Goldman Sachs May Not Issue Bonds to Match Maturities
Goldman Sachs Group Inc. (GS), the fifth- biggest U.S. bank by assets, may not issue long-term debt to match the $11.8 billion it has in second-half maturities, said Treasurer Elizabeth “Liz” Beshel Robinson.
“Obviously, the market is a little bit more challenging today that it’s been in the past,” Robinson said on a conference call today for fixed-income investors, the first of its kind hosted by the New York-based company. She said the firm has a “number of levers” to replace the funding, including raising deposits or shrinking the firm’s balance sheet.
Goldman Sachs, which was Wall Street’s most profitable securities firm before converting to a bank in 2008, last week reported its lowest first-half profit in seven years. The report showed net interest income fell 25 percent in the six-month period from a year earlier as a 5 percent decline in interest expense failed to match the 13 percent drop in interest income.
Goldman Sachs issued $13.7 billion of unsecured long-term debt in the first half of the year, $12 billion of which was in U.S. dollars and the rest in Japanese yen, Robinson said. That compared with $15.1 billion of maturities. While the bank will “certainly” issue some long-term debt in the second half, how much will depend on the environment, she said.
“Our view on funding has always been to raise debt opportunistically when we see attractive opportunities in the market,” Robinson said. “Attractive for us around funding means term and diversity.”
The company plans to expand its regulated-bank unit to obtain more federally insured deposits, a lower-cost form of borrowing than the firm’s other sources of funding. Goldman Sachs held $57.3 billion in deposits at the end of June, compared with $1.12 trillion held by JPMorgan Chase & Co. (JPM), the largest U.S. bank.
Goldman Sachs has increased deposits by $11.2 billion this year. Much of the growth has come from brokered certificates of deposit and relationships with broker-dealer aggregators that sweep client cash to Goldman Sach’s bank subsidiary, Robinson said. Those categories account for more than half the firm’s deposits.
The CDs have a weighted-average maturity of three years, and are 2 percentage points cheaper than funding through three- year debt at the parent-company level, Robinson said.
“We’re raising deposits, and we’ll use some of those deposits for private individual loans, some of it for corporate loans,” Chief Financial Officer David Viniar said on a July 17 conference call after the firm released earnings. “We’ll use those deposits that we have and grow them and use them wisely for profitable opportunities.”
Goldman Sachs Bank USA, the regulated bank unit overseen by Esta E. Stecher, has higher credit ratings for both long-term deposits and short-term debt than the parent company. Last month Moody’s Investors Service cut the credit ratings on Goldman Sachs Group’s long-term debt two levels to A3 and on its short- term debt to P-2. Goldman Sachs Bank USA had its long-term deposit rating cut to A2 and its short-term rating affirmed at P-1.
The Moody’s downgrade had “no impact” on the firm’s funding, and collateral outflows related to its derivative portfolio were less than $100 million, Robinson said.
The cost of buying protection against a default on $10 million of Goldman Sachs debt for five years was $287,845 as of July 23, according to prices compiled by Bloomberg. While that’s below the $376,642 cost for Morgan Stanley debt, it’s higher than the rate charged on so-called credit default swaps for Bank of America Corp., Citigroup Inc. or JPMorgan, according to data compiled by Bloomberg.
Viniar, 57, has been the Goldman Sachs executive who has addressed investors, analysts and the media about quarterly earnings since the company went public in 1999. As treasurer since 2005, the 43-year-old Robinson has the job Viniar held before he became CFO and has been trained by him to handle the firm’s financing and liquidity needs.
Robinson is viewed by some analysts as a candidate to succeed Viniar if he decides to leave. Another contender is Sarah E. Smith, the bank’s controller and chief accounting officer.
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