Dominion Bond Rating Service has upgraded its ratings on the brokerage firm, Goldman Sachs Group Inc. The rating had been “Under Review with Positive Implications” since November 22.

The rating agency says that the upgrade is consistent with DBRS’s preliminary opinion that Goldman Sachs has been successful in executing its strategies to increase earnings diversification, thereby reducing earnings volatility, while maintaining leadership in equity capital markets and investment banking products. DBRS believes the risk management framework in place at Goldman Sachs to measure and manage and mitigate risk appears to be effective given the low level of volatility in earnings, after giving consideration to earnings growth.

DBRS views the increasing earnings diversification, by product and geography, as a contributing factor to reducing earnings volatility. The company has been growing and diversifying its Fixed Income, Currency, Commodity and Asset Management and Security Services businesses, which historically were less significant contributors to earnings relative to its strong equities and investment banking businesses, it notes. DBRS expects Goldman Sachs to continue to diversify its operations, strengthening its ability to weather inherent volatility of markets.

The rating agency also indicates that Goldman Sachs’ leadership in equity capital markets and investment banking products provides the company with a competitive advantage. Over the past four years, Goldman Sachs has consistently ranked in the top three in global equity and equity-related business (as measured by league tables). The company has strength in both initial public offerings and secondary offerings. In worldwide completed mergers and acquisitions, Goldman Sachs has dominated since the end of 2001. DBRS expects the company to retain these league table rankings, especially in higher margin businesses, including IPOs and M&A.

One of the challenges facing Goldman Sachs is increasing competition from second tier players and managing leverage to volatile capital markets, especially given its appetite for trading activities. However, structural changes could impact profitability. Similar to its peers, litigation risk remains a concern. The outcome of class action suits is difficult to predict, but DBRS continues to believe settlement costs will not be of a magnitude that will impact ratings.