(The following statement was released by the rating agency) Fitch Ratings-New York-April 22: Fitch Ratings has affirmed Goldman Sachs Group , Inc. (NYSE:GS) Long-Term and Short-Term Issuer Default Ratings (IDRs) at 'A' and 'F1', respectively. The Rating Outlook has been revised to Negative as Fitch expects significant operating environment headwinds due to the disruption to economic activity and financial markets from the coronavirus pandemic. This rating action follows Fitch's event-driven review of the commercially oriented U.S. global systemically important banks (G-SIBs). On March 18, 2020, Fitch revised its Rating and sector Outlooks for U.S. Banks to Negative from Stable. This revision reflected the expectation that credit fundamentals for the sector will deteriorate in the near-to-medium term. Fitch believes bank profits will be pressured from higher levels of provisioning for credit losses under the Current Expected Credit Loss (CECL) accounting framework. Please refer to our press release "Fitch Ratings: Sector and Rating Outlook for U.S. Banks Revised to Negative" that was published on March 18, 2020. For GS, Fitch anticipates that reduced IPO and MA advisory activity, softer debt issuance and market illiquidity and further mark-to-market losses in Asset Management investments could pressure earnings for the rest of the year. This may be partially offset by increased secondary trading activity, which provides some cushion. Fitch expects credit quality for issuers with relatively more exposure to industries and asset classes affected by the spread of coronavirus to be significantly more adversely affected over the course of the next two to three quarters than contemplated in Fitch's "U.S. Bank Outlook" published during fourth-quarter 2019. Along with a revised Global Economic Outlook, Fitch also has published a common set of baseline and downside-scenario parameters against which all ratings groups globally are evaluating the impact of the coronavirus pandemic. As part of this portfolio review, rating actions have been taken in line with expected trajectories under the baseline scenario. For more information please refer to "Fitch Ratings: Coronavirus Baseline and Downside Scenarios," published April 2, 2020. Key Rating Drivers IDRs, VRs AND SENIOR DEBT Unless noted below, the key rating drivers for GS are those outlined in our Rating Action Commentary published in June 2019 (Fitch Affirms Goldman Sachs's Long-Term IDR at 'A'; Outlook Stable). Fitch has revised its outlook for its Operating Environment factor score to negative from stable reflecting the impact of the economic fallout from the coronavirus pandemic. In affirming GS's ratings, Fitch is signaling its view that the bank enters this economic downturn with some ratings headroom underpinned by its good capital levels and strong domestic and global franchise, as well as a decent earnings profile. While Fitch sees GS's rating as having some resiliency at its current level, there is sufficient uncertainty in the operating environment to expect a further deterioration in earnings and potentially asset quality. Fitch's Outlook revision reflects our view that profitability will be tested through 2020 and potentially into 2021 to the extent that investment banking revenue remains soft and trading revenues decline in line with the drop in the VIX index since its peak in mid-March. An uptick in deal-making is not expected at least for the remainder of the year as the coronavirus-related dislocation in the economy has adversely impacted revenue streams of many corporates. Under Fitch's baseline scenario, GS could emerge with profitability levels in the 'bbb' category at the end of 2021, which is the driver of the negative outlook on GS's earnings and profitability factor score. Through FY2019, the four-year average (pre-tax profit)/RWA stood at 1.95% (using advanced approach RWAs) and places GS at the lower end of the 'a' category under Fitch's Bank Rating Criteria and, thus, has less headroom under our baseline scenario than peers. GS's current earrings and profitability factor score is 'a+'. Fitch expects capital levels on both a risk-weighted and leverage basis to remain solid even with a significant decline in profitability for 2020. GS's CET1 ratio dropped 80bps to 12.5% between 4Q19 and 1Q20 on significant RWA and deposits growth in the last month of the quarter while its supplementary leverage ratio (SLR) was down 30bps to 5.9%. Fitch expects that these ratios will continue to be pressured over 2020. Still, Fitch's assessment of GS's capital and leverage is unlikely to move from the 'a' category over the rating time horizon, particularly given the bank's ability to build capital when shutting off share repurchases, which it has committed to do through the second quarter of 2020. Under Fitch's baseline scenario, GS is expected to end with a CET 1 ratio of 11.7%, which remains in the 'a' category, and accordingly, Fitch has revised GS's capitalization and leverage score to negative from stable. Fitch also made capitalization and leverage a high influence factor for GS. Since total loans account for roughly 140% of total shareholders' equity, Fitch applies both its Bank Ratings Criteria and Non-Bank Financial Institutions Criteria to assess the quality of on-balance sheet and client assts. GS faced significant mark-to-market losses in 1Q20 on its debt investments in asset management. Nevertheless, GS generated a solid outcome in the trading book in 1Q20 and avoided mark-to-market losses at a time that risk distribution options and deal underwriting were tested. At the same time, client asset levels remained robust. This supports a moderate influence (from lower) on the unchanged asset quality score as of 'a' well as the affirmation of the Stable Outlook. GS maintains a strong liquidity positon that has enabled the firm to support clients at a time when intervention in funding markets by the Federal Reserve was necessary. The firm's global core liquid assets stood at $243 billion at 1Q20. While liquidity remains solid, Fitch continues to view GS's relative reliance on wholesale funding as a rating constraint compared to large bank peers that benefit from the flexibility and efficiency associated with a funding mix that is skewed to low-cost deposits. The duration of depressed economic activity and heightened unemployment related to the coronavirus spread and resultant COVID-19 disease remains uncertain and depends on the success of containment efforts that are difficult to predict. Therefore, to the extent that there is a slower than anticipated recovery (i.e. Fitch's Downside Scenario), Fitch may review GS's ratings and Outlook further. Domestic SUBSIDIARY AND AFFILIATED COMPANY The Viability Ratings (VRs) remain equalized between GS and its material bank operating subsidiary. The common VR of GS and Goldman Sachs Bank, USA (GSB) reflects the correlated performance or failure rate between GS and the bank. The Long-Term IDRs of GSB is one notch higher than GS's Long-Term IDR to reflect Fitch's belief that the U.S. single point of entry (SPE) resolution regime, the implementation of total loss absorbing capacity (TLAC) requirements for U.S. G-SIBs, and the presence of substantial holding company debt reduce the default risk of GSB's senior liabilities relative to holding company senior debt. MATERIAL INTERNATIONAL SUBSIDIARIES Per Fitch's updated "Bank Rating Criteria," published Feb. 28, 2020, the LT IDRs of Goldman Sachs International (GSI) and Goldman Sachs International Bank (GSIB) have been upgraded to 'A+'. Their LT IDRs are no longer under criteria observation (UCO). Both entities are operating subsidiaries of GS. For foreign operating companies, uplift to IDRs may be applied on the basis of accepted resolution plans that identify key foreign subsidiaries to be beneficiaries of intra-group resources, among other factors. Both GSI and GSIB meet the criteria and, as such, have received uplift on their IDRs above GS. Goldman Sachs Bank Europe SE, Goldman Sachs Financial Markets Pty Ltd and Goldman Sachs Paris Inc. et cie., Goldman Sachs Financial Products I Limited, GS Finance Corp and Goldman Sachs Finance Corp International LTD's IDRs and debt ratings are all aligned with GS's VR, reflecting their core strategic role in and integration into the group. DERIVATIVE COUNTERPARTY RATING The derivative counterparty ratings (DCRs) of GS and its broker dealer subsidiaries are equalized with its Long-Term IDR because they have no definitive preferential status over other senior obligations in a resolution scenario, and therefore, the DCR will move in line with the IDR. SUPPORT RATING AND SUPPORT RATING FLOOR GS's and GSB's Support Ratings (SR) and Support Rating Floors (SRF) reflect Fitch's view that senior creditors cannot rely on receiving full extraordinary support from the sovereign in the event that GS becomes non-viable. In Fitch's view, implementation of the Dodd Frank Orderly Liquidation Authority legislation provides a framework for resolving banks that are likely to require holding company senior creditors participating in losses, if necessary, instead of/or ahead of the company receiving sovereign support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by GS are all notched down from the common VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Per Fitch's updated "Bank Rating Criteria," published Feb. 28, 2020, Fitch has downgraded GS's subordinated debt by one notch to 'BBB+' and removed it from UCO to reflect the change in baseline notching for loss severity to two notches (from one previously) from the VR. GS's subordinated debt does not meet the specific conditions under our criteria for applying a one notch variance from the VR. Per Fitch's updated "Bank Rating Criteria," published Feb. 28, 2020, GS's preferred stock has been upgraded to 'BBB-' to reflect a reduction in incremental non-performance risk and is no longer UCO. Preferred stock is four notches from the VR, which encompasses two notches for non-performance and two notches for loss severity. Lastly, the preferred stock ratings of Goldman Sachs Capital II and Goldman Sachs Capital III have also been upgraded by one notch each to 'BBB-'. DEPOSIT RATINGS Deposit ratings are one notch higher than senior debt ratings reflecting the deposits' superior recovery prospects in case of default, given depositor preference in the U.S. RATING SENSITIVITIES IDRs, VRs AND SENIOR DEBT In light of the rapidly evolving economic backdrop, Fitch expects that GS's ratings and/or Outlook, as well as those of all other U.S. banks, may be subject to more frequent review than in a normal operating environment. Factors that could, individually or collectively, lead to negative rating action/downgrade include: --Fitch understands that GS, along with its peers, has been directed by regulators to use capital and liquidity buffers to support the economy. Thus, Fitch does not expect its CET1 ratio to meaningfully increase throughout 2020. However, the suspension of buybacks in the near term, along with what Fitch expects to be a modest capital request under its capital plan submitted to the Fed, should support its CET1 ratio at or near its 1Q20 level for multiple quarters. A sustained decline in its CET1 ratio below 10.0% without a credible plan to rebuild it to its long-term target could also pressure ratings. --Negative pressure could be placed on GS's ratings should there be evidence of outsized deterioration in the level and volatility of earnings due to market losses or deterioration in credit quality relative to peers, such that (operating profit)/RWA is sustained below 2% for three-to-four consecutive quarters. --While not expected, pressure on GS's rating and/or Outlook could emerge over time should the bank suffer significant outflow or market losses in its wealth management AUM. Finally, although not expected, GS's ratings and/or Outlook could also be pressured downward if Fitch observes GS's global markets businesses post quarterly losses, which could be indicative of weaknesses in risk controls. Factors that could, individually or collectively, lead to positive rating action/upgrade: --Over the medium term, should economic conditions normalize and GS's financial performance show signs of returning to or above Fitch's expectations or faster than domestic or global peers, the Outlook could be revised back to Stable. Domestic SUBSIDIARY AND AFFILIATED COMPANY All U.S. bank subsidiaries carry a common VR, regardless of size, as U.S. banks are cross-guaranteed under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). Thus, subsidiary ratings would be sensitive to any change in GS's VR. Other subsidiary ratings would be sensitive to the same factors that might drive a change in GS's IDR. MATERIAL INTERNATIONAL SUBSIDIARIES These entities' ratings are sensitive to the same factors that might drive a change in GS's IDRs or Fitch's view of GS's ability and propensity to support these international subsidiaries. Moreover, GS's international subsidiaries' ratings are also sensitive to those factors described in Annex 2: Rating Banks Above the Sovereign within Fitch's "Bank Rating Criteria" report. DERIVATIVE COUNTERPARTY RATING DCRs are primarily sensitive to changes in the respective issuers' Long-Term IDRs. In addition, they could be upgraded one notch above the IDR if a change in legislation creates legal preference for derivatives over certain other senior obligations and, in Fitch's view, the volume of all legally subordinated obligations provides a substantial enough buffer to protect derivative counterparties from default in a resolution scenario. SUPPORT RATING AND SUPPORT RATING FLOOR Support ratings would be sensitive to any change in Fitch's view of U.S. sovereign support. However, since support ratings were downgraded in May 2015, there is unlikely to be any change to support ratings. GS's international entities' Support Rating of '1' is sensitive to any change in Fitch's views of potential institutional support for these entities. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid ratings are primarily sensitive to any change in GS's VR. DEPOSIT RATINGS GS's deposit ratings are sensitive to any change in the IDRs. Best/Worst Case Rating Scenario International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations ESG issues are credit neutral or have only a minimal credit impact on the entity(ies), either due to their nature or the way in which they are being managed by the entity(ies). For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Contacts: Primary Rating Analyst Johann Moller, Director +1 646 582 4954 Fitch Ratings, Inc. Hearst Tower 300 W. 57th Street New York 10019 Secondary Rating Analyst Christopher Wolfe, Managing Director +1 212 908 0771 Committee Chairperson Alan Adkins, Managing Director +44 20 3530 1702
Media Relations: Hannah James, New York, Tel: +1 646 582 4947, Email: hannah.james@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Bank Rating Criteria (pub. 28 Feb 2020) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10110041 Non-Bank Financial Institutions Rating Criteria (pub. 28 Feb 2020) (including rating assumption sensitivity) https://www.fitchratings.com/site/re/10110170 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10119041 Solicitation Status https://www.fitchratings.com/site/pr/10119041#solicitation Endorsement Status https://www.fitchratings.com/site/pr/10119041#endorsement_status Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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