

  • So we will be prudent first.

  • We will play defense first in this opportunity, and then we will look for opportunities as well.

  • Operator

  • Glenn Schorr with UBS.

  • Glenn Schorr - Analyst

  • Hi, I am in this time?

  • David Viniar - EVP, CFO

  • You are back, Glenn.

  • I thought you didn't want to talk to me.

  • Glenn Schorr - Analyst

  • I thought my phone was turned off.

  • Okay, back to something related to counterparty.

  • Given the events that no one was able to think about, what has gone on in the last week or so.

  • How have your thoughts changed on the risk management side related to counterparty exposure?

  • Thoughts in over-the-counter derivatives repo market, how you manage your book, and then how you think the system could change towards a more clearing-based mentality, if you will?

  • David Viniar - EVP, CFO

  • First, look, I mean, to say we are not affected by what is happening would be disingenuous.

  • Clearly we are going to be more cautious in our counterparty risk however we have to do that.

  • Whether it is through different margin terms, through more hedging ourselves, which is likely what we will do.

  • But we are still going to be doing business in the markets, and we still think there's a lot of good counterparties out there.

  • We've always, I said a couple times, we have been concerned about large concentrated exposures no matter how good the counterparty is.

  • So that is why we do things with margin triggers.

  • We will take some exposure.

  • We will try and limit the amount.

  • We will hedge where we have exposures that we think are too big.

  • So it is something that we have always done and of course we are focused even more on now.

  • As far as clearing, I think we've talked in the past I think it is likely that there will be an industrywide solution, some industrywide utility over the coming months.

  • I can't tell you if it's going to be three or six, but people are working really hard on it, and everybody knows that would be a good thing.

  • Glenn Schorr - Analyst

  • Cool.

  • Well does -- two-parter.

  • I know, well, how about this?

  • I'm pretty sure that any liquidation of a portfolio or a company doesn't necessarily create a mark to market.

  • But does something like what seem to be reasonably aggressive third-quarter mark on Lehman's residential assets, does that create a mark?

  • And as companies get a little squeezed here, there's calls on collaterals and certain portfolios get liquidated, what are you expecting the follow-on impact into the credit markets to be?

  • David Viniar - EVP, CFO

  • Look, we mark things based on where we believe we can sell them at the time.

  • Quite often based on where things have actually been sold, regardless of where other people mark their assets.

  • So that is how we mark our books.

  • I think, sure, Lehman announced a filing over the weekend and the credit markets declined, spreads widened, mortgage assets went down in values.

  • If we own an asset, it goes down in value, we will lower our mark.

  • But over -- other than the initial reaction, I actually think it was pretty well signaled that Lehman was trying to sell their assets.

  • So that overhang was very largely in the market.

  • I don't think it's going to be a surprise to anyone.

  • I know from reading what you guys in the press have written more than anything else how many people they had talked to.

  • So I think, as I said, that overhang was pretty in the market.

  • I think in some ways it might be the case that after a couple of months if that asset gets sold, you actually take some overhang out and things actually improve.

  • So I don't think it's going to have any meaningful, other than initial, impact on values of assets.

  • Glenn Schorr - Analyst

  • Okay, last one.

  • If you think about it, there has been some comments out of the rating agencies just recently after some hibernation that have really made a big impact on the fate of certain companies.

  • How much do you --?

  • I know you haven't relied on individual securities; you have always done your own work, your own models there.

  • But on the counterparty side, how much does the public rating matter to your counterparty exposure?

  • Is it self-fulfilling?

  • Is there any workaround to that at this extreme point?

  • David Viniar - EVP, CFO

  • It is one data point we use.

  • We look at what the rating agencies say.

  • We think that they are a data point we can use.

  • They are a resource we can use, an important resource that we and the markets use.

  • But it is not the only one we use.

  • We do our own credit work as well.

  • So we look at whatever information we can get including what the rating agencies say.

  • Glenn Schorr - Analyst

  • Okay, thanks, David.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Meredith Whitney, Oppenheimer.

  • Meredith Whitney - Analyst

  • Good morning, David.

  • I have a few questions.

  • Let me first start out with just a clarification.

  • It is unclear to me that you wouldn't get any advantage from deposits.

  • Obviously you can't fund capital markets activity with deposits.

  • But your overall credit ratings as seen by the rating agencies would improve because of diversification.

  • So there would be a benefit, right?

  • Isn't that how it works?

  • David Viniar - EVP, CFO

  • Well, I didn't say we wouldn't get any benefit.

  • I said that most of the assets that we have can't be funded by banks.

  • Some could be.

  • Look, I think there are not many banks that are rated higher than we are at this point.

  • Meredith Whitney - Analyst

  • Okay, fair enough.

  • David Viniar - EVP, CFO

  • So I think it is really -- again even with the rating agencies I think there is some benefit to being a bank; but I think more importantly it is a question of performance.

  • There are several banks that are quite good and quite strong and deserve a quite strong rating.

  • But I think it is based on their performance more than anything else.

  • Meredith Whitney - Analyst

  • Okay, so given these extreme market conditions, I'm just going to ask some extreme questions.

  • If you -- if the industry was forced to adopt bank holding company structures, what conceptually would you imagine that would cost you in terms of profitability?

  • So, negatives that way and positives there when you look through that.

  • It is a possibility albeit a distant possibility?

  • David Viniar - EVP, CFO

  • You know, that is an extremely -- use the word extreme again -- complicated question to answer.

  • Because it depends on exactly what the rules were.

  • It depends -- there are parts of the bank holding company regulations that include things like how many of your assets and what percentage you have to lend into your local community.

  • So if it totally changed our business model then it might change things a lot.

  • If it didn't and it was just a question of having deposits, using some of it to do certain things, but largely operating the business the way we operate it today, I don't think it would change things very much.

  • Meredith Whitney - Analyst

  • Okay.

  • Here is another extreme example, but we are in an extreme environment again.

  • David Viniar - EVP, CFO

  • Meredith, I should just say, but I can't tell you for sure because we have never been regulated.

  • Meredith Whitney - Analyst

  • Sure, of course.

  • David Viniar - EVP, CFO

  • We have never operated a bank, and it's not something we are an expert at.

  • Meredith Whitney - Analyst

  • Sure, okay.

  • With respect to what has gone on with Lehman and what is going on with AIG, with respect to sales in the marketplace and real capitulation sales, which you guys have been -- I know you have been expecting capitulation sales.

  • I can't imagine your risk management is good enough to expect the capitulation shares of those two, right?

  • Who knew?

  • But can you walk through the liquidity discounts that you have embedded in your asset values, on a very generic basis, to anticipate what happens to your portfolio when you see a market capitulation sale of unprecedented proportions?

  • David Viniar - EVP, CFO

  • First of all, while you said we can't anticipate, we certainly did not anticipate exactly what happened to Lehman; but as I said before we anticipated that they were trying to sell a very large portion of their troubled assets for a while.

  • Meredith Whitney - Analyst

  • Yes, but all of their assets?

  • That's (multiple speakers)

  • David Viniar - EVP, CFO

  • No, no, no.

  • But just talking about the troubled, that has been well known for a fairly long time.

  • That has actually not only been in what we thought; it has been in the prices of market, of assets.

  • So as we have sold things, that has been taken into account; and as we have bought things as well.

  • So generically, what we do is we look at what assets we have.

  • As I said, first of all, most of the marks are not based on where we think we can sell them; most of them are based on where we sold them and where we have actually seen trading in the markets.

  • There is a lot of activity in the markets even for less liquid assets.

  • They may not be exactly the same assets they have, you have.

  • They may be slightly different.

  • You might have seven tranches of a commercial real estate asset or commercial real estate loan, and two of them may trade and the other five don't.

  • But that gives you a pretty good sense where the other five are going to be.

  • And we mark things where we think we can sell our assets in size we have them.

  • We don't market where we think we could sell every dollar tomorrow.

  • We market where we think we can sell it over a reasonable time frame of whether it is 30 or 60 days.

  • That is how we think about things.

  • As I said, sure, I think that the Lehman filing over the weekend probably caused asset values to decline yesterday.

  • There was no question about it.

  • Credit spreads widened, mortgage indices widened dramatically.

  • Those assets went down in value.

  • But I think that was a kind of shock reaction more than anything.

  • It has been well signaled to the market that most of those troubled market assets are going to be sold.

  • I think that at some point getting the overhang out will be a good thing for asset value.

  • Meredith Whitney - Analyst

  • Okay, I have two last quickies.

  • When you look at a company's ability to raise capital in the equity market, it is significantly diminished; and now more assets being put on the market to raise capital.

  • Does that change what you had anticipated in terms of capitulation sales?

  • David Viniar - EVP, CFO

  • Not really.

  • I think they have still been, as we have talked about, slower than we thought.

  • We thought that we would have seen more troubled assets for sale than we have seen.

  • So no, I don't think anything has changed there.

  • Meredith Whitney - Analyst

  • Okay.

  • The last one is a special request.

  • Will you remind me of things are never as bad as they seem or never as good as they seem?

  • David Viniar - EVP, CFO

  • Happy to.

  • I was actually on the phone with someone earlier and I said that, and we believe it.

  • When things are bad, it appears that they will never get better.

  • When things are good, it appears that they will never get worse.

  • They both happen.

  • When they are good, they get worse; when they are bad, they get better; and you never see either one coming.

  • And afterwards it was obvious it was going to happen.

  • So, look, I'm not unrealistic about this.

  • We are in a very, very difficult time.

  • But you heard me say it, things will get better.

  • I don't know when, but they will get better.

  • Meredith Whitney - Analyst

  • Okay, thanks, David.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Guy Moszkowski, Merrill Lynch.

  • Guy Moszkowski - Analyst

  • Yes, hi, David.

  • Thank you.

  • David Viniar - EVP, CFO

  • It sounded like you got cut off, Guy, so.

  • Guy Moszkowski - Analyst

  • Yes, I think they wanted to go back to Glenn.

  • I just wanted to ask you about the CMBS exposure update, sort of how that evolved in the quarter.

  • Obviously that is not that enormous a deal for you.

  • But I would just be interested in knowing what the numbers were; and to the extent that they came down, how much versus sales versus just marks and principal reduction.

  • David Viniar - EVP, CFO

  • Sure, our total commercial real estate exposure was $16.6 billion at the end of the second quarter; $14.7 billion at the end of the third quarter.

  • If you take out CMBS, which are more trading assets, you're at $15.2 billion at the end of the second quarter and $12.4 billion at the end of the third quarter.

  • You know, the great majority of those reductions were sales; and you kind of heard what the losses were.

  • Now, those were net.

  • There were some gains on some of the hedges.

  • But the majority of those reductions were sales.

  • Guy Moszkowski - Analyst

  • Got it.

  • There was a comment in the press release about how in credit products you had weak, I guess negative investment results.

  • What was that exactly?

  • Is it something that was not captured then in the $453 million loss on Principal Investments?

  • David Viniar - EVP, CFO

  • It was not in the Principal Investments.

  • It is really within credit, and we have talked about this before.

  • Within our credit businesses, we will do a variety of things, including sometimes you buy distressed debt for which you get equity when companies recover.

  • Sometimes we will actually make small equity investments because, given the size of companies, you will invest all across a capital structure.

  • But quite often, sometimes these distressed investments or these small investments will turn into equity.

  • Then it is still within our credit business, because that is how it is managed, given the size of the companies.

  • And sometimes whether they are private or public, sometimes they will go public after you make that investment and you get equity.

  • Then we just mark it to market.

  • Sometimes even in private form we mark them to market.

  • So really it is those investments within the credit business that start off smaller and sometimes get big-- and that is a good thing -- that didn't do well as asset values declined.

  • And it's all within the credit business.

  • Guy Moszkowski - Analyst

  • Yes, okay.

  • Fair enough.

  • Thanks for the explanation.

  • I was wondering if you could walk us through the roll-forward on the Tier 1 ratio in the third quarter.

  • Was it principally just the increase in retained earnings?

  • Was there also a reduction in risk-weighted assets as you changed around the portfolio?

  • Then sort of as a follow-up to that, BIS is proposing a greater weighting for market risk assets.

  • Any comment on their proposal, any estimate of the impact on your Tier 1 ratio?

  • David Viniar - EVP, CFO

  • Guy, I believe -- but we will confirm to you -- that most of the increase was from the increase in capital, although our risk-weighted assets did come down as well.

  • But more would be weighted towards the increase in capital.

  • On the proposal and what it would affect, we are just going to have to do more work on that to come back to you.

  • Guy Moszkowski - Analyst

  • Okay.

  • Then finally, the Level 3 assets, I think you commented came down by $9 billion or $10 billion, depending on which particular measure you use.

  • I assume that most of that is just the reduction in leveraged finance?

  • David Viniar - EVP, CFO

  • That was part of it, and it was other types of Level 3 assets as well.

  • But the leveraged finance assets were the biggest driver of that.

  • Guy Moszkowski - Analyst

  • Okay, great.

  • Thank you very much, David.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Patrick Pinschmidt, Morgan Stanley.

  • Patrick Pinschmidt - Analyst

  • Hey, David.

  • While I understand the limitations on using the deposit base here in the US to help fund the broker, what about in Europe?

  • Potentially are there some opportunities there to kind of grow the deposits to help with some long-term funding for the broker?

  • David Viniar - EVP, CFO

  • Yes, there are different rules in Europe than there are in the United States.

  • Look, we have a bank in the United States.

  • It has mid $20 billion type of deposits, which by the way makes it like the 50th largest bank in the United States.

  • We have a bank in Ireland that has about $10-ish-billion of deposits we use.

  • So we have them and we use them; it is just not our basic business model.

  • So there are some advantages.

  • We have some of them; we use them where we can.

  • But doesn't fit with most of our business model.

  • Patrick Pinschmidt - Analyst

  • Okay, so even if I guess the Fed's action on Sunday night, temporary suspending of Section 23A of the Federal Reserve Act, even if that were made permanent would you see any benefit to boosting to your bank deposits here in the US?

  • David Viniar - EVP, CFO

  • I don't actually think they suspended it.

  • I think they changed it somewhat.

  • Patrick Pinschmidt - Analyst

  • Yes, the temporary exemption (inaudible).

  • David Viniar - EVP, CFO

  • Right, right, but look, there are a lot of things -- I don't mean to be -- not answer your question.

  • But people are asking a lot of theoretical questions about what would happen if the world changes.

  • And if the world changes we would evaluate the world at the time and decide what we thought was in the best interests of the firm and our shareholders.

  • We can really only operate where we are today.

  • We are always looking at what might happen; and if different things unfold, if different rules happen, if things change, we might make different decisions.

  • But given the rule set that we have to operate under today, we think what we have works quite well.

  • Patrick Pinschmidt - Analyst

  • Okay, great.

  • Fair enough.

  • Thanks, David.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Mike Mayo, Deutsche Bank.

  • Mike Mayo - Analyst

  • You have talked a lot about your BRIC expansion strategy, but you the BRIC stock market indices were down like about one-fifth last quarter.

  • I have them down 16% so far this month.

  • So the question is, I know that is your long-term strategy; it is not a straight line.

  • But are you changing your capital allocation to BRIC or non-US countries, changing staffing?

  • Any other changes there?

  • David Viniar - EVP, CFO

  • Mike, that is a very good question and it is something that we clearly are looking at quite closely in this environment.

  • We have not changed our long-term strategy at all.

  • We continue to believe that that is where we will see very good, in fact, probably the best growth opportunities looking out into the medium to long term.

  • Everything you said about the decline in those markets is correct.

  • They have been more dramatic than the decline in other markets.

  • You know, we have talked in the past about the fact that we know this is not going to be a straight line up, and there's going to be bumps, and the bumps are going to be bigger.

  • On a tactical basis, we will probably take less risk there for some period of time; but I don't think it will be a long period of time.

  • And it's a tactic, not a strategy.

  • You know, as things start to pick up, it will continue to be our strategy to concentrate growth in assets and people and in capital in the BRICs.

  • Mike Mayo - Analyst

  • In terms of staffing in those economies or overall staffing for Goldman Sachs, you increased headcount 3% this quarter.

  • Any changes in overall staffing?

  • David Viniar - EVP, CFO

  • We increased by about 3% in the quarter.

  • I think we will be up on the year if you exclude the acquisition of Litton very low single digits.

  • A couple of percent.

  • As far as next year we are literally going through the budgeting process right now and trying to figure out what we should do.

  • Mike Mayo - Analyst

  • As far as Principal Investment losses, you said most were outside the US.

  • David Viniar - EVP, CFO

  • Yes.

  • Mike Mayo - Analyst

  • Then you have the stock indices.

  • I'm not sure how good we can use that to model the Principal Investment losses.

  • Maybe what are the Principal Investment losses so far this quarter, or your marks this quarter, if you are able to disclose that?

  • David Viniar - EVP, CFO

  • It is two weeks in, and we obviously don't talk about where we are two weeks into a quarter.

  • Mike Mayo - Analyst

  • Sure, that's fair.

  • Then you said it is never as bad as it seems.

  • If you believe that, how are you capitalizing off the current dislocations?

  • Or how can you capitalize further?

  • David Viniar - EVP, CFO

  • We will continue to look for opportunities to buy assets at what we think are good prices.

  • The distressed investing business for Goldman Sachs over the years has been a very, very good business.

  • Part of me says I wish it wasn't.

  • I would rather there were no distressed assets anywhere and the world was growing at a great pace everywhere in the world.

  • Unfortunately that is not the case.

  • There have not been as many sales of distressed assets as we thought there would be up to now.

  • We think that there will be opportunities to do this in the future, in the near future.

  • So as we see them, taking into consideration that times are tough and we are going to be prudent about how we commit our capital and our liquidity, we would like to take advantage of some of those opportunities.

  • Mike Mayo - Analyst

  • Then last question, just as a follow-up, the discussion about you joining up with a bank at some point, given the rules, the way they stand today, would it be extremely unlikely that you would join up with a bank?

  • David Viniar - EVP, CFO

  • Within the context of the fact that never is a really long time, and I try not to think in those time frames, we think that the business model that we have right now is working quite well and that our performance is good.

  • You heard what I said at the beginning, that we think it is not about the model; it is about the performance of the Company.

  • The model that we are in has helped to us and allowed us to perform as well as we have, and we would like to continue that.

  • Mike Mayo - Analyst

  • All right, thank you.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Roger Freeman, Lehman Brothers.

  • Roger Freeman - Analyst

  • Hey, good morning, David.

  • I guess I want to come back to the funding question.

  • So, you are saying large parts of your business really don't fit well into a bank framework in terms of funding.

  • You've got the Fed now essentially as a repo counterparty.

  • Now at some point those facilities are going to go away, presumably, in better times.

  • How do you think the asset-backed financing market will shape up?

  • I.e., do you think there will be permanent, higher discounts to asset prices?

  • Will there be fewer assets that will be repo-able?

  • Will that be a limiting factor in funding going forward?

  • David Viniar - EVP, CFO

  • I don't -- look -- first of all, and again I don't mean to keep picking on this.

  • But you said permanent.

  • Permanent is a long time.

  • Roger Freeman - Analyst

  • Fair enough.

  • David Viniar - EVP, CFO

  • Our business is a very cyclical business, and every time we go through a cycle like this -- with this part maybe being one of the worst we have ever seen -- people think no one is going to take risk again; there is no going to be no securitizations again; all the things.

  • And again, never is a long time and people ultimately come back and take risk.

  • There is a lot of liquidity in the market right now.

  • There is just a lot of fear that is overwhelming people's willingness to use that liquidity.

  • So when things get better, it could get better pretty quickly.

  • So no, I don't think there is going to be a permanent decline.

  • I don't think there is going to be a permanent change in the assets that can be financed.

  • I think it is a tough funding market today; but no, I don't think it is permanent.

  • Roger Freeman - Analyst

  • Okay.

  • Can you tell us what the structured debt marks were in the quarter in terms of -- I presume those are gains?

  • David Viniar - EVP, CFO

  • Yes, they were gains and they were less than $200 million, somewhere in the range of $175 million, something like that.

  • Roger Freeman - Analyst

  • And those were in FICC?

  • David Viniar - EVP, CFO

  • Excuse me?

  • Roger Freeman - Analyst

  • Mostly in FICC?

  • David Viniar - EVP, CFO

  • Yes.

  • Roger Freeman - Analyst

  • Okay.

  • In terms of remaining exposures, I think we've got commercial and leveraged loans, I think; do you have Alt-A, subprime and prime exposures?

  • David Viniar - EVP, CFO

  • I do, I do.

  • Within resi, prime was -- I will give you round numbers.

  • Prime was about $7 billion, a little over $7 billion; but within that about $5 billion was agencies.

  • Alt-A, about $3.6 billion; and subprime $1.7 billion.

  • Roger Freeman - Analyst

  • Okay, and then what about --

  • David Viniar - EVP, CFO

  • $12.7 billion total.

  • Roger Freeman - Analyst

  • $12.7 billion total?

  • Okay, thanks.

  • Then what would -- can you give us average marks on Alt-A and commercial?

  • David Viniar - EVP, CFO

  • I think I can.

  • You've just got to give me a second.

  • Roger Freeman - Analyst

  • Sure.

  • I guess leveraged loans while you're at it.

  • David Viniar - EVP, CFO

  • All right, on Alt-A, I think the weighted average mark at the end of the quarter was around 50.

  • Roger Freeman - Analyst

  • Okay.

  • David Viniar - EVP, CFO

  • What else did you ask for?

  • Which other one?

  • Roger Freeman - Analyst

  • Commercial, mortgage and securities, however you look at that combined.

  • David Viniar - EVP, CFO

  • Commercial is a lot harder because there are so many tranches.

  • And securities are all over the place.

  • You know, to put it in context, on the loans on some of -- and I'm not going to be able to give you everything, because there are so many different parts of it.

  • But I will tell you that most of the loans were in the low 80s; and the securities are all over the place.

  • It depends on what they are.

  • Roger Freeman - Analyst

  • What if you looked at the range of property types backed by the loans and securities.

  • Can you put those in any buckets for us?

  • Like how much is office versus multifamily, commercial?

  • David Viniar - EVP, CFO

  • I actually don't have that level of detail with me.

  • We have it, but I just don't have it.

  • Roger Freeman - Analyst

  • Okay.

  • The last question, if you think about the $325 million in marks you are taking across commercial securities and loans, I don't think you have disclosed any specific marks in the past.

  • Presumably they have been bundled in there.

  • But that is only a 2% mark, right?

  • So I'm just trying to bridge that to where you are saying low 80s in the loans, for example?

  • It is tough to triangulate.

  • But it looks like you've only got a 2% total net mark; because this is the first quarter we are seeing any commercial marks.

  • David Viniar - EVP, CFO

  • But you have to look at where it was last quarter versus where it is this quarter.

  • Remember we also had hedges in there, which as you know the CMBS indices widened a lot over the course of the quarter.

  • Roger Freeman - Analyst

  • Okay, so the hedges were pretty effective?

  • David Viniar - EVP, CFO

  • Yes, this quarter they were.

  • There will be quarters where they won't be, and we know that.

  • Roger Freeman - Analyst

  • Okay, all right.

  • Thank you very much.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Douglas Sipkin, Wachovia.

  • Douglas Sipkin - Analyst

  • Yes, good morning, David.

  • So, obviously a lot of questions on big-picture stuff.

  • Most of them have been answered.

  • I just wanted to drill down a couple of the revenue lines.

  • David Viniar - EVP, CFO

  • Sure.

  • Douglas Sipkin - Analyst

  • Securities Services, second-best ever.

  • I know it's a very challenging environment for hedge funds, a lot of deleveraging, a slowdown in activity.

  • So I'm surprised by the strength.

  • Is it more a function of I guess some of the capacity coming out, affording you guys a little bit more pricing power?

  • Or was there just more activity than I think we thought?

  • David Viniar - EVP, CFO

  • I think it was more of the former than the latter.

  • Douglas Sipkin - Analyst

  • Then can you talk about that?

  • Obviously it is an incredibly challenging environment, like nothing we have ever seen.

  • But moving along to other pieces of the business, do you get the sense that that is going to start to show up, with all this capacity coming out, all the way down to maybe even underwriting where there is going to start to be more pricing power with the remaining firms?

  • David Viniar - EVP, CFO

  • Look, hard to say.

  • We are not happy with how capacity has come out of the market.

  • Douglas Sipkin - Analyst

  • Sure.

  • David Viniar - EVP, CFO

  • We feel for the people.

  • We have a lot of compassion for them.

  • We wish it had never happened.

  • I would rather we had more good, strong competitors than we have right now.

  • But yes, it is likely let that certainly when things start getting better and if there are more opportunities and fewer competitors, that will help our market shares and our pricing power.

  • So it should give us opportunities going forward.

  • I wish we didn't have them.

  • Douglas Sipkin - Analyst

  • Moving back to the big-picture stuff, obviously you guys have done a very good job managing through this situation.

  • I know your views on sort of gross leverage; you guys view them as misleading.

  • But it just feels like right now the market has the potential to make things happen maybe that don't necessarily need to happen.

  • So I mean have you guys given any thought to more sources of permanent capital?

  • Not so much that you need them, but maybe the markets would be relieved by you getting them and it would probably improve the debt spreads and make cost of funding easier.

  • David Viniar - EVP, CFO

  • Well, I think I was talking to someone before who used a line which I really liked.

  • He said that you should do things before you have to; and I completely agree with him.

  • And I think we have been doing some of that.

  • The fact that we have had basically rounding to zero buybacks in the last two quarters is one of the things where the earnings have allowed us to grow our capital more than we would have.

  • I would love to have been able to buy back shares and have a higher ROE; but we thought it was more prudent to grow capital.

  • Having over $100 billion of excess cash over the quarter has cost us money.

  • I would love to have the -- not do that and fund everything secured and have lower interest costs and have higher EPS.

  • But we thought in this quarter it was better to do things before we had to.

  • And so -- this quarter and last quarter and for the last several.

  • So we have been growing our capital, we have been increasing our liquidity.

  • We have been doing things to make sure we were appropriately risk managed so that when there are opportunities we can take advantage of them.

  • But in this environment, it was really -- it was and it is defense first.

  • Douglas Sipkin - Analyst

  • Then just comment in the press release about the Investment Banking backlog being up.

  • I guess you guys don't probability weight that stuff.

  • Can you just talk a little bit more about the details behind that?

  • David Viniar - EVP, CFO

  • We actually do.

  • Our Investment Banking backlog is probability weighted, and so it is, that is how we calculate it.

  • Douglas Sipkin - Analyst

  • So can you talk about what areas are stronger versus last quarter?

  • David Viniar - EVP, CFO

  • Yes, it was largely in the merger area.

  • Douglas Sipkin - Analyst

  • Okay.

  • David Viniar - EVP, CFO

  • The increase was largely merger related.

  • Douglas Sipkin - Analyst

  • Is this stuff that is announced but not closed, or like preannounced?

  • David Viniar - EVP, CFO

  • It could be either, but it has a high enough probability that we think it should be in backlog.

  • We actually scrub that quite well.

  • We go through it deal by deal to make sure we are confident it will become revenues.

  • It is, as I said, probability weighted; but that doesn't mean that everything in backlog always closes.

  • Douglas Sipkin - Analyst

  • Sure.

  • David Viniar - EVP, CFO

  • Because things do come out of there.

  • And of course, things -- we get revenues in Investment Banking that never get into the backlog.

  • Douglas Sipkin - Analyst

  • Fair point.

  • Okay, great.

  • Thanks.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • (Operator Instructions) James Mitchell, Buckingham Research.

  • James Mitchell - Analyst

  • Hey, David.

  • Most of my questions have been asked and answered but could you --?

  • I know new you guys really haven't talked about this before, but with the Fed opening up the window to even more assets, can you give us a sense of how much in unencumbered assets you have to pledge?

  • I would think it is a pretty large amount, but --.

  • David Viniar - EVP, CFO

  • Well, first of all, most of our assets are funded.

  • So as I said, we don't need any of the Fed facilities to fund now.

  • We are funding all of our assets without using the Fed facilities.

  • James Mitchell - Analyst

  • (multiple speakers) right.

  • David Viniar - EVP, CFO

  • One of the things we did, and we said this in the release that came out on Sunday, all of the various financial firms went and used the PVCF this week, and I think we might all continue to do that in various times, because we want to take away the stigma of using it.

  • We don't want people to say -- oh my goodness, they used it, that's terrible.

  • So we just said, you know what?

  • Let's all use it for some amount; and that way everyone will know it is just there.

  • It is just another source of funding.

  • So it is not like we have assets sitting there that we need to take to the Fed.

  • But I think the Fed being there is really a big statement about liquidity risk.

  • I've seen reports, I've seen articles about tri-party repo is too risky; it is going away.

  • I have never given any of them any weight.

  • But with the Fed doing that it kind of takes away most of that risk -- if you thought it was there.

  • James Mitchell - Analyst

  • Right, fair enough.

  • Maybe just to the business line, one quick question on the asset management business you guys had.

  • The equity outflow is not too surprising in this environment, offset by some fixed income asset inflows and alternative investments.

  • But within equities, was it mostly on the quant side or where has that been concentrated?

  • Or is it across the board?

  • David Viniar - EVP, CFO

  • Yes, yes.

  • Yes to the first part of your question; it was --

  • James Mitchell - Analyst

  • Right, more on the quant side.

  • David Viniar - EVP, CFO

  • The majority was on the quant side; but there was other stuff, too.

  • James Mitchell - Analyst

  • Right.

  • Are you seeing any kind of slowdown in the deleveraging process of the clients?

  • David Viniar - EVP, CFO

  • No, no, no we are not.

  • I think there is more fear than anything out there, which is what is leading to deleveraging.

  • Again, if you want the glass-is-half-full side of it, it just means that there is a lot of liquidity there.

  • A real lot.

  • So that when you start to see things pick up, there is the opportunity for them to pick up pretty quickly.

  • James Mitchell - Analyst

  • Right, fair enough.

  • Okay, great.

  • Thanks.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

  • Michael Lipper, Lipper Advisory Services.

  • Michael Lipper - Analyst

  • Good morning.

  • Often the press is not specific about potential investments, in the sense that they speak of Goldman Sachs without identifying whether it's a proprietary investment or an investment for the funds under management.

  • For example, assume for the moment that it was real that you looked at the commercial real estate at Lehman.

  • Was that something that was primarily a proprietary investment?

  • Or was that primarily for funds under management?

  • David Viniar - EVP, CFO

  • That is a very good question and in all cases the answer is -- it depends.

  • To a large extent, it is sized revenue.

  • We have agreements with our funds in the asset classes that they are specialized in; and we have a real estate equity fund, we have a corporate equity fund, we have mezzanine funds.

  • If investments are over a certain size, then they go to the funds.

  • We have done that because the funds are big enough that it makes sense.

  • We have also done it because we want to -- as I have talked about many times -- manage the concentrations of our risk.

  • We will, with certain large investments, we might put part of it in the fund, part of it on our balance sheet, and go raise capital from partners to do even more.

  • So it is really size driven where it goes.

  • Larger investments will tend to be in the fund or partnered with the fund, or partnered with other funds; and smaller investments on the balance sheet.

  • Michael Lipper - Analyst

  • It would be useful when these things happen if they can be identified as to the source of the investment.

  • David Viniar - EVP, CFO

  • We will try.

  • Michael Lipper - Analyst

  • Thank you.

  • David Viniar - EVP, CFO

  • You're welcome.

  • Operator

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

  • Holmes for any closing remarks.

  • Dane Holmes - IR

  • Thank you, everyone, for dialing in.

  • If you have any questions, additional questions, feel free to contact us at the Investor Relations Department.

  • We once again appreciate your participation on the call.

  • Have a nice day.

  • Operator

  • Ladies and gentlemen, this does conclude the Goldman Sachs third-quarter earnings conference call.

  • You may now all disconnect.