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Fitch: Goldman Sachs' 4Q'11 Results Generally Consistent With Fitch Expectations

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NEW YORK--(BUSINESS WIRE)--

The Goldman Sachs Group Inc.'s (Goldman) fourth quarter 2011 (4Q'11) results were improved from particularly weak 3Q'11 results. Performance in 4Q'11 was modest when compared to the company's historical performance, but generally consistent with Fitch expectations given the challenging markets. Debt value adjustments (DVA) had no material impact on earnings in 4Q'11.

Goldman reported soft trading results, like many of its peers. Generally, global markets have been characterized by measured client activity, with a focus on expense management and capital preservation. The seasonally slow fourth quarter notwithstanding, market conditions were exacerbated by geo-political uncertainties. In the near term, capital markets are likely to remain challenged by tempered client activity and evolving regulatory action.

Both equity and fixed income underwriting revenues improved quarter-over-quarter though down for the year compared to 2010. Advisory and client trading revenues declined both from 3Q'11 and for the year. Investing & Lending results were driven by positive contributions from ICBC and other equity investments, in contrast to significant reported losses in the previous quarter. Losses on relationship loans in 4Q'11 reflect the mark-to-market accounting treatment of unfunded, committed lending facilities.

Compensation expense was up in the quarter, but the compensation ratio declined to 36.5%, down from the 44% ratio reported in the first three quarters of fiscal year 2011 (FY11). For the year, the ratio increased to 42.4%, compared to FY10. The firm's $1.4 billion cost-cutting initiative appears to be on track to yield benefits in future quarters.

Liquidity remains sound. The global core excess (GCE) averaged $167 billion in 4Q'11, up slightly from the prior quarter. Total assets declined slightly.

Average value at risk (VaR) rose quarter-over-quarter due primarily to the rise in interest rate VaR reflecting increased volatility in the markets. Throughout 2011, interest rate risk has increased absolutely and proportionately compared to other risk asset categories.

Basel I capital ratios were essentially unchanged quarter-over-quarter. Tier 1 common under Basel III is approximately 8%. Fitch expects Goldman to achieve Basel III final standards - including the SIFI buffer - before the stated deadline. The firm repurchased an additional 9.2 million shares during 4Q'11, for a total cost of $908 million.

The resignations of Securities Division co-heads Edward Eisler and David Heller were announced January 2012. Going forward, there will be three co-heads instead of four. Fitch believes Goldman has developed sufficient management breadth and depth to readily address such changes in its senior ranks. The Board of Directors was expanded to 12 with the addition of Michele Burns.

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary Analyst:
Leslie S. Bright, +1-212-908-0622
Senior Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Fabrice Toka, +1-212-908-0369
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1-212-908-0549
brian.bertsch@fitchratings.com

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