DBRS Morningstar Confirms Ratings of Goldman Sachs at A (high), Stable Trend

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of The Goldman Sachs Group, Inc. (Goldman or the Company), including the Company’s Long-Term Issuer Rating of A (high) and Short-Term Issuer Rating of R-1 (middle). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for Goldman is AA (low), while its Support Assessment remains SA3. The Company’s Long-Term Issuer Rating is positioned one notch below the IA.

KEY RATING CONSIDERATIONS
The ratings confirmation reflects Goldman’s leading market positions across all of its major businesses, as well as its preeminent risk management, global peer-leading returns and strong balance sheet fundamentals. The ratings also consider Goldman’s exposure to a wide range of trading and investing activities that are integral to the value of its franchise, but also contribute a notable level of market risk that characterizes the Company’s risk profile.

RATING DRIVERS
Given Goldman’s current risk profile, a ratings upgrade is unlikely over the intermediate term. Over the longer term, a greater reliance on more stable sources of revenue would result in an upgrade. Conversely, a sustained deterioration of earnings or balance sheet fundamentals would result in a downgrade. Any indications of significant weakening in Goldman’s franchise due to reputational issues, risk management deficiencies or operational missteps, would also result in a downgrade.

RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Very Strong
Goldman’s core franchises remain very strong. The Company’s Investment Banking (IB) franchise includes a dominant Financial Advisory business that is consistently top-ranked in worldwide completed M&A and a global-leading Equity Underwriting platform. In addition, Goldman has made significant market share gains over the past decade within Debt Underwriting, establishing a top-five position globally.

Goldman remains one of the leading global players within Fixed Income, Currency and Commodities (FICC) and Equities. While these businesses are capital intensive and contribute a notable amount of market risk and revenue volatility, they can still generate a substantial amount of revenue even during adverse market conditions, as evidenced in the Company’s recent results.

Goldman is also a top-five global active asset manager and has a leading ultra-high net worth Wealth Management business, both of which provide stability to earnings. The Company has also embarked on a number of strategic initiatives, including building out a transaction banking business, growing its third-party alternatives business and scaling its consumer banking, high net worth and mass affluent offerings to drive more durable earnings. We expect Goldman to deliver on these initiatives, considering the Company’s strong operational infrastructure, top-notch talent and persistent culture that permeates the organization, having been cultivated through organic growth with limited acquisitions.

Earnings Combined Building Block (BB) Assessment: Strong
For the full year 2021, Goldman reported record net revenues and record earnings. Additionally, the Company’s 23.0% return on equity (ROE) was its highest since 2007 and firmly above global peers. More recently, Goldman delivered another industry-leading performance in 1Q22, with a 15.0% ROE. Highlighting the results, Global Markets generated $7.9 billion of net revenues, which was up 4% versus an extraordinary prior year quarter, reflecting extremely high client activity amid significant market volatility.

Risk Combined Building Block (BB) Assessment: Strong/Good
Given Goldman’s extensive exposure to market risk and risks related to its involvement in capital markets activities, we view Goldman’s effective risk management capabilities and cohesive culture as key underpinnings to the Company’s ratings. Notably, the Company utilizes just one integrated, flexible technology system for risk management, which has benefited the Company when adjusting to changes and the evolving environment. These capabilities enable the Company to address the challenges of ensuring effective management, while retaining the streamlined organizational structure that helps keep Goldman efficient and nimble.

Funding and Liquidity Combined Building Block (BB) Assessment: Strong
Goldman has a comprehensive framework in place to manage its liquidity and funding needs. We view favorably the Company’s efforts to further diversify its funding profile toward more stable sources, including continuing to grow its deposit base, which now represents more than one-third of total funding sources. Goldman maintains a substantial amount of liquidity, with global core liquid assets averaging $375 billion during 1Q22, representing nearly one-quarter of total assets.

Capitalization Combined Building Block (BB) Assessment: Strong
We view Goldman’s capitalization as providing a solid cushion to absorb unexpected losses given its risk profile, which incorporates significant market risk. Despite returning $1.2 billion to shareholders through dividends and buybacks during 1Q22, the Company's Standardized CET1 ratio improved 20 basis points sequentially to 14.4%, or about 100 basis points above its regulatory requirement.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://www.dbrsmorningstar.com/research/397324.

ESG CONSIDERATIONS
There were no Environmental, Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Global Methodology for Rating Banks and Banking Organisations (July 19, 2021): https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations. Other applicable methodologies include the DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022): https://www.dbrsmorningstar.com/research/394683/dbrs-morningstar-criteria-guarantees-and-other-forms-of-support and DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022): https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This rating is endorsed by DBRS Ratings Limited for use in the United Kingdom, and by DBRS Ratings GmbH for use in the European Union, respectively. The following additional regulatory disclosures apply to endorsed ratings:

Each of the principal methodologies/principal asset class methodologies employed in the analysis addressed one or more particular risks or aspects of the rating and were factored into the rating decision. Specifically, the Global Methodology for Rating Banks and Banking Organisations was utilized to evaluate the Issuer, the DBRS Morningstar Criteria: Guarantees and Other Forms of Support was used to rate the subsidiary guaranteed by the Issuer and the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings was used to assess ESG factors.

The last rating action on this issuer took place on May 26, 2021 when all ratings were confirmed.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

Lead Analyst Michael McTamney, Senior Vice President - Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director, Head of NA FIG
Initial Rating Date: Initial Rating Date: October 29, 1999

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277