OREANDA-NEWS. In Fitch Ratings' view, Goldman Sachs Group's (GS) fourth quarter 2015 (4Q15) reported earnings were dragged down by a previously announced $1.8 billion litigation settlement regarding mortgage-related matters. However, even excluding this, core results were also pressured by continued weakness in fixed income currency & commodities (FICC) trading. GS's net income to common shareholders in 4Q15 was $574 million, which equated to a 3.04% annualized return on ending common equity in 4Q15. Full-year net income was $5.57 billion, or a 7.4% return on ending common equity.

Fitch-calculated pre-tax profits which exclude CVA/DVA adjustments and various other gains/loss, but include litigation charges, amounted to $1.1 billion, or a 0.52% return on ending assets, which is lower than prior quarters. For comparison purposes, adding back the $1.9 billion yields a 1.41% return on ending assets, slightly below the prior year's quarter.

GS's 4Q15 investment banking results were a bit mixed, as advisory net revenue remained strong, climbing 9% from the sequential quarter and 27% from the year-ago quarter. Overall underwriting net revenue was down 11% from both the sequential and year-ago quarters.

Specifically, equity underwriting revenue was up 20% from the sequential quarter but down 33% from the year-ago quarter, and debt underwriting was down 21%, but up 8% for the same time period.

Given strong M&A backlogs and GS's leading position in league tables, Fitch would expect advisory to remain strong in 2016. Underwriting net revenue is likely to remain challenging, as least over the near term, given volatile markets.

Institutional Client Services (ICS) net revenue was down 10% from the sequential quarter and 9% from the year-ago quarter. The main driver of the decline was continued weakness in FICC, which was down 23% and 8% for the same time period. This was not unexpected, as the debt markets continue to be challenging. Lower net revenue from credit products was the biggest driver of GS's FICC decline.

Fitch expects FICC to remain challenging for the industry over the near term, and consequently, firms continue to right-size the amount of resources devoted to these businesses.

A key bright spot in ICS for GS was continued growth in securities services net revenue, which was up 13% relative to the sequential quarter and 23% relative to the year-ago quarter. That said, it is proportionately the smallest line-item within ICS, and could not offset declines in other areas.

GS's investing and lending businesses were up relative to the sequential quarter but down relative to the year-ago quarter. GS's investment management business performed well in 4Q15 year over year primarily due to higher incentive income on alternative asset products.

For the full year 2015, GS's compensation expenses were essentially flat and the compensation ratio was 37.5%.

Non-interest expenses were impacted by the aforementioned litigation charge, both for the quarter and the year.

In Fitch's view, GS's capital ratios and liquidity metrics remain consistent with the rating category (Viability Rating of 'a') given Fitch's assessment of the inherent cyclicality of GS' business model.

The company's fully phased-in Basel III Common Equity Tier 1 (CET1) ratio under the advanced approach (GS's binding constraint) was 11.7% at 4Q15 and, under the standardized approach was 12.9% given lower balance sheet assets.

Additionally, GS's global core liquid assets (GCLA) was $199 billion at the end of 4Q15, up from $193 billion at the end of the sequential quarter.