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Rating Action:

Moody's assigns first-time ratings to Goldman Sachs JBWere

Global Credit Research - 29 Apr 2010

Sydney, April 29, 2010 -- Moody's Investors Service has assigned first-time long-term and short-term issuer ratings of A2 / Prime-1 to Goldman Sachs JBWere Capital Markets Limited, A2 / Prime-1 to Goldman Sachs JBWere Pty Ltd, and A3 / Prime-1 to Goldman Sachs JBWere Group Holdings Pty Ltd. All ratings carry a negative outlook and reflect the negative outlook assigned to their largest shareholder, Goldman Sachs Group Inc.

"The ratings of Goldman Sachs JBWere (GSJBW) reflect the Group's established franchise in Australia's capital markets, its prudent risk and liquidity profiles, and its strong relationship with the Goldman Sachs Group" said Marina Ip, an assistant vice president at Moody's Sydney office.

THE OPERATING COMPANIES

Goldman Sachs JBWere Capital Markets Limited and Goldman Sachs JBWere Pty Ltd are the principal operating companies of GSJBW. Together they enjoy significant market shares in Australian stock broking, capital markets and mergers and acquisitions, contributing to the strong broader franchise position of the Goldman Sachs Group in the Asia-Pacific region.

The ratings of both entities reflect a level of risk appetite that is low relative to the broader wholesale banking industry -- although still incorporating the potential for volatility in revenues and pre-tax margins inherent in securities companies, as well as risk relating to corporate lending, proprietary trading and principal investments using the firm's balance sheet.

The ratings benefit from GSJBW's close association and risk-sharing with the Goldman Sachs Group.

"In some situations, such as certain types of trading activities, GSJBW transfers all credit and market risk to the Goldman Sachs Group. However GSJBW retains risk in other activities such as proprietary trading, or shares risk with Goldman Sachs Group, for example in underwriting and relationship lending. Where GSJBW retains risk, we view the expertise of the Goldman Sachs Group to be an important asset in managing the risk/reward trade-off" adds Ip.

Another notable support to the ratings of GSJBW's operating subsidiaries is its prudent liquidity policy, which results in very strong coverage of its short-term obligations and liquidity metrics that are towards the top end of Moody's rating range.

The ratings of GSJBW incorporate the capacity to increase and further diversify its funding sources, (which currently comprise retail investment notes and banking facilities) to support balance sheet growth in line with the Group's existing liquidity policy.

THE HOLDING COMPANY

"The ratings of Goldman Sachs JBWere Group Holdings Pty Ltd are positioned one notch below its main operating subsidiaries. The long-term issuer rating of A3 recognises the franchise strength and diversity of its subsidiaries' business lines; the Group's prudent liquidity profile; but also the structural subordination of Goldman Sachs JBWere Group Holdings Pty Ltd's obligations relative to those of Goldman Sachs JBWere Capital Markets Limited and Goldman Sachs JBWere Pty Ltd" notes Ip.

RATING OUTLOOK AND DRIVERS

The negative outlook on the ratings of all three GSJBW entities reflects the negative outlook assigned to Goldman Sachs Group Inc. Due to the high level of shareholder support currently incorporated into the ratings of all three entities, any change in ratings or outlook at Goldman Sachs Group Inc will result in a similar change to the ratings or outlooks of the GSJBW entities.

An upgrade in the ratings of Goldman Sachs JBWere Group Holdings Pty Ltd, Goldman Sachs JBWere Capital Markets Limited and Goldman Sachs JBWere Pty Ltd is unlikely, given the current negative outlook on the ratings of Goldman Sachs Group Inc.

A downgrade in the ratings of Goldman Sachs Group Inc will result in a downgrade in the ratings of Goldman Sachs JBWere Group Holdings Pty Ltd, Goldman Sachs JBWere Capital Markets Limited and Goldman Sachs JBWere Pty Ltd.

Other factors which may place downward pressure on the ratings of any individual entity include:

[1] Pre-Tax Margin falling below 18% on a consistent basis at Goldman Sachs JBWere Group Holdings Pty Ltd and at Goldman Sachs JBWere Capital Markets Limited (below 0% at Goldman Sachs JBWere Pty Ltd)

[2] Pre-Tax Margin Volatility rising above 29% on a consistent basis and/or proprietary trading or principal investment activity becoming significant drivers of Pre-Tax Margin Volatility

[3] Net Cash Capital to Liquid Net Assets falling below 13% on a consistent basis at Goldman Sachs JBWere Group Holdings Pty Ltd and at Goldman Sachs JBWere Capital Markets Limited (below 6% at Goldman Sachs JBWere Pty Ltd) and/or a relaxation in GSJBW's own liquidity policy.

[4] Illiquid Risk Assets to Tangible Common Equity rising above 1x on a consistent basis

We would expect Goldman Sachs JBWere Group Holdings Pty Ltd to maintain a positive liquidity profile (liquid assets greater than short-term debt) on an unconsolidated basis. Additionally we would expect that there be no significant change in GSJBW's overall funding profile (inclusive of the Investment Notes Program) or any material increase in the firm's risk appetite and/or deterioration in the asset quality of its relationship / corporate loans.

BACKGROUND INFORMATION

This is the first time that Moody's has rated Goldman Sachs JBWere Group Holdings Pty Ltd, Goldman Sachs JBWere Capital Markets Limited, and Goldman Sachs JBWere Pty Ltd.

The principal methodologies used in rating all three entities were "Global Securities Industry Methodology" and "Incorporation of Joint-Default Analysis into Moody's Bank Rating Methodology", both of which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating Goldman Sachs JBWere Group Holdings Pty Ltd can also be found in the Credit Policy & Methodologies directory.

Goldman Sachs JBWere Capital Markets Limited is a major Australian player in capital markets, with a focus on securities (such as foreign exchange, interest rates, commodities), equity products, underwriting and proprietary trading. The firm also provides corporate loans as part of a wider relationship to high value clients. It reported assets of AUD2.9billion (approximately USD2.6billion) at 31 December 2009.

Goldman Sachs JBWere Pty Ltd is primarily the corporate advisory, stock broking and research arm of the firm, with some activity in securities trading, equity products and underwriting. It reported assets of AUD1.2billion (approximately USD1.1billion) at 31 December 2009.

Both entities are main operating subsidiaries of Goldman Sachs JBWere Group Holdings Pty Ltd, which was established in 2003 as a joint venture between JBWere (a long established Australian financial services firm) and Goldman Sachs' Australian operations. It is 45% owned by Goldman Sachs Group Inc with the remaining 55% owned by local employees. Goldman Sachs JBWere Group Holdings Pty Ltd is headquartered in Melbourne, Victoria, Australia. It reported assets of AUD4.8billion (approximately USD4.3billion) at 31 December 2009.

Sydney
Marina Ip
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Sydney
Patrick Winsbury
Senior Vice President
Financial Institutions Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

Moody's assigns first-time ratings to Goldman Sachs JBWere
No Related Data.

 

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