高盛 (GS) 2011 Q1 法說會逐字稿

Good morning.

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

I would like to welcome everyone to the Goldman Sachs first-quarter 2011 earnings conference call.

(technical difficulty).

Also this call is being recorded today, Tuesday, April 19, 2011.

Thank you.

Mr.

Holmes, you may begin your conference.

Good morning.

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

Welcome to our first-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 December 2010.

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, capital ratios, risk weighted assets, and global core excess.

You should also read the information on the calculation of non-GAAP financial measures that is appointed on the investor relations portion of our website, www.GS.com.

This audio cast is copyrighted material of the Goldman Sachs Group Inc.

and may not be duplicated, reproduced, or rebroadcast without our consent.

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

David?

Thanks, Dane.

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

I will give an overview of our first-quarter results and then take your questions.

I'm pleased to report solid first-quarter results for the firm.

Net revenues were $11.9 billion and net earnings were $2.7 billion.

Earnings per diluted share were $1.56 and our annualized return on common equity was 12.2%.

Excluding the impact of a $1.6 billion preferred dividend associated with our repayment of the Berkshire Hathaway preferred stock, earnings per diluted share were $4.38 and our annualized return on common equity was 14.5%.

In 2010, many of our clients' strategic and investment decisions were burdened by fears about the global economic outlook.

These concerns were focused on many considerations ranging from European sovereign risk to regulatory uncertainty to the potential for inflation in growth markets.

Many of the issues facing the broader operating environment in 2010 continued into 2011, with political unrest in the Middle East and the tragedy in Japan adding to their list of concerns.

Despite these broad macro concerns, we experienced increased client activity across many of our businesses within institutional client services during the first quarter, although volumes were still generally subdued.

In part reflecting a typical seasonal upswing, we saw improved client activity in each of the major businesses within FICC Client Execution in addition to higher volumes across Equities, as reflected in Equities Client Execution and commissions and fees.

Throughout the challenging operating environment of the past few years, our people have remained focused on helping our clients navigate complex problems and making difficult decisions.

The increased activity that we experienced during the first quarter of 2011 reflects our continual investment in the firm's global client franchise.

Another driver of our performance in the first quarter was the increase in asset prices despite the uncertain macroeconomic backdrop which contributed to greater quarterly revenues in our Investing & Lending sector.

On March 18, we announced that we would redeem the 10% cumulative perpetual preferred stock held by Berkshire Hathaway.

Following the 30-day notice period, we completed the full redemption yesterday.

The depth and breadth of our client franchise position the firm to generate solid first-quarter results despite our conservative leverage profile and near record levels of liquidity amidst continued global economic uncertainty.

I will now review each of our businesses.

Investment Banking produced first-quarter net revenues of $1.3 billion, down 16% from solid fourth-quarter results.

First-quarter advisory revenues were $357 million, down 43% in the fourth quarter.

We advise on a number of important transactions that closed in the first quarter including GDF Suez's $25.4 billion merger with International Power; Allegheny Energy's $8.9 billion sale to FirstEnergy Corporation; and Intel's $7.7 billion acquisition of McAfee.

We are also advisor on a number of significant announced transactions including Reliance Industries' $9 billion sale of certain assets to BP; Beckman Coulter's $6.8 billion sale to Danaher; and Liberty Global's $5.5 billion acquisition of KBW.

First-quarter underwriting net revenues were $912 million, up 4% sequentially.

Equity underwriting revenues of $426 million were down 23% from the fourth quarter reflecting a decline in IPO activity from robust fourth-quarter levels.

Debt underwriting increased 50% to $486 million, reflecting higher activity across leverage finance and investment grade markets and a reopening of the CMBS market.

During the first quarter, we participated in many noteworthy underwriting transactions including Hutchison Port Holdings' $5.5 billion IPO; Schaeffler's $2.5 billion sale of a portion of its equity stake in Continental; and J.

Crew's $1.9 billion combination bank debt and high-yield notes offering.

Goldman Sachs ranked first globally in equity and equity-related offerings year-to-date.

Our Investment Banking backlog increased from year-end levels.

Let me now turn to our Institutional Client Services, which is comprised of FICC and equities client execution, commissions and fees, and security services.

Net revenues were $6.6 billion in the first quarter.

Our FICC and Equities Client Execution business improved significantly from fourth-quarter levels, driven by a broad-based increase in client activity.

FICC Client Execution net revenues were $4.3 billion in the first quarter, more than doubling sequentially as every major business generated higher revenues.

This quarter results were quite balanced, with a broad contribution across products and regions.

Our credit business benefited from higher origination activity particularly in high-yield markets.

Mortgages produced solid results on improved volumes largely in our non-agency business.

Our macro complex including rates, FX, and commodities produced solid results as clients reacted to continued uncertainty in the macroeconomic outlook.

Turning to Equities, which includes Equities Client Execution, commissions and fees, and security services, net revenues for the first quarter were $2.3 billion, up 16% sequentially.

Equities Client execution revenues were up 27% to $979 million, reflecting higher net revenues within our derivatives business.

Commissions and fees were $971 million, up 13% from the fourth quarter on higher market volumes.

Security services net revenues of $372 million were roughly flat.

Turning to risk, average daily volume of risk for the first quarter was $113 million, down 6% relative to the fourth quarter.

Lower equity and currency risk was partially offset by higher commodity risk.

Let me now review Investing & Lending, which produced net revenues of $2.7 billion in the first quarter.

The firm's Investing & Lending activities across various asset classes primarily including debt securities and loans and equity securities are included in this segment.

These activities include both direct investing and investing through funds as well as lending activities.

Now our investment in the ICBC produced a $316 million gain in the quarter.

Other equity investments generated net revenues of $1.1 billion across both public and private equity investments.

Net revenues in debt securities and loans were $1 billion, generated from interest income and a favorable credit market.

Other revenues of $311 million were primarily driven by the firm's investment in consolidated investment entities.

In Investment Management, we reported first quarter net revenues of $1.3 billion, down 16% from the fourth quarter due to seasonally lower incentive fees.

Management and other fees were consistent with the fourth quarter at $1 billion.

During the first quarter, assets under management remained unchanged.

Outflows in money market and fixed-income assets were offset by $12 billion of market appreciation.

Now let me turn to expenses.

Compensation and benefits expense, which includes salaries, bonuses, amortization of prior-year equity awards, and other items such as payroll taxes and benefits, was accrued at a compensation in net revenue ratio of 44%.

First-quarter non-compensation expenses were $2.6 billion.

Depreciation and amortization expenses included impairment charges of approximately $220 million related to assets classified as held for sale during the first quarter primarily related to loan servicing.

Total staff at the end of the first quarter was approximately 35,400, down 1% from the end of 2010.

Our effective tax right was 32.3% for the first quarter.

In keeping with the firm's long-standing policy of repurchasing shares to offset increases in share count over time resulting from employee share-based compensation, we repurchased 9 million shares of common stock during the first quarter for a total cost of approximately $1.5 billion.

Many headwinds continue to exist for our global businesses, particularly on the macroeconomic front.

This leads to a natural ebb and flow of client activity.

As a result, the firm continues to operate in an uncertain environment over the near term.

However, we believe our ability to generate industry-leading returns for our shareholders remains intact.

We remain committed to building and maintaining valued long-term relationships with our clients.

We remain committed to managing our risk prudently and appropriately, balancing risk return decisions.

We remain committed to creating long-term value through continued investments in our global footprint, technology, and operational infrastructure.

Finally, we remain committed to recruiting and retaining individuals who embrace our culture of teamwork and client focus.

We understand the importance of these commitments not only to our shareholders but also to our clients, our regulators, our employees, and the public at large.

With that, I'd like to thank you again for listening today and I'm now happy to take your questions.

Glenn Schorr, Nomura.

Good morning.

David, to your last point, 14.5% ROE on a pretty low leverage, lower than obviously than you have been but lower than all your peers as well.

What do you think holds back picking up leverage a couple of clicks?

Is it the SIFI buffer?

Is it opportunity?

Because it can be pretty impactful at this level of an ROA.

I think I'd start with opportunities.

We are not holding back leverage.

There are just -- while there was obviously more activities in the fourth quarter, our clients are still cautious given the economic environment, the regulatory environment, other things, and so there just are not -- we are taking advantage of opportunities where we see them with our clients, but there are not that many.

And what can you tell us -- I think you gave us on the K that the size of the Investing & Lending balance sheet but I think the returns on the debt side are harder to track.

You gave us a good 10% market guidance on the equities side.

How big is the balance sheet on the debt securities side and how much of the gain this quarter was credit improvement versus anything else?

Let me answer the second part of the question first.

The gains were a variety of things.

First of all, there's interest when we make loans and I would say somewhere between 20% and 25% is interest.

Then it was a combination of things.

As you know, it was a very active financing market, so there were a lot of restructurings during the quarter.

There were a lot of repayments during the quarter and given that we are a mark-to-market firm, if something is repaid at par and it wasn't marked at par, we have gains.

So there was just a lot of debt activity, which is beneficial.

Then there was a narrowing of spreads as well (inaudible).

So all of those things contributed to the gains in that segment.

As far as the balance sheet goes, how -- how about if we just get back to you?

I just don't have those numbers at my fingers.

Not a problem.

One last one.

So FICC was obviously good and much improved from last quarter but in the last couple years down from '09's highs.

Is that once again an issue of client activity and the lower leverage?

What can you tell us about bid offer compression as well?

Sure.

As you remember, in 2009 and 2010 when we talked about it, I told you what was going on in the markets then were not sustainable.

I think a very big portion of it was the bid offer spreads, the fact that there was just so little capital in the market to service our clients, and we were there and most others were not.

So we had an incredibly high market share, an unsustainably high market share with unsustainably high bid offer spreads.

So I think that market share has come back down to what I would call -- and I don't like using the word normal, a more normalized level.

And bid offer spreads have come down to a more normalized level.

Okay.

Thanks, David.

Howard Chen, Credit Suisse.

Good morning, David.

David, you noted Institutional Client Services results were fairly balanced by region.

Was just hoping you could expand on that.

You know, for some of your peers we've seen Europe as a relative source of rebound and wondering if you're seeing something different?

I think as I said, Institutional Client Service were balanced by business and so within the FICC businesses all the five major businesses were quite balanced.

As far as region goes, I would say that overall our revenues were pretty much in line with what you have seen mid to high 50s for the US and outside the US, roughly 60/40 Europe/Asia, so not a big change there.

Great, very helpful.

And then post the C-car results, you noted the Fed had no objection to you repurchasing stock and a potential increase in the dividend.

I realize your preference would be organically to deploy that capital and you just repaid a big preferred.

But just could you give us a sense of what your regulator was comfortable with you buying back or raising the dividend by?

I'm not going to give numbers but we continue to work with the regulators and return capital when we think it's prudent.

As you said, we prefer to use it.

We prefer to find opportunities to put it to work.

But if not, we will give it back to our shareholders in a way that we think is prudent given the opportunities that we think are out there and given the financial standing of the firm.

Okay, thanks.

Final one for me, just could you update us on thoughts on pro forma Basel III capital ratios and on where you are in some of your RWA mitigation efforts?

I know it's early.

Thanks.

It's early.

There's again really no change.

If we were to do it now at the end of the quarter, our Basel III ratios would be -- Basel III common -- [joint] common would be just around 8%.

And if we roll it out to the end of 2012 and we assume just consensus earnings and just passive mitigation, things that roll off, we would be at around 11%, right around.

That hasn't changed.

And as far as doing anything active, it's too soon to really do it.

Okay, thanks.

Many thanks for taking the questions, David.

Guy Moszkowski, Bank of America Merrill Lynch.

Good morning, David.

Just to dig into Investing & Lending a little bit, I was wondering if for both the debt and the equity areas maybe you could give us a sense of the concentration of revenues in terms of whether a handful of positions contributed to either equity or debt or whether it was more diversified than that?

It was both.

There were a couple of things that were pretty meaningful, but it was also very, very diversified.

There were tens and sometimes triple digits of positions that participated in the games in both debt and equity.

When you say there were a couple that are meaningful, what's your definition of meaningful within, say, a $1 billion revenue item?

You know, low triple digits?

Okay, and that's helpful, thanks.

And then on just in terms of the geographic spread within the equity and the fixed income segment, sort of to piggyback on Howard's question.

And again, I'm talking about Investing & Lending.

(multiple speakers) across all of our businesses and again, I should have given the caveat which I always give to you that it's a little hard to do things geographically because we have global books and so you hand off from one region to another and then when you have a cross-border merger, if the deal has a US acquirer of a Chinese company, is that a US deal or an Asian deal?

So there's questions of where things are, but I'd say it's relatively consistent across our businesses.

High 50s in the US and then roughly mid to high 50s in the US and then 60/40 Europe-to-Asia outside of the US.

So that still applies largely with respect to the Investing & Lending segment as well?

Because that's where I meant to ask the question.

I'd have to get back to you to look at that segment specifically.

I know it's the case generally across our businesses segment by segment.

I'll have to get back to you on that.

Okay, that would be great.

Can you give us a sense -- I think we've asked -- I've asked this question before, but maybe you've had a chance to refine some of the work on the new segment disclosures.

Do you have a sense for differences in the margins in Investing & Lending versus, say, ICS?

It's a little too early to tell.

Some of that will be in the Q.

Part of it has to do with how you allocate comps to the various segments, how you allocate some other expenses.

It's a little too early.

It's sometimes hard to do in the middle of the year because that stuff only becomes clear at the end of the year.

So even if you see some of that in the Q, it's really rough estimates and it's really only what we have at the end of the year that is truly the meaningful margins.

Historically do you have a sense as you look back over the last few years -- and I know you didn't disclose more than a limited period, but --

I think you would generally find that the Investing & Lending segment has hit the higher end of the margins.

Got it.

And then just a comp ratio question.

You obviously chose to accrue at 44.

Last year you used 43 for the first three quarters of the year.

You've never actually stepped up to a higher accrual rate for the first three quarters from whatever you used in the prior year.

Is there any message there that we should take away?

We never accrued as low as 43% in the year before last year either.

So no, I wouldn't take any message.

As you know, it's our best estimate of where we will be now.

We don't know where we will be.

You know what we have historically done so you can go look at that.

But versus last year as you know we have more people in more places that are not necessarily generating as much revenue and so the very, very slightly higher accrual seemed to make sense to us.

Got it.

Okay.

Thanks very much, David.

Appreciate it.

Roger Freeman, Barclays Capital.

Good morning.

I just wanted to come back to the capital discussion again.

How do you sort of think about the roll forward?

You will -- you said you are sort of 8%-ish -- which is I guess consistent with where you've talked about before and as that sort of rolls forward, you've got your correlation book rolling off, (inaudible) mitigation in progress.

Gradually you build a buffer here.

As you then get Basel III final rules and then Dodd-Frank, do you -- are you then able to go to the Fed and kind of lay out the case for confidence level of where you're going to be in the next couple of years and then get approval to do something more meaningful in terms of buyback?

I think, Roger, it's too early for me to say that this is exactly how we're going to do it.

We'll have to see what the final rules are.

we'll have to see what the environment is like.

In a tougher environment, we will keep even more of a buffer.

If it is a better environment, we might not.

We will have to look out as to what we think the opportunities are going to be.

We're always going to run at higher, more conservative capital levels.

I think that's just the way we are going to manage the firm.

We're in constant dialogue with our regulators.

They know where we are and what we have and we will just decide over time.

Okay, and then on the liquidity buffer, as you said, you're still near record level, I guess it was $171 billion this quarter.

How much of that -- if you look at the treasury portion of that, what is the average duration there?

Should we be thinking about this as rates go up that it's actually going to be a positive to net interest income or is it actually going to be a principal loss?

I think it's going to be neither.

It's really short.

That's stuff we can literally turn to cash instantly, so it is the equivalent of cash.

Okay.

Lastly, if you think about conforming to Dodd-Frank and really Basel as well, do you ultimately anticipate any meaningful resizing of the FICC businesses in terms of (multiple speakers)?

As we sit here now, we don't think so.

We think that business, as you know, is mostly a client-focused business and we think it is the business that has allowed under Dodd-Frank.

We think most of the businesses still make sense under Basel.

We've talked about some of the ones where the capital charges are pretty high, so we continue to be hopeful that that business is going to grow over time and it's going to grow in more places.

It's going to grow in the growth markets.

We continue to be optimistic looking forward.

Are decisions like whether to allow cross margining of swaps and futures in clearing houses going to do you think have any meaningful impact on how active your clients are?

It's just so hard to say right now.

Okay.

All right, thanks.

Jeff Harte, Sandler O'Neill.

Good morning.

The comments -- leverage being low is kind of a conscious decision so you are well positioned to take advantage of opportunities when they present themselves.

I guess I have two questions along that line.

One is what kind of areas are you specifically looking for opportunities to show themselves?

And the second would be from a timing perspective, how patient do you plan to be?

I have some flashbacks to waiting for distressed debt prices to get really low and they never really did.

Well, it wasn't even so much that distressed debt prices didn't get so low, it's the holders of distressed assets just didn't sell them.

And so I think that was really the issue more than anything.

Look, we are looking for first of all, we are looking for opportunities of just more client activity, so more client activity results in us using more capital.

So that would be the first and best way for us to use our capital.

Other than that, it would be opportunities if we saw distressed assets of really any kind being available for sale.

We have seen some opportunities, not that many with our clients and very, very minor opportunities in the distressed asset business, whether it be loans, real estate, other types of credit, very, very few opportunities.

Okay.

So is it as much the economy is growing and that always cyclically leads to opportunities as opposed to you watching kind of specific areas?

That is the biggest driver, absolutely.

Macroeconomic factors, client confidence, more certainty about regulatory reform, those things tend to drive client activity and that drives opportunities.

Okay, thanks.

Michael Carrier, Deutsche Bank.

Thanks, guys.

David, the ROE picked up this quarter but still a ways from the long-term target.

When you look at what can drive that higher, like how much does the weakness in, say, the higher ROE business like M&A weigh on it?

How much does the elevated cash level weigh on the ROE?

And then just on the trading side, I would say in general like customer activity, is there any gauge in terms of the level of balance sheet turnover that you would historically see versus today that's also weighing on the returns in the trading area?

You hit almost all of the things.

So elevated levels of cash, elevated levels of capital, we've repaid Buffet.

More -- those are all on the usage side.

And then there's the return side itself, which the revenue side, which is really going to be driven by more activity.

The higher ROE businesses, the merger business still -- and if you look at it, the volumes compared to GDP, it's still at historic lows.

Growth in assets and assets under management would be a high return business where you just haven't seen that much.

You have seen a little bit flowing into higher fee businesses but not that much.

And then just overall more activity on the trading side, so you see more flow from our clients.

All of those things would help drive ROE.

As far as balance sheet turnover, the speed of turnover hasn't changed.

It's still quite high.

There just isn't as much of it.

Okay, and then maybe just on the FICC side, when you look at that client activity level, do you feel that it's the macro environment that weighs on client interactions or is it something more on the regulatory side, meaning long-duration contracts, clients not wanting to get involved until you get more regulatory clarity around certain businesses like the OTC market?

Again, you are both asking and answering the questions at the same time.

The answer is both of those things.

I think there is -- definitely regulatory uncertainty is weighing on activity.

People uncertain about how the rules are going to affect them and the macroeconomic activity -- or the macroeconomic environment is also weighing on people.

I think that's why you have seen over the last quarter now but even going back to last year stops and starts.

Some good data comes out and people feel good, then there's no data, then there's regulatory uncertainty.

Then there's negative views of whether it's peripheral Europe or potential inflation in the growth markets or growth in the US, all of those things, you're seeing varying data.

That varying data causes fits and starts amongst clients, so it's both.

It's both of the things that you mentioned.

Okay and then final one.

Just on some of the capital ratios and regulation going forward, some of the US universal banks have stated kind of a 7% to 9% Tier 1 common ratio under Basel III.

You have some in Europe saying 10 all the way up to 19 on total capital.

We haven't heard much out of Asia.

But when you think about the nuances, whether its assets, risk weighted assets by country, leverage ratios by country, and then the overall impact of financials relative to the economy, where do you think or do you think these ratios are going to be pretty standard across or is there going to be a lot of differentiation?

And then any clarity on the US from like a timing standpoint in terms of getting clarity, whether it's on the capital ratios, liquidity levels, and then anything around Dodd-Frank on the OTC side?

I think it would be great if we had one set of capital rules around the world.

But I think that each local regulator has their own views of the world.

They look at things differently and they have the right to regulate their local jurisdictions.

And I think we and other financial institutions around the world are -- we have always lived with that and I think we are going to have to live with that.

I think they're all trying hard to standardize the regulation as much as possible, but I think it's unrealistic to think there's just going to be one set for everybody around the world.

And as you said, we've lived through that and we're going to have to live with that going forward.

But they are doing the best job they can.

As far as when we are going to get complete clarity in the US, I'm not sure.

I know the regulators are working very hard at this and are trying again to do the best job they can.

It's a very hard job and so we're trying to be as helpful as we can and we are hopeful to get more clarity by the end of this year.

Okay.

Thanks, guys.

Meredith Whitney, Meredith Whitney Advisory Group.

In going through your results today, I was reminded of a period that was equally unexciting, which is the early 2000s -- no offense intended -- but when there wasn't a lot of activity going on and you chose to take the time to do some impressively transformative things to your equity business.

And I know you've done a lot in terms of rationalizing expense structures, offshoring, moving people to Utah, but can you talk about some of the transformative investments you are making today and while you wait, what you're doing strategically on future planning and what businesses that affects?

Okay, I think we've talked a little about this.

First of all, hard to give you a definitive answer because how some of the regulations ultimately get written could drive how some of the businesses evolved.

But we think it's pretty clear that some of the technological advances that happen in equities are going to happen in some of the FICC businesses, that technology and client connectivity are going to be very, very important.

And without the 100% knowledge of exactly how that's going to work, which is one of the differences we have this time versus last time, we kind of knew where we were, we just had to get there, we are trying to get as prepared as we can for how we think things are ultimately going to shake out.

Okay, it doesn't sound like it's in Goldman Sachs' nature to wait for client volumes to come back, although obviously you are a product of client volumes.

But you should have a pretty good sense.

This feels structurally long lived.

So I'm not asking you to give an outlook, but what happens over the next few quarters if we still have volumes like this?

Look, you know I'm bad at predicting.

I don't like to do that.

I always ask, though.

We don't know what volumes are going to be, but one thing you know about the markets is they tend to get better and worse faster than people think they are going to.

And I'm not at all predicting volumes are going to pick up.

They could easily slow down a lot given some of the macroeconomic uncertainty that is out there.

And look, if volumes continue to stay where they are or get slower, and we think they are going to stay that way, then we would have to make some and changes whether it be the capital, the headcount or to other expense items.

Just last sort of wrap up, on a non-comp changes that you made in terms of expense reductions, are you over 85% there?

On non, we have been -- through the downturn have been very, very careful about our non-comp expenses, so I would say we are -- there's not a lot to do in non-comp expenses that we have not done.

There's always more you can do but there's not that much to do.

Okay.

All right, thanks, David.

Mike Mayo, CLSA.

Good morning.

Can you elaborate more on the backlog?

On the one hand, as you mentioned, there's the macroeconomic uncertainty, regulatory uncertainty, at least a couple of your competitors said things were a little bit softer going to the second quarter and you just had the CEO of U.S.

Bancorp saying the second half of the first-quarter was weaker.

So you have all those negative factors.

Then you say well, backlogs are up.

Can you quantify how much the backlogs are up versus the fourth quarter and where that's coming from?

Without -- Mike, I don't give out the actual numbers and again, you got to be very careful with backlog numbers.

The increase in backlog is more focused.

It's up across the board in both advisory as well as underwriting, but it's more heavily weighted towards underwriting, both debt and equity, than it is towards advisory.

And I think you see deals announced on the underwriting side, both debt and equity; you see the volumes actually are pretty high there, whereas M&A volumes have been much lower.

As we've seen before, a lot of activity, a lot of dialog level around the M&A business, but unless some of the macro uncertainty goes away, I don't think that's going to pick up.

And if the macro uncertainty does go away, I think that could pick up a lot.

And by geography?

I don't have the backlog by geography at my fingertips.

So that's something we'll have to get back to you on.

And when we look at the fourth quarter to the first quarter, the geographic growth in revenues, was it stronger in the US and Europe than emerging markets or how did that break down?

First -- fourth quarter to first quarter, not really a big difference.

Very, very similar.

I said mid to high 50s in the US, 60/40 Europe/Asia outside the US.

Round numbers plus or minus a percent or two.

Switching gears, syndicated lending has really ramped up year-over-year and how aggressively are you getting involved there?

Do you see any warning signals?

What were your fees from syndicated lending deals?

And any other commentary?

Look, we are a participant in that market, but we are not as big a participant of some of our competitors, who are bigger.

Credit terms have tightened.

They are more borrower friendly than they were a year ago.

But -- and there are some terms that you might think are too tight.

I think one of the banks including us are being much more careful about the terms, about the amount of leverage in deals.

It's still a lot lower than we saw it.

Some of the heights in the market and the time-to-market in commitments is much, much shorter than it was, which is one of the biggest mitigants for taking risk.

And then lastly, any comments on the watch on the government debt, S&P's move yesterday?

How would that impact how you do business?

It will not impact how we do business at all and I have no comment on it.

All right, thank you.

Ed Najarian, ISI Group.

Good morning, David.

I guess just a question related to the incentive-based stock-based comp, the $1.5 billion that you spent to buy back stock this year to keep shares flat.

Could you give us an outlook for approximately what that would be for the remaining three quarters of the year?

Is it seasonally higher in the first quarter?

Ed, again, I apologize.

I'm going to have to -- I don't have those numbers at my fingertips.

Okay, when you give that 11% outlook by the end of 2012 for Basel III-based Tier 1 common, does that include what you would spend to keep the shares flat related to stock-based employee comp?

Actually in doing that we assumed no increase in equity for equity-based comp and no buybacks.

So if you assume that they offset each other, then it's the same number.

So we just assumed neither in those numbers.

So you assumed you would not be buying back the stock?

Well, it is as if we assumed we would buy back whatever the equity-based comp is.

We assumed no increase in equity for equity-based comp and no buybacks, so another way to think of it is we assumed -- exactly offsetting each other.

Oh, I see.

Okay.

And then just a quick follow-up question.

300 person headcount reduction related to the end of 2010.

Should we be reading anything into that or are you going to sort of try to continue to rationalize the headcount a little bit?

No, you should read nothing into it.

It's just the first quarter is a slow hiring period and as you know, natural but very low attrition.

Most of our hiring is done through the summer.

So no, you should read absolutely nothing into that.

Okay.

Thank you.

Chris Kotowski, Oppenheimer.

Yes, obviously there's only so much you can say about capital, but I just wanted to come at it a different way, which is -- is there a way for us to think about how much capital one needs to run a world-class investment bank?

You are sitting there on $64 billion of tangible common.

You have Morgan Stanley and JPMorgan around $40 billion.

B of A allocates $31 billion.

The Europeans, Credit Suisse, Barclays, UBS, and Deutsche are all somewhere in the $30 billion-ish.

And shouldn't we all be thinking that at some point that that spread between the capital you have allocated and everybody else's, it gets to a (inaudible) point?

I'm not quite sure how to answer that.

We've told you we've been pretty conservative.

We have more capital than we need for the business right this second, but there's a lot of uncertainty out there.

We can only speak for ourselves.

We can't speak for others.

There's a lot of uncertainty.

We are hoping that we see opportunities and we will -- if we don't, then we will have to give more back.

We have said that, but I can't speak for others.

You should ask them that question.

Okay.

And the secondly, can you talk maybe if not on this call at some other point about in more detail about the asset management business?

Because I think we are sitting here -- essentially the AUM is unchanged from where it was three years ago and we are wondering how do you plan to get that business back into a growth mode?

What's the strategy and plan for doing that?

Sure, I will give you the quick version now and I'm happy to talk as much as you want.

Obviously over the last three years, we had a big decline and then a big increase in there.

So 2008 was pretty difficult to the asset management business as well as other businesses and then it picked up after that.

It's been roughly flat over the last year although the mix has gotten better, so you've had fewer money market assets and more alternatives in fixed-income assets, so higher fee-paying.

That's one of our biggest focuses.

We are very focused on our distribution and making sure we hire the right number of people so that we can distribute our product and then we continue to focus on the performance because we know ultimately that's going to drive things.

All right, thank you.

Kian Abouhossein, JPMorgan.

Good morning.

I had a question regarding your FICC and equity revenues.

Can you give me an idea how it would look like on a historic reporting basis, first of all?

You know, I don't have that because we stopped calculating it when we went to the new basis.

We are not -- no longer calculating how it would've looked on the old basis, so I don't -- I really don't know.

Okay, and last time on the last call, you mentioned that it was just after the FSOC document came out and you were studying at that point.

I was wondering what is your thinking now about market making?

Again, there's nothing in that document that's different than where we thought before, but the rules are not written yet.

We have to see what the final rules say.

Our understanding is that the regulators are trying to write rules that are sensible, that are -- make sense for the safety and soundness of the financial system, but also don't hurt the growth or free flow of capital in our capital markets.

So we just have to wait and see what the final rules are.

Okay, and in respect to the Investing & Lending business, clearly very difficult to forecast also looking at your filing -- there's limited information to really come to a good forecasting of that part of the business.

Can you run us through kind of steps how you as an outsider would look at this business so we get a better understanding besides ICBC how we should forecast the other lines?

As you know, I don't need to tell you, it's hard to forecast any of our businesses.

They are not recurring constant revenues.

So it is hard to forecast.

We give you the asset balances.

We give you our potential for a 10% decline.

Now obviously idiosyncratic things could affect our portfolios versus others.

But I think the best you can do is look at the asset balances, look as potential 10% declines and make best estimates there.

Obviously this quarter we did better than that would have implied.

There will be some quarters we will do somewhat worse.

But it is difficult to forecast our businesses.

Is there any kind of -- can we think about recurring revenues that are in there that we could assume?

I think you mentioned there's some recurring revenues in these lines.

There's some amount of interest in the debt line.

I told you this quarter it was round numbers 20% to 25% of that line, so that's going to be recurring.

But that's a small part of it.

Lastly, you gave a very good presentation February 9.

You had such good [age] to inventory slides and they excluded OTC derivatives.

And I was wondering if you would include OTC derivatives, how would the slide change?

I'm not sure how you measure OTC derivatives as far as inventory turnover goes.

Because first of all, there's also there is often restructurings of derivatives, so do you count it if it's restructured, is it in a new transaction or old transaction?

They are really all over the map.

You also have derivatives where you might hedge a derivative and you might have a long-dated derivative and the short-dated hedge that you constantly roll, so it's very, very hard to measure OTC derivatives, which is why we excluded it.

No reason other than the measurement difficulty.

All right, thank you very much.

Matt Burnell, Wells Fargo Securities.

Good morning, David.

Just a quick administrative question.

Any effect from CVA DVA in the quarter?

Yes, it was about a $40 million gain and is virtually all in FICC line execution, so very small.

Okay, so not very much at all.

Just curious about a couple of trends that we noticed in the security services revenues lines quarter-over-quarter, looks like it was a little flat.

That seems to be in contrast with somewhat greater activity levels that you mentioned in equity and fixed income.

Could you provide a little more color on what's going on in the security services business?

Are your clients there taking less risk than clients you see in the more FICC and equity side of the business?

What I would tell you there -- you are right -- it was almost exactly flat and interestingly it was pretty flat balances and pretty flat spreads quarter over quarter.

It wasn't much of a change in anything.

And there's just -- while activity was up versus the fourth quarter, it's still not that high and leverage within the hedge fund community is still not very high.

And so that hasn't changed all that much.

Okay, that's helpful.

And then one final question in terms of the net or the flat net flows in the asset management business throughout alternative investments, equity, and fixed income, that seems to be a little bit in contrast with what we saw with a couple of your competitors.

I'm just curious if you can give a little more color as to what's going on there outside of the liquidity products, which are obviously down across the street.

What I would say, look, different firms are different.

If you look across, you will see some up, some down.

One thing I would say is that we -- one place where we do not have a big presence is in passive products and passive products clearly were up more than others and other people who are concentrated there would've had better flows than we would have.

That's helpful, David.

Thank you.

A follow-up from Guy Moszkowski, Bank of America Merrill Lynch.

David, just quickly, given that commodities markets especially obviously oil were very active and trending in the quarter, I was a little surprised not to hear you call out commodities in any way as you talked about FICC.

I was wondering if you could characterize activity levels there a little bit?

Activities levels in commodities were very good.

I mentioned that it was very balanced.

We had a solid quarter in commodities as well as the other products, so it was a good quarter in commodities.

It was a good quarter in all businesses.

So I didn't mean to not mention them because it was a good quarter in commodities, but it was a solid quarter in commodities but all the other businesses as well.

Got it.

Thank you very much.

At this time, there are no further questions.

I will now turn the call back over to management for any closing remarks.

I would like to thank everyone for joining us for our first-quarter earnings call.

If you have any additional questions, please feel free to reach out to the investor relations department and we can answer your questions.

Have a nice day.

Ladies and gentlemen, this does conclude the Goldman Sachs first quarter 2011 earnings conference call.

You may now disconnect.