DBRS has confirmed all ratings for the Goldman Sachs Group Inc., adding that the trend for all ratings is stable.

“The ratings reflect Goldman’s strengths in its formidable global investment banking franchise, its powerful global fixed-income and equities businesses, its strong financial profile and its skillful risk management,” it said. “Strong results in 2006 reinforce DBRS’s views on the company’s franchise strength, as it generated US$9.5 billion of net income on US$37.7 billion of revenues and US$838 billion in assets.”

“Goldman has a leading position in global investment banking, particularly in financial advisory, that reinforces its strength in its capital markets and other businesses. The company’s powerful fixed-income, currency and commodities business segment is a leading global competitor across a wide range of businesses that has become the major contributor to revenues,” it noted.

“Through high value-added products and efficient trading platforms, Goldman has bolstered its strong position in global equity capital markets. Adding to earnings stability, Goldman has grown its asset management business and securities services, where Goldman is a leader in prime brokerage,” DBRS added.

“Demonstrating its franchise strength, Goldman has generated high revenue growth across many businesses, achieved positive operating leverage and generated above-average earnings growth and returns,” it observed. “Contributing to Goldman’s success as it expands globally are its cohesive culture and strong operational capabilities. While Goldman takes relatively more risk than other broker dealers, skillful management of risk and the ability to generate returns on risk taking result in above-average returns, an essential element contributing to Goldman’s success.”

DBRS allows that the company’s revenues can be volatile and uncertain in different businesses and markets, nevertheless it views the company’s strong financial profile as underpinned by the resilient, diverse earnings generated by its wide range of businesses in the US and internationally. “Indicative of this resiliency is the ability of Goldman to generate double-digit returns even in market downturns,” it said. “Compensation flexibility is important to protect earnings in a downturn. Liquidity and capital positions have remained robust, even as the company’s operations have become more complex with new businesses and international expansion.”

Looking forward, DBRS says it views the company as well positioned to take advantage of the secular expansion in global capital markets, with almost half of its revenues now coming from international operations.

Nevertheless, it cautions that the company faces challenges in this international expansion as it expands its operations in markets where it often has smaller market positions and faces entrenched local players, new customers, different market practices and varying regulatory regimes.

Generating high returns and strong growth, the company’s success is also attracting competitors seeking to emulate its gains, it adds. DBRS sees Goldman facing strong challenges from broker dealers and universal banks that have reinvigorated their investment banking businesses, from large players that are building specialized businesses, from well-positioned local players and from numerous boutiques focused on their niches. “In the face of competition for business and pricing pressure, the company will need to leverage its franchise effectively to preserve its market positions and margins,” it says.

In DBRS’s view, Goldman also faces the challenge of maintaining effective controls, preserving its corporate culture and ensuring strong liquidity as its global operations add scale and complexity.