The Goldman Sachs Group, Inc. (NYSE:GS) Q2 2017 Earnings Conference Call - Final Transcript

Jul 18, 2017 • 09:30 am ET

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The Goldman Sachs Group, Inc. (NYSE:GS) Q2 2017 Earnings Conference Call - Final Transcript

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Executive
Martin Chavez

market prices were supportive of capital markets activity, Investment Management performance and our Investing & Lending activities. We recorded our third best quarterly revenue performance in debt underwriting, reflecting our multiyear effort to improve our relative positioning with our clients.

Another area of strength is Investment Management, where we posted record management and other fees and assets under supervision. And Investing & Lending generated $1.6 billion of revenues in the quarter, with net interest income within debt securities and loans reaching more than $400 million.

On the other hand, low levels of volatility, sequentially lower in several FICC asset classes, negatively affected the FICC environment. The current backdrop has been particularly challenging for our FICC franchise, creating headwinds in areas that are core strengths for the firm. For example, we are a market leader in commodities, but it was a challenging environment on multiple fronts. In addition, our clients place significant value on the firm's long-standing commitment to market-making as well as our strength in derivatives, but client activity levels understandably declined given the low volatility environment.

With that as a broad overview, let's now discuss individual business performance in greater detail. Investment Banking produced second quarter net revenues of $1.7 billion, up slightly compared to the first quarter. Our Investment Banking backlog increased since the end of the first quarter. Breaking down the components of Investment Banking in the second quarter advisory revenues were $749 million, roughly flat to the first quarter. Year-to-date, Goldman Sachs ranked first in worldwide announced and completed M&A.

We advised on a number of important transactions that were announced during the second quarter, including: C.R. Bard's $24 billion sale to Becton, Dickinson; Amazon's $13.7 billion acquisition of Whole Foods; and DuPont Fabros Technology's $7.6 billion merger with Digital Realty Trust.

We also advised on a number of significant transactions that closed during the second quarter, including: Syngenta's $43.6 billion sale to ChemChina; HPE's $13.5 billion spinoff and merger of its Enterprise Services business with Computer Sciences; and PrivateBancorp's $5 billion sale to CIBC.

Moving to Underwriting. Net revenues were $981 million in the second quarter, up 4% on a sequential basis. Equity underwriting revenues were $260 million, down 16% quarter-over-quarter due to lower follow-on offerings. Debt underwriting revenues of (ph) $721 million reflected continued strengths across all products and were up 13% relative to the first quarter.

During the second quarter, we actively supported our clients' financing needs, participating in: QUALCOMM's $11 billion bond offering in support of its acquisition of NXP; Intrum Justitia's EUR3 billion bond offering in support of the combination with Lindorff; and Banco Macro's $766 million follow-on offering.

Turning to Institutional Client Services, which comprises both our FICC and Equities businesses. Net revenues were $3.1 billion in the second quarter, down 9% compared to the first quarter. FICC Client Execution net revenues were $1.2 billion in the second quarter, down 31% sequentially as volatility and client conviction remained low and led to weaker client activity quarter-over-quarter.

All of our businesses