David Solomon:

Thank you, operator, and good morning, everyone. Thank you all for joining us. I want to begin by addressing the horrible act of violence that occurred over the weekend, the attempted assassination of former President Trump. We are grateful that he is safe. I also want to extend my sincere condolences to the families of those who were tragically killed and severely injured. It is a sad moment for our country. There is no place in our politics for violence. I urge people to come together and to treat one another with respect, civility, dignity, especially when we disagree. We cannot afford division and distrust to get the better of us. I truly hope this is a moment that will spur reflection and action that celebrate, that celebrate what unites us as citizens and as a society. Turning to our performance. Our second quarter results were solid. We delivered strong year-on-year growth in both global banking and markets and asset wealth management. I am pleased with our performance where we produced a 10.9% ROE for the second quarter and a 12.8% ROE for the first-half of the year. We continue to harness our One Goldman Sachs operating approach to execute on our strategy and serve our clients in dynamic environments. Global banking and markets, we maintained our long-standing number one rank in announcement completed M&A and ranked number two in equity underwriting. Our investment banking backlog is up significantly this quarter. From what we're seeing, we are in the early innings of the capital markets and M&A recovery. And while certain transaction volumes are still well below their 10-year averages, we remain very well positioned to benefit from a continued resurgence in activity. We saw a solid year-over-year revenue growth across both FIC and equities as our global broad and deep franchise remained active in supporting clients' risk intermediation and financing needs. We continue to be focused on maximizing our wallet share and we have improved our standing to be in the top three with 118 of our top 150 clients. In asset wealth management, we are growing more durable management and other fees in private, banking, and lending revenues, which together were a record $3.2 billion for this quarter. Our Assets Under Supervision had a record of $2.9 trillion and total wealth management client assets rose to roughly $1.5 trillion. We delivered a 23% margin for the first-half of the year and are making progress on improving the return profile of AWM. In alternatives, we raised $36 billion a year-to-date. We completed a number of notable fund closings during the quarter, including $20 billion of total capital for private credit strategies, and approximately $10 billion across real estate investing strategies. Given the stronger-than-anticipated fundraising in the first-half of the year, as well as our current pipeline, we expect to exceed $50 billion in alternatives fundraising this year. This is a testament to our investment performance, track record, and intense focus on client experience. We are excited about the additional growth opportunities for our asset growth management platform. Let me turn to the operating environment, which remains top of mind for clients. On the one hand, there is a high level of geopolitical instability. Elections across the globe could have significant implications for forward policy. And inflation is proven to be stickier than many had anticipated. On the other hand the environment in the U.S. remains relatively constructive. Markets continue to forecast a soft landing as the expected economic growth trajectory improves and equity markets remain near all-time highs. I am particularly encouraged by the ongoing advancements in artificial intelligence. Recently, our Board of Directors spent a week in Silicon Valley where we spoke with the CEOs of many of the leading institutions at the cutting edge of technology and AI. We all left with a sense of optimism about the application of AI tools and the accelerating innovation in technology more broadly. The proliferation of AI in the corporate world will bring with it significant demand-related infrastructure and financing needs, which should fuel activity across our broad franchise. Before I turn it over to Dennis, I want to cover a couple of additional topics that are top of mind for me. First, our recent stress test results. The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve had recognized in our last three tests. Given this discrepancy, we are engaging with our regulators to better understand its determinations. Despite the increase in requirements, we remain very well positioned to serve our clients and will continue to be nimble with our capital. In the second quarter, we repurchased $3.5 billion of shares, which illustrates our ability to dynamically manage our resources and opportunistically return capital to the shareholders. Despite the increase in our repurchase activity, our common equity Tier 1 ratio ended the quarter at 14.8% under the standardized approach, 90 basis points above our new regulatory minimum and above our ratio in the first quarter. We also announced a 9% increase in our quarterly dividend which underscores our confidence in the durability of our franchise. Since the beginning of 2019, we have more than tripled our quarterly dividend to its current level of $3 a share. I'd also like to reflect on the significant milestone we hit in the second quarter, our 25th anniversary as a public company. We went public in 1999, which is also the year I joined the firm, and it's been an eventful 25-years since then. We have persevered through a number of significant global events, including through the dotcom bubble, NASDAQ crash, September 11th, the financial crisis, and the pandemic. When I look back at how we overcame these challenges, immediately think of our culture, one that has evolved, no doubt, but always stayed true to our core values. I know that the preservation of our culture is paramount to serving our clients with excellence, maintaining our leading market positions, growing our businesses, and continuing to attract and retain the most talented people. In closing, I'm very confident about the state of our client franchise. We are delivering on our strategy by leaning into our core strengths effectively serving clients in what remains a complicated operating environment. Now let me turn it over to Dennis to cover our financial results in more detail.

Operator:

Thank you. Please stand by as we assemble the Q&A roster. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore.

David Solomon:

Sure, good morning Glenn, and thanks for the question. You know, we're forward leaning in our comments, because we definitely see momentum pick up. But I just, again, want to highlight something that was definitely my part of the script. And I think Dennis amplified, which were still despite the pickup, we're still operating at levels that are still significantly below 10-year averages. And so for example, I think we've got kind of another 20% to go to get to 10-year averages on M&A. One of the reasons that M&A activity, one of the reasons, not the only reason, but one of the reasons why M&A activity is running below those averages is because sponsor activity is just starting to accelerate. And so I think, especially given the environment that we're in, that you're going to see over the next few quarters into 2025 kind of a reacceleration of that sponsor activity. We're seeing it in our dialogue with sponsors. And obviously, it's been way, way below the overall M&A activity as kind of another 20% to get to 10-year averages, but sponsor has been running below that and we're starting to see that increase. Now, as that increases, I just think the firm's incredibly well positioned, given the breadth of both our leading position. We've been top kind of one, two, three in what I'll call leverage-financed activity from a league table perspective and with the sponsor community, but we combine it with a very, very powerful direct lending private credit platform. And so I just think we're in a very, very interesting position. The size and the scope of the companies that are out there that have to be refinanced, recapitalized, sold, changed hands, the sponsors continue to look, distribute proceeds, you know, to their limited partners, I think bodes well over the course of the next three to five years. Different environments, but the general trend will be more activity than we've seen in the last two, 2.5 years.

Dennis Coleman:

Sure, Glenn. It's Dennis. I think the important to take away from the year-over-year performance in the equity investment line is that in the prior year period, we actually had significant markdowns as we were sort of an early mover in addressing some of the commercial real estate risk across our balance sheet. And the results that reflect in this most recent quarter do not have the same degree of markdowns as in the prior period. So that is, I think, a large explain of the delta.

Ebrahim Poonawala:

Good morning. I just wanted to spend some time on capital, the post, the SCB increase. One, maybe just from a business standpoint, if you could update us whether the capital requirement changes anything in terms of how the firm has been leaning into the financing business. Do you need to moderate the appetite there or business as usual? So one, how does it impact the business? And second, Dennis, your comments on buybacks moderating, should we think more like 1Q levels of buybacks going forward? Thanks.

Ebrahim Poonawala:

Got it. So assume no change in terms of how we're thinking about the financing business. And just separately in terms of sponsor-led activity, we waited all year for things to pick up. Is it a troubling sign that the sponsors are not able to monetize assets? Does it speak to inflated valuations that they're carrying these assets on? Just would love any context there, David, if you could? Thank you.

Ebrahim Poonawala:

Thank you.

Betsy Graseck:

Hi, good morning.

Betsy Graseck:

Hi, can you hear me okay? Oh, okay. Sorry, [Multiple Speakers] All right. Well, thanks very much. I did just want to lean in on one question regarding how you're managing the expense line as we're going through this environment because, we've had this very nice pickup in revenues and comp ratio is going up a little bit, but I'm just wondering is this a signaling to hold for the rest of this year? Or is this just a one-off given that some of the puts and takes you mentioned on deal activity earlier on the call?

Betsy Graseck:

Okay and as we anticipate a continued pick up here in M&A, given everything you mentioned earlier, I would think that, that's positive operating leverage that should be coming your way. Would you agree with that or do I have something wrong there? Thanks.

Betsy Graseck:

All right. Thank you.

Brennan Hawken:

Good morning. Thanks for taking my questions. You flagged, Dennis, the record financing revenue, which clearly shows momentum behind the business. And it would be my assumption that given rates have been more stable for quite some time now, it seems to reflect balance growth. So one, I want to confirm that that's fair? And could you help us understand how we should be thinking about rate sensitivity as it seems as though maybe a few rate cuts might be on the horizon?

Brennan Hawken:

Okay. And then next question is really sort of a follow on from Betsy's line of questioning. So year-to-date you've got a 64% efficiency ratio. You know, when we take a step back and think about your targets and aspirations for that metric and an environment, consider an environment that seems to be improving steadily, you know, how should we be thinking about margins on incremental revenue? You know, could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio?

Operator:

Thank you. We'll go next to Mike Mayo with Wells Fargo Securities.

David Solomon:

Yes, thanks Mike. Appreciate the question. Look, we're on a journey. And, you know, the way I look at it, our returns for the first-half of the year at 12.8%. There are, you know, I think there are a couple of things, give gets in that. One, for sure, we still have a little bit of drag from the enterprise platforms which we're working through. And so that will come out. And at some point as we work through that, over the next 12 to 24 months, we'll continue to make progress on that for the returns in the first-half of the year would be a little higher exit. And then on top of that, as we've said repeatedly on the call and have given a bunch of information, we're still operating meaningfully below 10-year averages in terms of investment banking activity. And I think that'll come back. I obviously can't predict. But if you look at the returns of the firm, we have materially uplifted the returns of the firm. And we're going to continue to focus on that. Now the next step to the puzzle is our continued progress in AWM. So you know and you can see the performance over the course of the last few years of global banking and markets, but we've said the AWM, ROE is not where it needs to be. You heard our comments about the fact that we've gotten the margin up to 23%, but the ROE is still around 10%. We think we can continue to grow the business. As we've said, high-single-digits, we can continue to improve the margin and ultimately bring up that AWM, ROE. And then you look across the firm and you have a stronger return profile. So I think we're making good progress. We didn't say and have not worked to do for sure. But we feel good about the progress.

David Solomon:

What I would say is one of the things that should be a tailwind for further momentum in our business is a return to average levels. I'm not sitting here saying we're going to go back to periods of time where we went well above 10-year averages, but there's obviously, if we did get back to that period, and there will be some point in the future where we run above average too, and not just below average, we have a tailwind for that. But as a general matter, when there are more M&A transactions, whether with financial sponsors or big corporates, there is more financing attached to that. People need to raise capital to finance those transactions. They need to reposition balance sheets. They need to manage risks through structured transactions. And so there's a multiplier effect as those activities increase. We don't put a multiplier on it, but our whole ecosystem gets more active as transaction volumes increase on the M&A side.

David Solomon:

Look, as a general matter, what I'd say, Mike, as a general matter, we're supporters of stress testing. We believe it's an important component of the Fed's mandate to really ensure the safety and soundness of the banking system. However, we've maintained for some time that there are elements of this process that may be distracting from these goals of safety and soundness. The stress test process, as you just highlighted, is opaque. It lacks transparency. It contributes to excess volatility and the stress capital buffer requirements, which obviously makes prudent capital management difficult for us and all of our peers. We don't believe that the results reflect the significant changes we've made in our business. They're not in line with our own calculations, despite the fact that the scenarios are consistent year-over-year. Now, despite all that, you know, we've got the capital flexibility to serve our clients. We'll continue to work with that capital flexibility and we'll also continue to engage around this process to ensure that over time we can drive the level of capital that we have to hold in our business mix down. But obviously we have more work to do given this result.

Operator:

We'll take our next question from Steven Chubak with Wolfe Research.

Dennis Coleman:

So, Steve, thank you for the question. I mean on a sequential basis, they're down, but that's because we have the absence of the Green Sky contribution. There actually is growth across the card portfolio. I think you've seen that the level of growth has slowed as we have sort of implemented several rounds of underwriting adjustments to the card originations and so our expectation is that on the forward you know the period-over-period growth should be more muted.

Dennis Coleman:

Sure, thanks and I appreciate that question. I think obviously there's been a lot of changes, there's been some changes and expectations. And I think in highlighting that we are operating at the wider end of our range, it is to signal flexibility. And certainly embedded in that is to address some of the uncertainty which does remain with respect to Basel III endgame, both the quantum and timing of its resolution. It sounds from some of Powell's latest comments that, that may not be something that comes into effect until perhaps into 2025, but we are sort of maintaining a level of cushion that think is appropriate in light of what we know and we don't know about the future opportunity set for Goldman Sachs, but that buffer is designed to support clients return capital shareholders, while maintaining a prudent buffer with some of the lingering uncertainty with respect to future regulatory input.

Dennis Coleman:

Thank you.

Devin Ryan:

All right, great. Good morning, David and Dennis. A couple questions on AWM progress. So the first one is on the alts business specifically, and you're tracking obviously well ahead of the fundraising targets relative to when you set the $1 billion medium term target for annual incentive fees? And now with over $500 billion in alts AUM and obviously growing, that would seem pretty conservative. So I appreciate there's a lot of work to do to generate the returns ahead here, but how should we think about the underlying assumptions for incentive fees in a more normal harvesting environment, just given the mixed shift and the growth that you're seeing in AUM there?

Devin Ryan:

Yes, okay, thanks, Dennis. And then follow-up, this is also kind of connected, but at a recent conference, you highlighted the margin profile of all the standalone businesses and asset and wealth management of public peers so kind of as a comparison and highlighted 35% plus for alts and some of the public firms we know are obviously well above that. So I appreciate you're running the AWM segment is kind of one segment, but if alts does accelerate and we're looking at 60% of alts AUM isn't even the fee earning yet, what does that mean for segment margins relative to kind of that mid-20% target, because you're already at 23% thus far in ‘24. So just trying to think about the incremental margins coming from the acceleration in growth, particularly from the alts segment as well?

Devin Ryan:

Great. Thank you.

Dan Fannon:

Thanks, good morning. In terms of your on-balance sheet investments, you continue to make progress in reducing that this quarter. Can you talk about the outlook for this year or any line of sight in terms of exits that we can think about?

Dan Fannon:

Understood. And as a follow-up, just within asset and wealth, particularly on the alts side, the fundraising target raised for the full-year given the success you've had. The private credit fund closing here in the first-half was big. Can you talk to some of the other strategies that have the potential to scale as you mentioned earlier and/or maybe are a little bit smaller that have really large or increasing momentum as you think about second-half, but also as we even into next year?

Operator:

Thank you. We'll go next to Matt O'Connor with Deutsche Bank.

David Solomon:

Sure, Matt, and I appreciate the question. I just say, you know, investment banking and the markets business, the trading business, they've always been competitive businesses. I think our integrated One GS approach is a very, very competitive offering. I mean, we can have debates, but it's, I think, one of the top two offerings out there, depending on how you look at it what you look at. There's always going to be competition there are always going to be people that come in and make investments in niche areas, but broadly speaking you know we've had leading M&A share for 25-years. We have leading share in capital raising for an equivalent period of time. We've continued to invest in our debt franchises over the last more than decade. An then our trading businesses and our ability to intermediate risk I think have been second to none or viewed as second to none for a long, long time. And so the combination of our focus on serving our clients, making sure we're giving them the right resources, both human capital and financial capital, to accomplish what they need to accomplish, the fact that we have global scale positions is very well. They'll always be competitors, but I like where our franchise sits. And I don't see any reason why we shouldn't be able to continue to invest in it, strengthen it, and continue to have it operating as a leader in what's always been and will continue to be a very competitive business.

David Solomon:

There are always exogenous factors that affect corporate activity and institutional client activity. I don't have a crystal ball, so I can't see what the next 100 days leading up to our election will bring, but I think we're well positioned to serve our clients, regardless of the environment. And clients are very active at the moment, and I think they're probably going to continue to be active.

Operator:

We'll take our next question from Gerard Cassidy with RBC.

David Solomon:

Sure, I mean, at a high level, Gerard, we as most companies around the world are focused on how you can create use cases that increase your productivity. And if you think about our business as a professional service firm, a people business, where we have lots of very, very highly productive people creating tools that allow them to focus their productivity on things that advance their ability to serve clients or interact in markets is a very, very powerful tool. So, you know we you know if you look and you think across the scale of our business I think you can think of lots of places where the capacity to use these tools to take work that's always been done on a more manual basis and allow the very smart people to do that work to focus their attention on clients are quite obvious. You can look at it in an area like the equity research area as every quarter. You're all analysts on the phone. There's lots of ways that these tools can leverage your capacity to spend more time with clients. You think about our investment banking business and the ability in our investment banking business to have what I'll call the factory of the business prepare information, thoughtful information for clients, the revolution's there. When you look at the data sets we have across the firm and our ability to get data and information to clients, so that they can make better decisions around the way they position in markets, that's another obvious use case. For our engineering stack and we have close to 11,000 engineers inside the firm, the ability to increase their coding productivity is meaningful. So those are a handful. There are others. We have a broad group of people that are very focused on this. But again, I'd step back. Well, this will increase our productivity. The thing that we're most excited about is all businesses are looking at these things and are looking at ways that it adapts and changes their business. And that will create more activity in a tailwind broadly for our businesses. People will need to make investment, they'll need financing, they'll need to scale. And so we're excited about that broad opportunity.

Dennis Coleman:

Sure. Thanks, Gerard. As you observe, the charge-off rate for us in the wholesale is approximately 0%. What we did see in this quarter was release, and we've been able to improve some of our models and be able as a consequence to release some of the provisions in the wholesale segment. So while that was a contributing benefit to sort of call it the net PCL of the quarter with consumer charge-offs offset by that wholesale release, that's not necessarily something that we would expect to repeat each quarter in the future. And although we manage our credit and our wholesale risk very, very diligently and consistently, it is more likely the case that we will have some degree of impairments given our size and scale and representation in the business. But we're pleased that the overall credit performance in terms of charge-offs is about 0%.

Operator:

We'll go next to Saul Martinez with HSBC.

Dennis Coleman:

Sure, thanks, Saul. I appreciate that question. Capital optimization, RWA optimization, is something that we've been committed to for a very long period of time. On the quarter, there were reductions both in credit and market risk RWAs. Drivers included less derivative exposure, reduced equity investment exposure and in some places lower levels of volatility. We try to get the right balance between deploying on behalf of client activity, as well as being efficient and rotating out of less productive activities or following through on our strategic plan to narrow focus and reduce balance sheet exposure. So that is something that was contributed to quarter-over-quarter benefit despite the buyback activity we executed. And it's something we'll remain very focused on just given the multiplicity of binding constraints that we operate under.

Dennis Coleman:

That's a good question, Saul. I think on the FIC financing side, as I indicated, we do think that we are helping clients participate in the overall level of growth that they're seeing in their businesses. And you know, we think based on what we see currently, that we can calibrate the extent of our growth based largely on how we assess the risk return opportunities that across the client portfolio. So we're being disciplined with respect to our growth, but trying also to support clients in their growth and drive a more durable characteristic across the GBM business. In equities, the activity and the balances, et cetera, obviously have benefited from equity market inflation over the course of the year, but it's also an activity that we remain committed to in terms of supporting clients. And clients look to us on a holistic basis really across both FIC and equities to ensure that across all of the activities they're doing with us that we're finding some balance between helping them through financing activities, helping them with intermediation, helping them with human capital. So both of those activities are part of more interconnected activities with clients and something that we remain very focused on and think we can continue to grow.

Operator:

Thank you. At this time there are no additional questions in queue. Ladies and gentlemen, this concludes the Goldman Sachs second quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.

David Solomon:

Thank you, Operator, and good morning, everyone. Thank you all for joining us. We feel very good about our first quarter results, which reflect the strength of our world-class and interconnected franchises and the earnings power of our firm. This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths. As you can see, we are delivering on our strategy and we are pleased with the returns we generated this quarter. As laid out in January, we have three strategic objectives, to harness One Goldman Sachs to serve our clients with excellence; to run world-class differentiated and durable businesses; and to invest to operate at-scale. Across the firm, we are effectively serving clients in what remains a complex operating environment. Looking back on the last year or so, one of the most common questions clients and investors have asked is around the timing of a broader reopening of the capital markets. I've said before that the historically depressed levels of activity wouldn't last forever. CEOs need to make strategic decisions for their firms, companies of all sizes need to raise capital, and financial sponsors need to transact to generate returns for their investors. Where we stand today, it's clear that we're in the early stages of a reopening of the capital markets, with the first few months of 2024 seen an reinvigoration in new issue market access. For example, there were a number of large IPOs across geographies and the strong reception across transactions, including the IPOs for Galderma, Reddit, and Rank is the latest sign that investors' risk appetite is growing. In debt capital markets, tighter spreads have contributed to a constructive issuance environment and investment grades with volumes hitting a record for the first three months of the year. Additionally, refinancing was a major theme with robust high-yield and institutional loan refinancing volumes. Given a more accommodative issuance backdrop as well as the potential for increased acquisition financing, alongside higher M&A activity, we expect solid levels of debt underwriting activity to continue this year. With our long-standing leadership positions across the global capital markets, we have been at the forefront in helping our clients access the markets and our firm stands to benefit further as transaction volumes rise from the 10-year lows. It's important to note that alongside the reopening, we are seeing in capital markets, our intermediation businesses continue to be active in supporting our clients' needs. And we're growing financing revenues across FICC and Equities, which together were a record this quarter and rose 18% sequentially. All-in, our top-tier intermediation franchise, and more durable financing results are helping raise the floor in global banking and markets. In Asset & Wealth Management, assets under supervision rose to a new record of $2.8 trillion this quarter, which represented our 25th consecutive quarter of long-term fee-based net inflows. We have a diversified platform across public and private markets and are delivering solid performance across asset classes, and we continue to invest resources in growing this business, particularly across Wealth Management, Alternatives, and Solutions. In Wealth Management, we saw significant strength this quarter with total client assets ending at $1.5 trillion. In Alternatives, we raised $14 billion in commitments despite a more difficult fundraising environment. And in Solutions, we continued -- we saw continued demand for our outsourced CIO and SMA offerings. These are all areas in which we still see significant opportunities and we have a proven track record and demonstrated right to win. I also want to touch on a topic coming up in virtually every client conversation I have, Artificial Intelligence. While there is broad consensus about the transforming potential of AI, there is an enormous appetite for perspectives on how certain aspects may play out, including the timeline for commercial impact, shape of potential regulations, impact on jobs, and where value will accrue in the ecosystem. Today, we are proud to be at the forefront of advising clients on these topics and how to think about potential use cases in their operations. As we look longer-term, to the extent that this technology develops in line with expectations, there will be significant demand for AI-related infrastructure and as a result, financing, which will be a tailwind to our business. For our own operations, we have a leading team of engineers dedicated to exploring and applying machine learning and artificial intelligence applications. We are focused on enhancing productivity, particularly for our developers, and increasing operating efficiency while maintaining a high bar for quality, security, and controls. Like with any emerging technology, a thoughtful approach and keen eye on risk management will be crucial. Turning to the macro-environment, we continue to be constructive on the health of the US economy. The Fed most recently telegraphed three rate cuts in 2024, but last week's CPI print has lowered market expectations. This will continue to evolve and be highly data-dependent. I am also mindful that US equity markets are hovering near-record levels at a time when we see -- when we continue to see headwinds, including concerns around inflation, the commercial real estate market, and escalating geopolitical tensions around the world. This combination could slow growth. But that said, the US economy has proven to be resilient, supported by a number of factors, including government spending as well as labor force growth driven by above-trend levels of immigration. So, while the environment is constructive and markets expect a soft landing, the trajectory is still uncertain. Nonetheless, I'm very confident about the state of our client franchise, the caliber of our people, and our culture of collaboration and excellence. Every day as I interact with the people of Goldman Sachs around the world, I am consistently impressed by their talent, capabilities, and how tirelessly they work to serve our clients. The quality of our people reinforces my conviction in the long-term opportunity set for Goldman Sachs and our ability to deliver for clients and shareholders. I will now turn it over to Dennis to cover our financial results for the quarter.

Operator:

Thank you. Ladies and gentlemen, we will now take a moment to compile the Q&A roster. [Operator Instructions] We'll go first to Glenn Schorr with Evercore.

David Solomon:

Well, I appreciate it, Glenn. And I think there are a bunch of things that continue to stick because one of the things you know that we've been focused on is building a more durable business and that there are a handful of things when you look across the whole package. We've made significant progress over the course of the last five years. Certainly, building our financing business in our markets business is something that's more durable and more sustainable. We still think there's lots of room to grow. And look, the world is growing and when the world grows and our clients grow, they need us to finance them. We've got the capital to deploy as long as we can drive attractive returns with that client base. And so we stay focused on that. We've doubled our management fees on our Asset & Wealth Management business over the last five years and we continue to be very focused on fundraising, our ability to deliver on that. Those are more durable revenues. And there's operating leverage around that business that we still think we have yet to achieve. You've seen the margin improvement obviously in that business, but that business still has a higher capital density than we'd like that business to have and we continue to focus on our historical principal investments and making progress there. Overall, I think, we've meaningfully improved the client franchise and taken wallet share, and we're just very, very focused on our relative participation in the market opportunity that exists with our big institutional clients. And we've said over the course of the last few years and there have been lots of questions on it, are those wallet shares sticky? I think the wallet shares are. What I can't tell you for sure is what the opportunity set is on every quarter-to-quarter. But when you look at the breadth, the leadership position, the global nature of these businesses and you look at the whole package, these are durable businesses that produce accretive returns where we're very well-positioned. And we continue to focus on executing and enhancing that position.

Denis Coleman:

Good morning, Glenn. It's Dennis. As we've said over the last number of quarters, we've been very, very focused on non-comp and containing the growth of non-comp. There clearly are inflationary pressures that impact a number of items in our non-comp expense. The sharp decrease sequentially we're pleased with, as well as the year-over-year decrease, but there were a number of items over the course of last year that we didn't necessarily expect to repeat. And so it's good to get on to a more normalized operating trajectory with respect to our non-comp expense base, but it's something we're going to remain very, very focused on managing in a disciplined fashion. But I think this quarter is a much more normal quarter than some of the preceding quarters.

Ebrahim Poonawala:

Good morning. I guess I just wanted to follow up, David. You mentioned AI and would love this -- it's hard in our seats to figure out what's hype, what's real. If you can double-click on some of the comments you made around comparing what's going on with AI today versus maybe the dotcom bubble around the runway this might create for capital markets, IB, not just for this year, but beyond? And then also the other side around, is there line-of-sight of how much more efficient Goldman itself can get by deploying AI? Thank you.

Ebrahim Poonawala:

That's good color. Thank you. And just separately, for the Goldman stock, right, I think from an investor standpoint, a lot of focus on how quickly we can grow the share of Asset Management. You've talked about the HPIs coming down, alt assets going up. Is -- how else should shareholders and prospective investors think about strategy around growing the Asset Management revenues and is inorganic growth at all part of the strategy and in terms of how management is thinking about things today? Thank you.

Operator:

Thank you. We'll go next to Christian Bolu with Autonomous Research.

David Solomon:

That was -- it was a -- it was -- there's no way to shade this. It was a strong quarter for Global Banking and Markets. Peak, I mean, I can point in the last few years to quarters in Global Banking and Markets where the returns were higher. But I certainly wouldn't say that this is what we expect to be an average quarter in Global Banking and Markets. We've said clearly, we think this is a mid-teens business through the cycle. The performance this quarter was higher. There were performance last year was meaningfully lower. I think the right thing to focus on, Christian, is mid-teens through the cycle. That's the way we think about it. And there was client activity and opportunity set for us this quarter and I think one of the things that we continue to try to talk about is that when there is opportunity with our clients, there is opportunity in the market. We're good at capturing that, delivering that for shareholders. And then when the environment is more tough though, this is a more durable and sustainable business than people may have looked at the past. But I would view this as a very strong quarter on Global Banking and Markets and not what we would target as the average run-rate for the business.

David Solomon:

Yes. Again, this I think comes down to focus and you know we made some very -- we talked about conscious decisions. We have talked about broadening our Wealth platform to get much more broadly into what I'd call kind of high net-worth Wealth Management. And with the sale of United Capital, we continue to be very focused on our ultra-high net-worth platform. It is an extraordinary platform. I do think it's a best-in-class platform. I do think that the ultra-high net-worth business is still a very fragmented business. While we have leading share, I think those shares are still on a global basis, a leader is a single-digit share. There's a lot of wealth in the world, there's a lot of wealth accumulating. But we are very, very well-positioned to continue to capture that secular trend. And I think the business is performing very, very well. So, our alts franchise, I think is differentiated and we're allowed to deliver alts in an effective way to wealth clients. I think that's something that gives us a strong secular tailwind. We're expanding our private banking activity. That's not something that we have been focused on, which I think is also strengthening our position as a wealth manager. So, I think there's a good runway for this business. I do think it's a best-in-class franchise that has room to grow. And I think you're seeing it perform well and we're very focused on it. I think the sharp decision around how we're going to focus this business, I think we're benefiting from at the moment.

Operator:

We'll go next to Betsy Graseck with Morgan Stanley.

David Solomon:

Good morning, Betsy.

Betsy Graseck:

Okay. All right. Great. Just want to make sure.

Betsy Graseck:

All right. Thanks. So, just two follow-ups. One, I heard all the commentary about how the 1Q is run rate a little bit better than run rate on average over time. But it doesn't take away from the fact that 1Q was very strong. And I just wanted to understand, was there anything that we should understand about the revenues in equities and fixed income, for example, that were different this quarter? And the reason I ask is, VaR efficiency was so strong, right? You've delivered very strong trading revenues on VaR that was, you know, basically flat Q-on-Q. I mean, a little down, a little up, depending on which asset -- which asset class you're looking at. So, was there anything in the -- in -- when you mentioned, you stepped into client activity and opportunity set, was there anything unique about that opportunity set that enabled you to do this in a way that didn't really tag VaR at all?

Betsy Graseck:

Thanks.

Betsy Graseck:

Super. That's really helpful. Thanks for the incremental color there. Just one other follow-up. David, you mentioned you're able to deliver alts in a unique way to the Wealth platform that you've got. Could you just give us a little more color as to what you're thinking about there that we should understand? Thanks so much.

Operator:

Thank you. We'll go next to Brennan Hawken with UBS.

David Solomon:

Yes. Brennan, that's -- I appreciate that question. And that's a sharp observation on your part. The sponsor activity is still muted, but I would say it's definitely picking up. The engagement with sponsors in the quarter was meaningfully improved. And as I've said before, sponsors make money both for themselves and for their investors by buying things and selling things. And the level of activity has been incredibly muted. And when you look at the LP community, the LP community is putting a lot of pressure on the financial sponsor community to return more capital and increase the velocity of capital return. And so I do think the pace is going to pick up in the coming quarters. I'd say the activity and interaction and engagement is higher in the first quarter than it was throughout 2023. But I would say it's still operating at lower levels. There's a lot of upside for our business. Our business is very correlated to a pickup in sponsor activity. And so to the degree that it did pick up, that would be a very big tailwind for our business across banking and markets broadly. When I look at our leveraged finance deals book, it's still operating at historically very, very low levels. We feel fortunate that we've got a good amount of capital flexibility. That was to accelerate to deploy which is obviously very accretive and attractive business. We're not seeing it really accelerate yet, but I think it's coming. And certainly, the sustained level we've had over the -- the level we've had over the course of the last 12 to 18 months is not sustainable. It will pick up. It's just a question of when. And so that is a potential tailwind for our business in future quarters.

Denis Coleman:

Sure. Brennan, it's Denis. So, a couple of things. Obviously, the movement in AUS is a function of how we fundraise, how we deploy, and overall levels. We have had a lot of success fundraising, not just in the last quarter at $14 billion, but now with the whole $265 billion-plus since the original Investor Day. But there is a lag in terms of when some of that capital is put to use and actually moves into AUS. Not all of our funds that are raised are AUS-ing immediately. So I think that is something you can look out for in future periods. And then in terms of some of the sequentials on alts, as David was walking through our platform, our Wealth platform in terms of having Goldman Sachs proprietary funds, also open architecture, and third-party platform, some of the alts fees we generate in raising capital for other managers on our platform, and if we look over the sequential period, we had less by way of placement fees associated with those capital raises in the first quarter than we did in the fourth quarter last year.

Mike Mayo:

Hi. David, you reiterated the desire for Goldman to have a more narrow strategic focus, but you still have some cleanup from the past charges this quarter for GreenSky, the GM Card, Platform Solutions still lost $117 million. So I'm just trying to figure out in this context where transaction banking stands. I mean, you had 8% year-over-year growth. So, that's decent. But three years ago, March 1st, you guys said transaction banking, you're building global payments around the world. And then March 8th of this year on Bloomberg, it says that you're closed in Japan and now you're focusing on the US and Europe. So on the one hand, are you simply pulling back your ambitions? On the other hand, maybe you have more financial discipline. You're making sure these adjacent activities are generating profits instead of just growth.

Mike Mayo:

Just to follow up on the transaction banking. You said some ambitions were too broad. Again, it's better to have profitable growth than just growth. So, point acknowledged. But what happened? I mean, where were you kind of underestimating expenses or the build-out costs or what was more difficult than you had anticipated?

Operator:

Thank you. We'll go next to Steven Chubak with Wolfe Research.

Denis Coleman:

Good morning.

Steven Chubak:

Good morning, guys. Wanted to follow up, David, with the earlier discussion just on sponsor-related activity. Private credit fundraising remains robust, but the syndicated markets are also reopening. Just wanted to better understand what you're seeing in terms of competition in syndicated versus private markets, how it's impacting your IB&O franchises. And just given some of the recent price coverage, maybe just speak to your growth ambitions in the private credit space more broadly.

Denis Coleman:

Sure. I think it's well-covered. I mean, I think there was -- there's been a lot of discussion over the past of the -- past year of sort of private credit versus syndicated alternative, but the reality is, the syndicated alternative didn't really exist. And so it was really just a discussion around private credit. With first quarter activity levels, you now see a viable, functioning, and healthy syndicated loan market. The vast majority of the activity was actually refinancing. A lot of that refinancing was refinancing private credit capital structures with the more attractive pricing available in the broad-based syndicated market. So the reality is, these are all just forms of credit made available to different borrowers. And over time, I think there'll be a much more normalized mix where you'll see underwritten as well as directly lent solutions, in some cases, existing in the same capital structure. And I think we're just in a healthier environment, but from Goldman Sachs' perspective is positive because the data points that we now see across the leverage lending market make sponsor estimated weighted-average cost of capital much more observable and that should unlock their ability to start to price and put together transactions that should fuel some incremental sponsor-related change of control activity. So, I think the sort of two markets functioning side-by-side is good in terms of activity and what it means on the forward for Goldman Sachs.

Denis Coleman:

Sure. Thanks, Steven. So, yes, you're right on all counts. Obviously, we have a variety of both capital and liquidity ratios that we manage to over time. The SLR is a slower-moving ratio as you know, but our bindingness can move back and forth between various ratios over time. And we have a bunch of levers that we can pull with respect to our activities to manage that. But I appreciate the question.

Devin Ryan:

Great. Thanks so much. The first question just on kind of maybe a bigger picture on the wallet share in Markets. I know this has really been ongoing work for the firm and obviously, not just the quarter, but really the past few years, this has been pretty consistent story. So, if we kind of move aside financing, love to maybe just drill down on some of the individual products that are accelerating in Equities and FICC and where you're most pleased with the execution that has occurred over the last several years and then still where you see the biggest room to close any gaps that are maybe still there. Thanks.

Devin Ryan:

Yes. Okay. Great. Thanks, David. Maybe a quick follow-up here for Denis. Just on the equity investments line, not a great quarter there, not a drag either. It feels like it's been some time since we've seen maybe a more normal quarter without big puts and takes. And so just given the reconstitution of that book, how would you frame what a more normal quarter should look like from a revenue perspective? And then how the private portfolio is positioned if we are moving into a better exit environment. Obviously, it's been tough there as well. Thanks.

Operator:

We'll go next to Matt O'Connor with Deutsche Bank.

Denis Coleman:

Sure. Thanks. Let me clarify. I was making a comment with respect to revenue and then separately as it relates to the rundown of that portfolio, I guess the way to think of it, picking up questions from last earnings and/or this one. The progress that we made in the first quarter of roughly $1.5 billion, we think that's decent assumption for the pace over the course of this year. And then we just reiterated our commitment to selling down substantially all of it in line with our target.

Denis Coleman:

On the historical principal investment portfolio, yes, we would expect something roughly in line with $1.5 billion per quarter for the balance of the year.

Saul Martinez:

Hi. Thanks for taking my questions. I wanted to ask about your financing business in Markets. And obviously, there's uncertainty about the Basel end-game proposal. As you mentioned, the direction of travel seems to be for it to be materially lightened or even re-proposed. But one of the areas where it is very punitive versus other jurisdictions is in securities financing, the risk weightings for unlisted entities. And if that part of the proposal isn't materially altered, it doesn't seem like it necessarily is a focus, does that impact your ability to grow your financing revenues? Is it a threat? Is it not a big deal? Can you offset it through pricing, product design? Just curious if you can provide a little color on that.

Saul Martinez:

Okay. Thanks. That's helpful. And then maybe just following up on Basel and the implications of it being softened, Denis, you mentioned more flexibility on capital deployment, if given the direction of travel on Basel. I mean, how should we be thinking about buyback activity from here? You did $1.5 billion. Is there -- do you feel like there is scope to increase that and potentially bring your payout ratio even closer to 100% of earnings?

Operator:

Thank you. At this time, there are no further questions. Ladies and gentlemen, this concludes the Goldman Sachs' first quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.

David Solomon:

Thank you, operator, and good morning, everyone. Thank you for joining us. 2023 was a dynamic year. The US economy proved to be more resilient than expected, despite a number of headwinds to growth, including a significant tightening of financial conditions, regional bank failures, and an escalation of geopolitical tensions. Against this backdrop, this was the year of execution for Goldman Sachs. In addition to narrowing our strategic focus, we further strengthened our core businesses. As we enter 2024, the potential for rate cuts in the first half of this year has renewed optimism for a soft landing. We are already seeing signs of potential resurgence in strategic activity, which is reflected in our backlog. I am starting today's presentation with a strategic update, and Denis will provide comments on the financial results. Beginning on page one, we aspire to be the world's most exceptional financial institution, united by our shared value client service, partnership, integrity, and excellence. And over the last 155 years, we have created one of the most aspirational brands in financial services. Goldman Sachs is a preeminent global investment bank and a leader across asset and wealth management. We've continued to simplify our strategy, and today is an opportunity to take stock of our progress, as well as highlight avenues for further growth. Strategic objectives on this page underscore our relentless commitment to serve our clients with excellence and to further strengthen our client franchise. As we show on page two, we have two world-class and interconnected franchises that are well-positioned to achieve these strategic objectives. First, Global Banking & Markets, which includes our top rank investment bank with an unparalleled merger franchise and a leading capital markets business. It also includes our number one equities franchise and top three FICC franchise. We are uniquely positioned to serve our clients across geographies and products. And second, our unified Asset & Wealth Management business where we are leading global active asset manager with a top five alternative business and a premier ultra-high net worth wealth management franchise. This is a scaled business with over $2.8 trillion in assets under supervision and where we see significant opportunity for further growth. Across these two businesses, our extraordinary talent and unmatched execution are bolstered by our One Goldman Sachs operating ethos. On page three, we lay out our progress across a number of key priorities that we discussed at our most recent Investor Day in February 2023. Global Banking & Markets, we've maintained and strengthened our leadership positions across investment banking. In FICC and equities, we have improved our standing with the top 150 clients. We generated record total financing revenues across these businesses in 2023 and have demonstrated impressive growth over the last four years. In Asset & Wealth Management, we've driven solid investment performance and consistent growth in a more durable revenue base of management, other fees, and private banking and lending revenues. This past year, we reduced our historical principal investments by $13 billion, and also surpassed our five-year alternatives fundraising target one year ahead of schedule. I will talk more about each of these businesses in a moment. Before I do, I would like to speak about how we've narrowed our strategic focus. We made several important decisions and swiftly executed on them. We exited the Marcus lending business and sold substantially all of our Marcus loan portfolio. We sold our Personal Financial Management business. We announced the sale of GreenSky, which remains on track to close this quarter. We also sold the majority of our GreenSky loan portfolio, which settled in the fourth quarter. We've also reached an agreement with General Motors regarding a process to transition their credit card program to another issuer. We remain committed to supporting the products and servicing customers through the various transition agreements and our consumer activities. I firmly believe companies should innovate and seek out new opportunities for growth. But it is also important to be nimble and make tough decisions when needed. Our consumer ambitions have produced over $150 billion of deposits, which we expect to grow further from here. These deposits have materially improved the firm's funding profile. Now we are focusing our growth in other areas where we have a proven right to win. We recognize that scale matters as it allows the firm to operate more efficiently and manage incremental regulatory and other costs, making unit economics more favorable. And we need to be measured and focused in our execution. Our narrowed strategy is now focused on our two core businesses where we have a proven right to win with our leadership position, scale, and exceptional talent. On page four, in Global Banking & Markets, our leading and diversified franchise has produced average revenues of $32 billion over the last four years across a number of different market environments, demonstrating the diversity and relative durability of this business in aggregate. In the last several years, we made a concerted effort to grow our wallet share and financing revenues, which have clearly raised the revenue floor for these businesses. We have also generated attractive returns with an average ROE fully allocated of over 16% over the last four years. Turning to page five, a key part of enhancing this durability has been executing on our strategic priorities. Our efforts to materially strengthen the client franchise are evidenced by wallet share gains of roughly 350 basis points since 2019. We've maintained our league table rankings of number one in announced and completed M&A, number one in equity and equity-related underwriting, number two in high yield debt. In FICC and equities, we're in the top three with 117 of our top 150 clients. These competitive positions are a reflection of our One Goldman Sachs approach and our clients' confidence in us. In addition, we have significantly increased more durable financing revenue. FICC and equity financing together have grown at a 15% CAGR since 2019 to a new record of nearly $8 billion. Turning to Asset & Wealth Management on page six. We've continued to make progress on bolstering more durable revenue streams. Management and other fees and private banking and lending revenue together have grown at a CAGR of 12% since 2019. We've also made swift progress in reducing our historical principal investments and are already approaching our pre-tax margin target on an adjusted basis. Turning to page seven. Our solid investment performance across both traditional and alternative channels has driven inflows. Over 75% of our traditional funds performed in the top half of Morningstar funds, while on alternatives, over 90% of our funds were in the top half of Cambridge funds, both over the last five years. The fourth quarter represents our 24th consecutive quarter of long-term fee-based net inflows across our platform. I want to reiterate that we have reached a milestone by raising over $250 billion in alternatives since 2019, surpassing our $225 billion target a year early. This fundraising success has been the result of our continued innovation and developing new strategy, as well as our ongoing focus on investment products where we have deep expertise and longstanding track records. Fundraising has been broad-based across geographies and asset classes with approximately 40% coming from our ultra-high net worth relationships. I'm very proud of this achievement. When we were preparing for our first Investor Day four years ago, I remember how big a reach our initial target of $150 billion seemed. We’ve surpassed not only that target, but also our increased target of $225 billion one year ahead of schedule demonstrates the power of our platform and the exceptional depth of talent we have in this business. Putting all this together on page eight, you can see how much we've improved the durability of revenues across the firm. On this slide, baseline revenues are shown in gray, which represents the sum of the trailing 10-year lows for each of the businesses that are considered more cyclical, namely advisory, underwriting, and intermediation. We believe this is a very conservative measurement because it's unlikely that every one of these businesses would ever hit a low point all at the same time. In fact, in all of the years since we became a public company, it has never happened. In dark blue, you can see the more durable revenues from financing, management, and other fees, as well as private banking and lending, which in aggregate have grown at 13% CAGR since 2019. Taken together, these two components make up over 70% of revenues in 2023. On top of that, we consistently generate upside across different market environments because of our diversified franchise. The increase in the consistent baseline and more durable revenue streams, coupled with the diversification of our scaled franchise and our ability to capture upside, demonstrate the revenue-generating power of our firm. Narrowing our strategic focus, our leadership team spent a significant amount of time in 2023 realigning the firm's priorities with our strategic vision, our values, and our strengths, which we highlighted on page nine. You've heard us talk about many of these elements before, starting with our strategic objectives. First, to harness One Goldman Sachs to serve our clients with excellence. Second, to run world-class, differentiated, and durable businesses. Third, to invest and operate at scale. As you can see on the page, our execution focus areas for 2024 are aligned with these strategic objectives. Taking one example, investing in our people and culture. Exceptional quality of our people, supported by our unique culture of collaboration and excellence is critical in solving our clients' most consequential problem, and it's imperative that we continue to invest in them. All in these objectives and execution focus areas will result in our desired outcomes, to continue to be a trusted advisor to our clients, to be an employer of choice for our people, and to generate mid-teens returns through the cycle and strong total shareholder return. With everything we achieved in 2023, coupled with our clear and simplified strategy, we have a much stronger platform for 2024. I feel very confident about the future of Goldman Sachs, our ability to continue to serve our clients with excellence, and that we will continue to deliver for shareholders. I will now turn it over to Denis to cover our financial results.

Operator:

Thank you. Ladies and gentlemen, we will take a moment to compile the Q&A roster. [Operator Instructions] We'll go first to Glenn Schorr with Evercore.

David Solomon:

Sure. Sure, Glenn. I mean, just at a base level, I'm pretty optimistic, given the way we've got the firm positioned. And there's no question that these capital markets and M&A activity levels have been depressed. As I've said before, I don't think that continues year-on-year-on year, and we really started to see, in the second half of this year, real improvement. As Denis highlighted, the M&A backlog saw a really strong replenishment and improvement in the fourth quarter. And I'd just highlight, and I know this is obvious, but I think it's worth stating, we put up $1 billion of M&A revenue. If the backlog is growing, that means we've got to replace the $1 billion that we put up, plus then have growth. And so, that's a very, very strong replenishment. And I would just say the level of strategic dialogue has definitely increased and we're seeing it across our platform. I'm encouraged by capital markets activity. I'm not going to say, it's running back to 10-year averages right away, but it has materially improved. I do think you're going to see some more meaningful IPOs in 2024. And we are just, across debt and equity issuance, seeing more activity, more engagement. At the end of the day, people had done a lot of funding that takes them out for a period of time, but they've got to start thinking about their capital structures and accept the reality of the market, and we're seeing that come through. So when I look broadly, it feels better. There's a lot going on in the world. And so I think one of our jobs is to always be a risk manager and worry 98% of the time about the 2% of things that can go wrong. So we're going to continue to take a cautious view in terms of the overall operation of the firm, but I do think the firm is incredibly well-levered to this pickup, and it feels better is the way I'd frame it.

David Solomon:

Yeah, first of all, I think we made a lot of progress last year. And so if you look at what we accomplished, I think what we accomplished last year was pretty meaningful, especially given the environment. One of the things that happened is we pulled some stuff forward that we didn't expect to monetize in 2023 -- into 2023. And so to be clear, our focus is to get that to zero as quickly as possible. If you're operating inside this firm and you're operating in that business, you feel enormous focus on reducing that as quickly as possible. But we want to make sure that we manage expectations appropriately. We set a clear target over the next three years to get to zero. My guess is, we've got a good shot if we executed doing that quicker than that.

David Solomon:

Yeah.

Ebrahim Poonawala:

Hey, good morning.

Ebrahim Poonawala:

I just wanted to spend some time on the FICC business. So if I'm looking at the right numbers, it feels like FICC revenues are now back to pre-COVID levels if you go back to 1Q of '19. Maybe if you can unpack it, just looking at slide 13, seemed like most products were quite weak. Give us some perspective around does both -- the intermediation piece of FICC, does that feel like we are close to trough, and unlike seasonality, we should see some improvement in FICC from here, if you can just provide some perspective there.

Ebrahim Poonawala:

Got it. And maybe just sticking to FICC or maybe both FICC and Equity. On the financing side, if you don't mind reminding us of the opportunity to grow financing over the next year or over the medium-term. Thank you.

Ebrahim Poonawala:

Thank you.

Brennan Hawken:

Sorry about that. Thanks for taking my questions this morning. So just curious about the impact that we should be thinking about around the potential exit from the Apple relationship. I know it's an ongoing thing, but maybe is there anything that you could provide that might help us think about how that impact could flow through?

Brennan Hawken:

Okay. Appreciate that. And then when you think about the deposit platform, Marcus, that's been a pretty bright spot on the consumer front and definitely seems to have worked well. What has been your views or how has the beta on that deposit base played out versus your expectations? And do you have any plans to adjust your thoughts around, you know, earlier you talked about wanting to be in the top decile of payouts for that product. Is that still the goal or has that adjusted as the platform has matured?

Operator:

Thank you. We'll go next to Mike Mayo with Wells Fargo Securities.

David Solomon:

Sure. So I appreciate the question, Mike, and obviously, we're very focused on it. It wasn't an A environment for our core business. In fact, I don't even think it was a B environment. When investment banking is operating at low levels, that is an impact overall. I do think that it's important to look at our core business of banking and markets, which is a very significant portion of the firm and do note, on a fully allocated basis in this environment, which was not a B-plus or an A environment, given the investment banking activity, it had a 12% ROE. We continue to believe through the cycle that that business is a mid-teens business. And so I don't think we're going to see -- stay at the level of activities that we've been at. We have that business positioned very well. And so you'll get some upside returns there in a better environment. And then secondarily, on Asset & Wealth Management, we continue to reduce the balance sheet. The balance sheet has been a drag on returns, but I think we've been pretty clear that we can drive the Asset & Wealth Management with a smaller balance sheet to mid-teens returns or better with a 25% margin. We're on that journey. We're making progress. I think we'll make very good progress over the next two years. And if you look at those two businesses, that's the vast, vast majority of the firm, and I think they can operate mid-teens. We've significantly reduced the other drags. We got a lot of it behind us in this year. That doesn't mean there won't be anything, but the drag from platforms in 2024 will be materially reduced from what it's been. And so I think we're making good progress in the medium-term is over the next couple of years, provided it's -- provided that it's a reasonable environment. And so I think you'll see good progress on the overall positioning of the firm over the next three to five years.

David Solomon:

They absolutely do. I mean, when markets improve, they help the disposition. There's no question. I also -- when you look at the last two years, we've had real headwinds in terms of revenue against the balance sheet that we could have more of that, but on a much smaller balance sheet in 2024. With a better market, you actually might have some benefit to revenue performance, but we're focused on reducing that broadly. You see you have more transparency now in the platforms as we continue to close on GreenSky, move GM to held for sale. And so you have more transparency on that. We think the drag will be significantly reduced in 2024. When we're comfortable providing more specific color on that, we will provide it.

David Solomon:

But small in the overall context of the firm and the firm's performance.

Mike Mayo:

Okay. Thanks.

Operator:

We'll go next to Devin Ryan with JMP Securities.

Denis Coleman:

Yeah, so at a high level, Devin, appreciate the question. I think we can continue to grow our financing activity given the scale and the size of the market, the way market activity is growing, and we will normalize investment banking activity. And obviously, over time, given our position, and if you assume growth in the world, growth in market capital world, we will continue, as we have for the last 25, 35 years, grow our investment banking activity. When there's real disruption in the world, we find that FICC can be a little bit countercyclical in some way, shape or form. But that's not the same as saying a normalization of investment banking activity means a slowdown in intermediation or market activity. I think there's a lot going on in the world. The trajectory of rates, there's a point of view on rates and inflation, but it's certainly not certain to me. I think people are going to be active as they adjust to the environment. There's debates about how the Fed continues on its quantitative tightening or doesn't continue on its quantitative tightening. And so all of this, I think, will continue to play into people being active in markets. So I do think just at a high level, look, this is a high level. I think the environment in 2024 feels like it will be better for our mix of businesses than it was in 2023. But I'm not a good predictor, and we're prepared to operate whatever environment we have to operate in.

Denis Coleman:

Sure, Devin. Thank you. And as you know, we have new disclosure the last couple of quarters on CRE in particular on the nature of the loans in that sector. And then as well as the on-balance sheet, both CRE and office in particular. You can obviously see from those disclosures, we've made substantial progress moving down the positions over the course of 2023, gave disclosure on the number of CIE positions that we moved down recently, and we've made really significant progress. We disclosed on prior calls and our office exposures from an impairment and marks perspective, we're sitting at roughly 50%. So we think that based on the visibility that we had and the activity that we had over the course of 2023 that that portfolio, and the broader portfolio for that matter, sits at the right place. As we move into 2024, there should be opportunities for further dispositions and we'll remain very focused on what the mix of that disposition activity is. When David was reviewing our expectations with respect to HPI sell-down on the forward, in addition to moving towards our medium-term target, we're also mindful of what the long-term franchise impact of those sell-down activities are. So just to give you a sense for why we may have cautioned on pace, we have some meaningful credit exposures where we enjoy a position of incumbency. And for the long-term benefit of the franchise, we very much hope that we'll remain as a lender and a supporter of those clients to exit those positions in advance of a potential refinancing would be to surrender our incumbency position. And so we're being thoughtful so that we can continue to reduce our risk while continuing to grow the third-party fund management business while supporting clients in the process.

Operator:

Thank you. We'll go next to Ryan Kenny with Morgan Stanley.

Denis Coleman:

Sure. Appreciate the question. It's, obviously, something, Ryan, we're very, very focused on. We feel good about the fundraising progress we've made. I think when you look forward in 2024, you could expect us to raise another $40 billion to $50 billion of alternatives. We're, obviously, very focused on private credit. We do operate at scale on private credit. We have over $110 billion of private credit. But I think the opportunity for us to continue to grow and scale on private credit, especially given the way our franchise is positioned and the origination connection we have with our broad banking business gives us a unique platform and a unique competitive advantage. So we're going to continue to keep this focus. It doesn't stop because we met our goal. Our goal was meant to flame the opportunity set three-and-a-half years ago, but you'll see us continue to raise money on a year-to-year basis. And we've got some big funds that we're going to be in the market with in 2024, and we'll continue to build the partnerships with that client base. And both myself, John Waldron, and the broad team across our Asset Management division are spending a lot of time with the big capital allocators all over the world and continuing to invest in those relationships.

Denis Coleman:

Sure. Well, obviously, today marks the end of the comment period, and what I would say, it's certainly not the end of the process. In fact, I would say, it's the end of the beginning of the process. And so we're moving into the next phase and continue to be highly engaged with regulators and the broad set of government stakeholders, given our significant concern with the proposed rules. You'll see comment letters from us, from our peers. You'll also see many letters from end users, including pension funds, insurance companies, corporates who are particularly concerned about how this rule could affect their access to capital and their ability to ensure and mitigate risks in their business. And I think this is really rooted in the fact that the magnitude of these proposed changes would be felt well beyond the banking industry, and also I think disadvantages the US from a competitive perspective. So to be clear, my view is the rule was not proposed appropriately and it should be withdrawn and reproposed. I don't think speculating on the impact of the rule as proposed, I think there's a pretty significant view out there that the Fed is listening carefully, they're taking in the feedback, and I don't think there's anyone that's looking at a base case that this is going to move forward as proposed. We're very flexible with our capital, as I've said before. If the rules put certain changes in place, we'll also adjust businesses or pricing in businesses and certain activity to adapt. I think to speculate as to how we'll talk about this once it's in place before we have any idea what the rule is going to look like is premature. But we've got a lot of capital flexibility and we've proven over time we can be particularly nimble. And so we'll continue to focus.

Operator:

We'll go next to Dan Fannon with Jefferies.

Denis Coleman:

Thanks, Dan. So the efficiency ratio is something we are laser focused on. We continue to orient the firm to drive towards our 60% target. You mentioned the impact of selected items. If you take the impact over the course of 2023, the efficiency ratio would have been more like 65%. That's, obviously, not where we want it to be, but significantly better than the fully reported number. We have a number of initiatives across the firm to get after our non-compensation expense. We had a very structured process we implemented once we put out some of the efficiency targets at the end of last year, rigorously marking to market our business plan and our execution against it over the course of the year. There is a -- we have a ton of different categories. We're in the process of reviewing each and every category of our non-compensation expense, benchmarking it, reviewing KPIs, thinking about our processes, incentive structures, governance, things that we can do to continue to drive that expense as efficiently as possible. We do see an impact of inflation across these activities, and it's for that reason, that we need to implement the types of processes to mitigate those impacts and manage it as closely as possible. I think as we look into 2024, if you take a look at the disclosure round selected items, we don't expect those types of activities to repeat, and we'll be very, very -- remain very, very focused on maintaining our overall non-comp expense spend. And the other component of the efficiency ratio is, obviously, compensation expense. You saw that over the course of this year, we maintained our pay for performance orientation with respect to how we size that, and you should expect the same on the forward into 2024, that is obviously a performance-based and variable component of our overall expense. There are also a number of other items within our expense base that are variable. Our largest items, both compensation as well as transaction expenses, are variable. So we will have to see how the types of activities unfold into 2024 and what the mix of our activities are to, ultimately, determine where we land on an aggregate expense base and an efficiency ratio.

David Solomon:

Well, at a high level, that comment is -- looks over the past four years that we've grown our Asset Management business -- Asset & Wealth Management business, and it highlights in the alternative raising over that period, this initial period of investment, what the mix has been between wealth, the institutional client base or other channels like third-party wealth, retail, et cetera. When you look at our strategy, Dan, we -- if you go back 20 years, most of our fundraising for these activities came from our private wealth channel and the percentage of the money we managed was much higher than 40% from private wealth. So as we continue to invest in broad institutional partnerships in the pension community, the sovereign wealth community areas where historically we had not raised a lot of alternative funding, that percentage of wealth funding will probably decrease, but I'm not going to speculate exactly where it will go. At scale, the economics associated with all these alternatives are extremely attractive. They're attractive in the private wealth channel and they're attractive in our institutional partnerships. But as I think you all know, they're not exactly identical. And people that allocate or enter a partnership with you and allocate $10 billion definitely have a different economic proposition than somebody that's giving you $50 million or $100 million. And that's been consistent in the business for a long, long time. So we're continuing to scale the business. We have real margin targets in the business. I think we've got lots of opportunities and we're still in the early stages of using the platform of Goldman Sachs to cement and invest these broad distribution channels for the benefit of our scaled Asset & Wealth Management platform. And I'm confident we'll continue to make good progress.

Operator:

Thank you. We'll go next to Matt O'Connor with Deutsche Bank.

David Solomon:

I'll start, and Denis, might add some comments. We've always said that when there's activity to support our clients, that's our primary focus on where we can allocate capital. We've increased the amount of capital allocated to our franchise -- our client franchises over the course of the last five years. And I think one of the reasons why our big broad Global Banking & Markets franchise has performed on a relative basis in different environments the way it's performed is we've been very, very focused on making sure we have the capital and the financial resources to serve our client base well. Where we see opportunities, we will continue to deploy capital there. That's in our broad capital planning program. We do generate a lot of capital from earnings. And to the degree that we don't see opportunities to deploy it with our clients, we will return it to shareholders. At the moment, we're taking a more conservative posture around that, just given some of the uncertainty around Basel III endgame. Although again, I think that's going to continue to evolve. And I also think we have a long track record of being very, very nimble with our ability to deploy. So we're going to continue to focus on making sure we've got the right resources to serve our clients. And as we generate capital, we have confidence in our capital position that we'll return capital to shareholders. And we've been very focused, as you've seen, on growing the dividend, and we plan to continue to do that.

David Solomon:

There is an operating leverage story, which is one of the reasons why the margin in our Asset & Wealth Management business will continue to improve. When we were running an on-balance sheet business with lots and lots and lots of on-balance sheet position, the number of people that you need to manage those positions and serve those positions, creates a business that's scaled differently than a traditional fund management business that you would see on someone else's alternative platform. And so we're early in the journey. I'll just give a simple example. We went out last year, a year-and-a-half ago, and raised our first growth equity fund. We used to do that business on-balance sheet. We have lots and lots of positions, and therefore, a very, very broad team to service that. We raised our first fund. You need a smaller team to manage that fund. But when you go and you raise your second fund, you don't need to increase the scale of the team. And so there's real operating leverage in that, and that's part of our margin improvement story in Asset & Wealth Management over time. So the answer is, yes. I don't want to overstate this because it's not a massive part of the story, but it is a place where we have some operating leverage and improvement as we continue to move from balance sheet into fund form.

Operator:

Thank you. We'll go next to Gerard Cassidy with RBC.

Denis Coleman:

Good morning

Gerard Cassidy:

Good morning. In your prepared remarks, David, you were talking about, I think it was slide five or six, but about the success in growing the relationships with those top 100 FICC and equity clients, and you identified that the FICC and equity financing contributed to that success. And that's been a real hallmark for you guys over the last two or three years, the growth in that business. Can you dig down for us and share with us what has attributed to the success? Is it the capital you put into that business, the hiring of additional folks or people in the business, and as well as competition. Has the competition been more challenged than some of your competitors at all? Credit Suisse, of course, is no longer around. But if you could just give us a little more color on what's driving that success?

Gerard Cassidy:

Very good. And then I know you've talked about the pipelines and your comments about what we might be able to see in ECM and other areas this year. Can you also give us a little flavor on what parts of the -- since you're obviously a global force, what parts of the globe are you seeing the best potential? Is it the Americas, is it Europe, or is it Asia?

Gerard Cassidy:

Thank you. Always appreciate the insights. Thank you.

Steven Chubak:

Thanks. Good morning, David. Good morning, Denis. So I wanted to ask a couple of questions about comp leverage and operating margins. And maybe just to start off, Denis, you noted the adjusted efficiency ratio set at 65% versus the reported figure in the mid-70s. When we try to adjust for various items, at least in the public disclosure, it looks like the core adjusted efficiency somewhere in the upper 60s. And I was hoping you can maybe just help us reconcile some of the different items to get down to that 65% figure and whether that's the appropriate jumping off point that we should be thinking about as we look ahead to '24?

Steven Chubak:

That's great. And just for a follow-up relating to the comments you just made, Denis, on comp leverage, specifically. It looks like the expectation is for revenues to grow about $4 billion this year for The Street. The comp dollars are expected to increase only about $600 million. You do have a good track record of delivering incremental operating leverage or strong marginal margins. But I just wanted to get a sense, given you were alluding to the fact that you're going to pay for talent and you're going to compensate people appropriately that execute well on the platform, how we should be thinking about incremental comp leverage, is an 85% comp margin a realistic expectation given where the revenue growth is ultimately going to come from?

Steven Chubak:

Great. That's it for me. Thanks for taking my questions.

Operator:

Thank you. We'll go next to Mike Mayo with Wells Fargo Securities.

David Solomon:

So I appreciate the question, Mike. As you highlight, at the end of last week, Bayo sold his business to BlackRock. Bayo still is the Lead Director. That deal won't close until sometime in the third or fourth quarter. Bayo is the Lead Director. We have a governance process in place. Our Board has met and at the appropriate time, we'll make announcement as to the transition. But at this point, other than the fact that because of the sale, it will create a transition. I have nothing more to say other than Bayo is still the Lead Director, and we'll manage the transition in an orderly process and no surprises.

David Solomon:

Well, we're always adding people to our Board, Mike. But I'm not going to make comments. I'm not going to make forward comments about our governance process and our Board looks at this at the time that the Board takes action. We announced a clear transition. I'll be happy to answer questions and talk about it.

Operator:

At this time, there are no additional questions in queue. Ladies and gentlemen, this concludes The Goldman Sachs Fourth Quarter 2023 Earnings Conference Call. Thank you for your participation. You may now disconnect.

David Solomon:

Thank you very much, and good morning, everybody. Thank you all for joining us. Before I start my prepared remarks, I'd just like to take a moment to address the horrific events in the Middle East. We condemn the terrorist attacks against Israel on the strongest possible terms and are heartbroken by the loss of so many innocent lives. This is clearly an extremely difficult and uncertain time for the region, and it's very concerning for many of us around the world. We obviously will continue to watch closely as this crisis unfolds. Earlier this month, I marked the end of my fifth year as the CEO of Goldman Sachs. I've never felt more optimistic about the firm, and our strategy has never been more clear. We operate two core businesses, our market-leading Global Banking & Markets franchise, and our growing Asset & Wealth Management platform, both of which are being positioned to deliver mid-teen returns through the cycle. As I reflect on the past five years, much of what has always made Goldman Sachs extraordinary remains the same, long track record of being a trusted adviser to the world's leading businesses, institutions and individuals. A global broad and deep platform with capabilities that span across products, geographies and solutions, an aspirational brand, exceptional people and a culture of collaboration and excellence. Additionally, over this time, we have evolved the organization by institutionalizing a One Goldman Sachs operating ethos. This approach, coupled with our best-in-class talent, advice and execution capabilities has strengthened and solidified our leadership position across our businesses. As we sit here today, our client franchise is as strong as ever, enabling us to remain at the center of the most complex and important transactions for our clients. For example, the IPO market has started to reopen. Since Labor Day, there have been four marquee IPOs priced in the United States, Arm Holdings, Instacart, Klaviyo and Birkenstock. Goldman Sachs was lead left on three of those four and the joint lead book runner on the fourth. No other bank can make that claim. Being entrusted to help companies navigate the critical transition of coming to market requires long-standing client relationships, deep market expertise and experience. Given the execution of these transactions, I'm encouraged by the prospects of a wider reopening of capital markets. If conditions remain conducive, I expect the continued recovery for both capital markets and strategic activity. As a leader in M&A advisory and equity underwriting, a resurgence in activity would be a tail [indiscernible] of Goldman Sachs. In Asset & Wealth Management, our strategy is working as evidenced by the successes we've seen across our franchise. While some active asset managers have faced quarterly outflows over the last few years, we posted our 23rd consecutive quarter of long-term fee-based inflows. We generated record management and other fees of $2.4 billion and are well on our way of achieving our $10 billion annual target to 2024. We are also ahead of pace on our $2 billion target for alternative management fees. While market-leading client franchise allows us to execute from a position of strength, we know we still have work ahead of us. Earlier this year at Investor Day, we laid out a clear set of goals to narrow our strategic focus, and we have made significant progress on these priorities. Most recently, we announced the sale of GreenSky. We also announced the sale of Personal Financial Management this summer. We sold substantially all of our markets loan portfolio. We have reduced our historical principal investments by $9 billion this year. We are confident that the work we're doing now provides us a stronger platform for 2024 and beyond. As we assess the operating backdrop, the US economy has proven to be more resilient than expected, though there are reasons to remain vigilant. Treasury rates have risen sharply over the past few months with 10-year yields up 75 basis points in the third quarter. On top of that, recent inflation and employment data has come in above estimates, driving market expectations of higher for longer interest rates. And there still are a number of sectors in the economy that have yet to absorb the impact of higher rates, especially in light of the further tightening in financial conditions we've seen over the last quarter. At the same time, there has been an escalation of geopolitical stresses around the globe, the [indiscernible] war in Ukraine, tensions with China and now the conflict in the Middle East. Overall levels of risk are more elevated than we've seen in quite some time. While we don't know where this will all lead, it could impact economic growth and stability in the U.S. and around the world, and we remain cautiously positioned. Before I turn it over to Denis, I'd like to spend a moment on Basel III Endgame proposal and reiterate my views on it. We, of course, support sensible regulation and the desire to ensure we have a safe and sound financial system. There are some who have recently said we need to address the lessons from the 2008 financial crisis, which is driving the needs of much higher regulations. But frankly speaking, the rules, as proposed, go way too far and do not account for the vast array of improvements made by the largest banks as a result of Dodd-Frank and other reforms. Not only have banks doubled capital over the last 15 years, have improved the quality of capital, increased liquidity, simplified businesses that have been subjected to ongoing annual stress tests. Requiring too much capital will have negative consequences. I believe if these rules are implemented, three things will happen. First, the cost of credit will go up for businesses of all sizes from large corporations to small businesses. Second, more activity will move to the unregulated shadow banking sector. Policies that incentivize a transfer of risk outside the regulated banking system could, in fact, increase systemic risk. And third, US competitiveness will go down. Our capital markets are the deepest and the most liquid in the world. They're the engine of our economy as access to capital allows for innovation and growth across the country. Our competitive standing as the leading global economy would be negatively impacted by this proposal. The net result of these proposed rules would be slower economic growth in the US, material improvement in the -- soundness of the banking system. We, alongside clients and others in the industry, have been engaging heavily with our regulators and government stakeholders, and given this engagement, we expect that there will be ongoing debate and ultimately, changes to the proposed rules. Though regulatory uncertainty and geopolitical risks remain top of mind, I feel very confident about the state of our client franchise and the long-term opportunities for Goldman Sachs. We are focused on the execution of our strategy to further strengthen our leading Global Banking & Markets franchise and grow our Asset & Wealth Management business. I feel good about the relative performance in our core business, and we remain firmly committed to delivering for clients and shareholders. I will now turn it over to Denis to cover financial results for the quarter.

Operator:

Ladies and gentlemen, we will now take a moment to compile the Q&A roster. [Operator Instructions] We'll take our first question from Glenn Schorr with Evercore ISI. Please go ahead.

David Solomon:

Sure, Glenn, and appreciate the question. And so we'll keep it high level and let's separate into what we've got and then we can have a separate discussion about Basel III. But first, we are simplifying the firm and kind of managing the firm to drive us toward the overwhelming majority of the firm to be in two core businesses, our Global Banking & Markets franchise, which is performing very well in an environment that's not a great environment for that business. Investment Banking activities are well below 10-year norms. I don't think that will stay that way. But if you look at the performance of the business through nine months, that business, which is kind of 7% of the firm, that is two-thirds to 70% of the firm, that business is operating with a 13.4% ROE and an environment that's not the best environment for that overall business. I can't tell you when the environment will get better, but I do believe that the capital markets and banking environment will improve in the coming years. History tells us that it doesn't stay short -- it doesn't stay closed for multiple years at a time. There is an adjustment. We're making the adjustment. Yes, the world's uncertain. As we mentioned, that could be a headwind. But I do think it will improve. And that business performs well. And we firmly believe that, that business is a mid-teens through the cycle business, the way we've materially grown our wallet shares, the way we've grown our financing footprint, which adds more balance to the business and with our market-leading franchises across that business. Second, we have the Asset & Wealth Management business, which we believe is mid-teens or higher returns as we reduce the historical principal and make it a lower capital business. We're on that journey. I think you see us making progress. We've talked about how we've reduced the historical principal businesses -- the historical principal investments by $9 billion this year. We set a target for $15 billion by next year, which we'll meet and then close to zero two years later. And so that business, we have a high degree of confidence we'll operate at mid-teens or higher as we reposition it. As we've also stated, we're reducing the drag in our platforms. We're narrowing the platforms and reducing the drag. And we're relatively confident that over the next 12 to 24 months, we'll make materially more progress in that. So you add that up with what we have and I think you can get very comfortable with the mid-teens target. Now, the Basel rules. The Basel rules, if they were implemented as they're position now would be a headwind to that but also that doesn't account for how we optimize and how we pass through pricing. We've seen things before. I'm not to saying it won't be a headwind, but I don't want to speculate on what it would do to our targets until we actually understand how it's coming through and what we can do across our businesses to appropriately manage it. So we continue to be very optimistic about our view to deliver meaningfully higher returns to our shareholders. And when there's more clarity on Basel, we're committed to giving you a clear picture of that view. But I wouldn't jump to a conclusion on it at this point. I'm not saying you are. I wouldn't jump to a conclusion on it at this point.

David Solomon:

Yes. Glenn, as I listened to you play it back, what I'd say, US economy has been more resilient. The fiscal stimulus has helped mute the material tightening of monetary conditions that's occurred. I'm still of the belief that there's been a lag with this tightening and across a broad swath of the economy, we will see more sluggishness. Now that doesn't necessarily mean it has to be a recession, and certainly, there's a good debate on where this all lands. But we, again, in the past quarter materially tightened economic conditions. And I just think there's a lag in most sectors of the economy, not all, but most sectors of the economy. And I do think over the next two to four quarters, the impact of that tightening will be more evident and will create slowdowns in some areas. I am hearing as I interact with CEOs, particularly around consumer businesses, some softness, particularly in the last eight weeks in certain consumer behaviors. I don't want to over-amplify that because I think the economy and the consumer has been more resilient. But I think that gear from watching closely.

Operator:

We'll move to our next question from Ebrahim Poonawala with Bank of America.

Denis Coleman:

Sure. So, yes, to clarify, for our CRE and CIE exposure in the office space, we've either marked or impaired that down by about approximately 50% this year. So that's -- I think that's quite significant. We started the year with about $15 billion of CRE alternative investments. That's been reduced now by about $5 billion. 3/4 of that was either through paydowns or dispositions, the balance through marks and impairments. So we're making very, very significant progress against those exposures. If you were to look at the same set of exposures in non-office, the adjustment there through marks, our impairment is about 15% year-to-date. So we feel we've reduced a lot of notional appropriately reflected the valuations in those positions. But as indicated by our targets, we intend to continue to move down those exposures.

David Solomon:

Sure. So in our Global Banking & Markets franchise, we still believe that we have opportunities with our focus on our execution to continue to grow our wallet share. We expanded our focus from the top 100 accounts to the top 150 accounts, and we also are expanding the granularity that we look at our accounts from the position of one, two or three as opposed to just top three. And so we still do see some wallet share opportunities but we obviously have a very strong wallet share. So that's not most significant. We are growing our financing for our Global Banking & Markets franchise, and we expect to continue to grow that financing footprint, and we have a plan to continue to put more financial resources toward growing that financing footprint. And we do think that it has reasonable returns. And it also creates a virtuous cycle for our client franchise in terms of our overall wallet share because we're a significant financer with them. When you turn to Asset & Wealth Management, I think we've been very clear at our Investor Day, and Mark stated this, that we think we can grow the revenues in that business by high single-digits. That is driven by our continued growth in management fees over time and the continued growth in the wealth management sector, where we are experiencing good growth, and we still see good opportunities in Wealth Management to grow the franchise all over the world. And we've made continued progress on that journey. When you talk about private credit, we have, as you know, over $100 billion of private credit. We've launched private credit vehicles. We obviously have a very powerful ecosystem when you look at Global Banking & Markets. And what we do with financing, which we think can also be an Asset & Wealth Management opportunity for growth in private credit, but we would expect significant opportunity for the growth in private credit as a part of the overall growth of our Asset & Wealth Management franchise. So those are a handful of things I'd highlight at this point.

Operator:

We'll move to our next question from Christian Bolu with Autonomous Research. Please go ahead.

David Solomon:

Sure, Christian. I appreciate it. I mean, I'm going to talk very high level because, again, this is all fluid. But obviously, if these rules went in place the way they're proposed, they would have an effect of the businesses. But it's different from business to business. There are certain activities that would meaningfully impact end users, whether they're corporates or individuals where it would be obvious that you'd pass on cost. A corporation that wants to hedge and comes to us and we sit opposite in an uncollateralized derivative. I can't imagine that their desire to hedge won't still continue even if the cost of that hedge is higher. Obviously, it's some balance, they would think about that differently. There are certain businesses where we might reduce our activity level because with the new Basel rules, the terms don't look attractive. But there are others, and one I'd point to that's most obvious, which by the way, a significant part of the impact to us would be is prime, okay? There aren't a lot of alternatives for big institutions in the prime business. There are very few in Europe, a little bit, and obviously, the Europeans, if this was implemented this way, would have an advantage. But at the end of the day, there are a handful of scale players. There are lots of scale institutions that need that service. Our belief is we'd be able to optimize and pass on pricing in a reasonable way. We'd have to look at the final rules. We'd have to adjust. So it will affect behavior. It will affect pricing. It will affect optimization. But I know everybody wants to jump to the clear answer, I think you need to see the rules, and then institutions and end users need to adapt to the new reality, whatever it is. And it's not binary that it only affects us or others in the industry that are obviously be a process of working through that, as we have in the past.

David Solomon:

All right. I'll start on the first part, Denis will make some comments on credit and the portfolio. First, I think we hired a gentleman, Bill Johnson, who's got decades of experience to help us better run and better optimize the credit card portfolio, the credit card partnerships. As we've stated to you a number of times, and I'll repeat it here very clearly, we've worked to narrow our focus. You've seen us execute around Marcus loans and GreenSky. Our partnerships with Apple and GM are long-term contracts, and we don't have the unilateral right to exit those partnerships. So our focus at the moment is on managing them better, getting rid of the drag and bringing them to profitability. And we're making progress, both in the way we run them and against the cost base that we put against them. And Bill Johnson joining is helping with all that. We'll continue as we go forward to work constructively with our partners and examine what's best in the long run for Goldman Sachs. But our core focus is on reducing the drag over the course of the next 12 to 24 months and ensuring we operate them better. Denis, do you want to comment a little bit on the credit quality that we're seeing?

Christian Bolu:

Great. Thank you.

Steven Chubak:

Hi. Good morning, David. Good morning, Denis. So David you had alluded to increased competition for talent driving some pressure on expenses. I was hoping you could just speak to the commitment to deliver on the 60% efficiency goal? And maybe more specifically, given changes in revenue mix, some recently announced business exits and the heightened competition you cited, how that's going to impact your ability to deliver on that 60%, if at all?

Denis Coleman:

About 64.6%.

Steven Chubak:

That's great color. And just for my follow-up, a broader question on the sponsor outlook. Alts fundraising, it's continued at a healthy clip, but PE is facing numerous headwinds, whether it's the LP denominator effect, higher rates and just slower realization activity in general. I was hoping you could speak to the broader outlook for the sponsor business and the implications for both the sponsor booking activity as well as the alternative asset management business.

Steven Chubak:

Very helpful, David. Thanks for taking my questions.

Brennan Hawken:

Good morning, David and Denis. Thanks for taking my questions I'd love to start on expenses and comp, and David, you just spoke a little to this when answering Steven's question. But the comp ratio, we saw revenue growth broadly quarter-over-quarter and yet the comp ratio ticked up, which is rather unusual for Goldman. Denis, I know you layered in that there was nearly $300 million of severance year-to-date. Was some of that in the third quarter or was there any unusual items impacting the comp ratio? Or was this mostly just because of the competition for talent? Thanks.

Brennan Hawken:

Okay. Thanks for that, Denis. And then when you're thinking about -- thanks for all the color on those CRE and the exposures. When you're thinking about these historical principal investments that you're intending to continue to sell by the end of next year, what portion of those are CRE or CRE-related? Is it possible to give any color around the assets that you're looking to sell and how exposed they are to CRE or other sectors?

Brennan Hawken:

Great. Thanks for that color.

Mike Mayo:

Hi. The pivot's not new. It's been advertised. I guess what's new is the actual losses. So looking back, who is accountable and who pays the price for the losses with GreenSky, the Marcus loans and a consumer expansion strategy that was wider than you want it to be now? And then looking ahead, once you eliminate what you want to eliminate both on the consumer side and principal investments, how much would that alone improve ROE? Thanks.

Mike Mayo:

How much does ROE improve simply by discarding of your extra principal investments and the remaining consumer businesses you want to get rid of?

Mike Mayo:

And then what is your ability and appetite for more buybacks? Basel III, of course. But to the extent that you're discarding of the principal investments, that theoretically should free up more capital for either buybacks or reinvestment elsewhere. Kind of what are your plans and what are your limitations?

Mike Mayo:

All right thank you.

Ryan Kenny:

Hi. Good morning. Thanks for taking my question. So wanted to follow up on the earlier questions on markets, maybe asked another way. So trading revenues are clearly extremely strong. Industry wallet and both fixed income and equities is tracking well above pre-pandemic levels, and you've been taking share. But looking forward, is there any scenario related to Basel Endgame where we see industry wallet size shrink? And as you think about higher for longer rates, how do you expect that, that impacts the various trading businesses?

Ryan Kenny:

Thank you.

Devin Ryan:

Thank you. Good morning, David and Denis. Want to come back to Wealth Management. I know that the sale of Personal Financial Management is a small business. But just if you can remind us how and where you want to compete in Wealth Management moving forward. And David, maybe give a little more color on some of those growth opportunities you alluded to that you're seeing there across the globe. Thank you.

Devin Ryan:

Okay, terrific. And then just a quick follow-up. So the $15 billion capital call facilities with Signature Bank, it sounds like you think that could help gain share with alternative asset managers. And you framed out obviously why that's such an important customer base for Goldman Sachs. So if you can, maybe give us a little flavor for how that's going to help drive market share and how you think about where you sit with sponsorships, given how important they are as a customer for Wall Street, whether you have any sense of like where you are in the top three or where you can go from three to number one? Or just any flavor for where your market share opportunities exist there?

Devin Ryan:

Understood. Thank you.

Daniel Fannon:

Thanks. Good morning. I had a question on Platform Solutions. So for the quarter, if we exclude the write-down, is this a reasonable run rate for expenses? And as you think about achieving your target of profitability in this business, is this going to come more from the expense side or revenue growth? And if you could also just give an outlook for Transaction Banking, just given revenues are down both sequentially and year-over-year.

Daniel Fannon:

Thanks. And as a follow-up, you mentioned in terms of alternatives and the fundraising at the private equity challenges. But maybe if you could talk broadly about fundraising and some of the bigger funds maybe that you're in the market with today. And then also, as you think about the maturity of the business broadly within alternatives, how are you thinking about the contribution of incentive fees going forward? And when should we start to see those become a more material component of the overall revenue profile?

Operator:

We'll move to our next question from Gerard Cassidy with RBC. Your line is now open.

David Solomon:

Yes. I mean, I appreciate the question, Gerard. I think absolutely, they're easier. And if you look at a handful of the companies that have gone public, you can look at their private market valuations two years ago versus the valuation now. But I don't think those discussions are difficult. I think those discussions have a real sense of realism in them. And I think there are a number of companies that recognize the new environment and are focused on what they have to do to enhance themselves strategically.

Gerard Cassidy:

Okay, very helpful. And then as a follow-up, it's not a big line item obviously for you folks. But can you share with us some of the color in the Transaction Banking area? That was obviously a new business line that you guys created. Just how is it going? I saw the revenues were down slightly, I think, sequentially. But what's going on in that line of business? And again, granted it's not a major line of business for you folks at this time.

Gerard Cassidy:

Thank you.

Saul Martinez:

Hi. Thanks for taking my question. I wanted to drill down a little bit more on Platform Solutions. I think, Denis, you mentioned that this quarter isn't necessarily a great run rate for expenses or revenues. But even this quarter, if I adjust for the loan markdown and the impairment, it seems like you -- my math is correct, you are PPNR positive. Obviously, credit costs are high, the credit card book is seasoning and you're still growing that portfolio. But if you can just help us parse through some of the moving parts and help us understand the glide path to getting back to -- or getting to close to breakeven or breakeven over the next, say, 24 months?

Saul Martinez:

Okay, that's helpful. And just maybe a quick follow-up there. I think you mentioned that NCOs, net charge-offs, were down this quarter. Is that -- and you do have a 13.3 reserve coverage. It does seem like your maybe closer to a scenario where provisioning to come down quite a bit, especially under CECL. But just maybe just give us a sense of how you're feeling about the credit outlook. And is my assessment right that your reserving could -- especially if you slow down, it could come down pretty materially over the next year to two years?

Saul Martinez:

Okay. Great. Thank you.

Mike Mayo:

Hi. Just a clarification on my prior question. So if I have this right, you reduced your PE investments by $3 billion quarter-over-quarter, and that allowed a $2.5 billion reduction in capital allocated to the Asset Management and Wealth segment. I mean, is that completely correlated. So if you get rid of the $21 billion of remaining principal investments, would that free up, say, $16 billion? Is that ballpark right?

Mike Mayo:

So how much do you have left that once you discard the $21 billion that remains, how much capital should be freed up?

Mike Mayo:

Okay. And as far as the comp ratio, should we consider these onetime charges as part of comp or would that be excluded when we think about our models?

Operator:

At this time, there are no further questions. Ladies and gentlemen, this concludes the Goldman Sachs Third Quarter 2023 Earnings Conference Call. Thank you for your participation. You may now disconnect.

Carey Halio:

Thank you. Good morning. This is Carey Halio, Head of Investor Relations and Chief Strategy Officer at Goldman Sachs. Welcome to our second quarter earnings conference call. Today, we will reference our earnings presentation which can be found on the Investor Relations page of our website at www.gs.com. Note, [indiscernible] this information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. I'm joined today by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Dennis Solomon. Let me pass the call to David.

Denis Coleman:

Thank you, David. Good morning. Let's start with our results on Page 1 of the presentation. In the second quarter, we generated net revenues of $10.9 million [ph] and net earnings of $1.2 billion, resulting in earnings per share of $3.08. As David mentioned, we have provided additional detail this quarter on 3 items that impacted our results. These items are a gain in connection with our sale process for the market's unsecured loan portfolio as well as the business' operating results. Losses from our historical principal investments within Asset and Wealth Management and results related to GreenSky, including a goodwill impairment in consumer platforms. In aggregate, for the second quarter, these 3 items impacted net earnings by $1.4 billion and reduced our EPS by $3.95 and our ROE by 5.2 percentage points. Turning to performance by segment, starting on Page 4; Global Banking and Markets produced revenues of $7.2 billion in the second quarter. Advisory revenues of $645 million were down versus a strong prior year period amid significantly lower industry completions. Equity underwriting revenues rose year-over-year to $338 million as we saw some signs of reopening in the capital markets, although volumes continue to remain well below medium and long-term averages. Debt underwriting revenues were slightly down versus the second quarter of 2022 as activity remains muted. Nonetheless, our client franchise remains very strong and we remain well positioned to support the needs of our clients. We ranked number one in the league tables across announced and completed M&A as well as equity underwriting and high-yield debt on a year-to-date basis. Additionally, our backlog rose quarter-on-quarter, primarily in advisory. Fixed net revenues were $2.7 billion in the quarter as clients remained in a risk-off posture, relative to an active prior year quarter, particularly in commodities, rates and currencies. Fixed financing revenues were $622 million. Equities net revenues were $3 billion in the quarter, roughly flat year-on-year. Equities financing revenues were a record $1.4 billion as we benefited from our ongoing strategic focus and increased balances. This was largely offset by a decline in intermediation revenues, primarily in derivatives. Our strategic priority to grow financing across both second equities continues to yield results as these activities increase the durability of our revenue base and we continue to see attractive deployment opportunities to support further growth. Moving to Asset & Wealth Management on Page 5; revenues of $3 billion were down 4% year-over-year, primarily driven by weaker results in equity and debt investments. Management and other fees increased 5% year-over-year to a record $2.4 billion, largely driven by higher assets under supervision. Private Banking and lending revenues were also a record at $874 million. We continue to see positive momentum in this business as we benefit from higher deposit balances and NII. Results were supported by a gain of approximately $100 million related to the sale of substantially all of the remaining Marcus loans portfolio. Equity investments generated losses of $403 million. More specifically, we had roughly $305 million of net losses in our private portfolio, primarily due to markdowns on investments in office-related commercial real estate and approximately $100 million of net losses in our public portfolio, largely driven by a loss related to a historical principal investment that we sold out of during the quarter. Importantly, we have now reduced the public portfolio to approximately $1 billion, down from more than $4.5 billion in 2021. Debt investments revenues were $197 million, with the year-over-year decline driven by weaker performance in real estate investments. This quarter, we also experienced approximately $485 million of impairments on our real estate-related CIE portfolio which are reflected in operating expenses. In aggregate, the results from Marcus loans and the losses from our historical principal investments negatively impacted our margins for the segment by approximately 15 percentage points for the first half of the year. Now moving to Page 6; total firm with assets under supervision ended the quarter at a record $2.7 trillion, driven by $30 billion of market appreciation as well as $8 billion of long-term net inflows and representing our 22nd consecutive quarter of long-term fee-based inflows. Turning now to Page 7 on alternatives; alternative assets on supervision totaled $267 billion at the end of the second quarter, driving $521 million in management and other fees for the quarter. Gross third-party fundraising was $11 billion for the quarter and $25 billion for the first half of the year. Total third-party fundraising since our 2020 Investor Day is now over $200 billion and remains very well positioned to achieve our 2024 target of $225 billion. On-balance sheet alternative investments totaled approximately $53 billion, of which $24 billion is related to our historical principal investment portfolio. In the second quarter, we reduced this portfolio by $3.6 billion which included sales of a number of CRE-related investments, bringing year-to-date reductions to approximately $6 billion and putting us well on pace to achieve our 2024 year-end target of a historical principal investment portfolio below $15 billion. Next, Platform Solutions on Page 8; revenues were $659 million, driven by growth in loan balances and consumer platforms. As noted earlier, we took a $504 million impairment charge on the goodwill associated with consumer platforms this quarter in connection our exploration of a potential sale of the GreenSky business. We will continue to evaluate its intangibles for impairment and should we decide to sell the business, we will also make a determination regarding moving Greensky to held for sale, similar to the action we took last quarter with respect to our markets unsecured loan portfolio. We will share further updates as appropriate. Additionally, you'll recall that at our Investor Day earlier this year, we said that we expected to reduce the efficiency ratio in Platform Solutions below 100% by the end of this year and we are making progress. Absent the impact of the goodwill impairment in consumer platforms, the efficiency ratio for the segment year-to-date would have been better than our stated goal. On Page 9, firm-wide net interest income was $1.7 billion in the second quarter. Our total loan portfolio at quarter end was $178 billion, unchanged versus the prior quarter. For the second quarter, our provision for credit losses was $615 million. Provisions in the quarter were primarily due to continued growth and higher net charge-offs in our lending portfolio within consumer platforms. Additionally, within our wholesale portfolio, impairments and a reserve build were partially offset by releases due to lower balances. Moving on to Page 10; we've added a new slide this quarter, providing additional detail on our CRE exposure. Starting with the left side of the page, CRE loans represent a relatively small percentage of our overall lending book, roughly 15%. And we are well diversified by property type with only 1% in the office category. Moving to the right side of the page, you can see additional detail on our CRE-related on-balance sheet alternative investments. We conducted a comprehensive asset-by-asset review of this portfolio this quarter and we have incorporated the feedback from our sell-down process. Office-related exposure represents approximately 2% of the aggregate portfolio and equity securities loans and debt securities and approximately 15% of the CIE investments in other category net of financings. Overall, the CRE investments are diversified across geographies and positions with no single position representing more than 1% of the total on-balance sheet alternative investments. Furthermore, 50% of these investments are historical principal investments that we intend to exit over the medium term. We continue to remain highly focused on the overall risk management of this portfolio. Turning to expenses on Page 11; total quarterly operating expenses were $8.5 billion. Our year-to-date compensation ratio net of provisions is 34% which includes approximately $260 million of year-to-date state severance costs. At Investor Day in February, we articulated this year and we have now largely reached this organ with line of sight to surpass it. Quarterly non-compensation expenses were $4.9 billion. The increase in our non-compensation expense was entirely driven by the CIE and goodwill impairments I discussed previously. Absent these items, non-comp expense is down for the second consecutive quarter, even in the face of inflationary headwinds. Our effective tax rate for the first half of '20 was an increase in taxes on non-U.S. earnings. For the full year, we expect a tax rate of roughly 22%. Next, capital on Slide 12. Our common equity Tier 1 ratio was 14.9% at the end of the second quarter under the standardized approach which is 190 basis points over our new 13% requirement that will become applicable in October. As David mentioned, we are pleased with the results of the recent stress test and remain confident that our strategy to reduce the capital density of our business will continue to help improve our SEB over time. The 80 basis point reduction in our SEB will allow us to continue to remain nimble in dynamically deploying capital to support our client franchise. In the quarter, we returned $1.6 billion to shareholders, including common stock repurchases of $750 million and common stock dividends of $864 million. Our Board has also approved a 10% increase in our dividend, to $2.75 per share beginning in the third quarter. This increase will enable us to pay our shareholders a sustainable growing dividend and maintain a competitive yield, complemented by our previously announced $30 million share repurchase program where we intend to step up the level of buybacks going forward. In conclusion, our second quarter results reflect a challenging backdrop as well as our ongoing execution of several strategic actions. These initiatives will help transition our business and improve our overall return profile. We remain confident in our ability to deliver for shareholders while continuing to support our clients and remain optimistic about the future opportunities set for Goldman Sachs. With that, we'll now open up the line for questions.

Glenn Schorr:

So I want to talk about how we build towards that that the medium-term ROE target. So obviously, this was -- this quarter was depressed by the write-downs. Let's start with a 9-ish starting point. We know capital markets activity will be better in normal time. So I know we're a lot closer than it looks right now. If you look at Page 7, where you spelled out the $3.6 billion of historical Principal Investments that declined in the quarter. Or if you want to do it year-to-date either way. My question related to that reducing capital intensity is in a good way, it didn't look like there was a big gain or loss related to those exits. A) Is that right? And B) how much capital that free up because I'm just trying to build towards that ultimate goal.

David Solomon:

Yes. I just -- Glenn, I just want to add 2 things, just looking at that because Denise focused on the AE and the continued journey. The one thing you didn't touch on was your question around the reductions and whether there were meaningful marks around that, there are some where you're reduce where -- it might be a public physician. So we mark those public positions that market that night and you sell that position at a discount. So there could be a slight loss. There are others that are private positions where you keep a valuation adjustment or a discount to what you believe it's worth as you sell and you get a gain. But I wouldn't say there's anything material that I'd call out in the context of that process. But the important thing about the journey that I'd like to emphasize is we laid out clear in Investor Day that we were going to narrow the consumer ambitions and really focus on these 2 big businesses. Clearly, at this point in time, given the lack of investment banking activity, our investment banking business is performing at a lower level of return and a lower level of activity than we've seen in nearly a decade. We don't believe that's constant. We believe that, that global markets and banking business can deliver mid-teens returns through the cycle and that obviously makes up more than 2/3 of the firm. In addition, Mark Nachmann laid out at our Investor Day, a very clear path on asset management to grow the top line of asset management ex the legacy balance sheet by a high single-digit percentage and we set a target to drive the margin which ex the legacy balance sheet up to 25%. At that point, that is a mid-teens return business. And as we continue to narrow the drag which we're making progress on in the platforms and I believe we'll narrow that to 0 and move past that, you've got these 2 businesses that are the firm that will be mid-teens through the cycle. So that's the way I'd think about it. But obviously, you need a better environment in this environment to see that.

David Solomon:

Sure. I'd say on the following. It definitely feels better over the course of the last 6 to 8 weeks than it felt earlier in the year. And I've talked in the past on this call and other times when I've talked to many of you about the fact that when you have a big reset, it takes 5 or 6 quarters to get that reset. It's not surprising that we're kind of at 6 quarters now and you're starting to see more activity. So it's definitely been a pickup in equity capital markets activity. That definitely feels better. There's more M&A dialogue I can't tell you exactly what the journey is. But when I go back and I look historically at other periods where the macro environment has created sharp drops in investment banking activity, they tend to last for a year or so and then they start to improve. And so I think we're starting to see that here. It definitely feels better. I think the inflation data has been better. The client sentiment is better and now we'll have to watch and see that journey. But I know this activity level of 10-year loans and investment banking activity is not going to be the normal on a forward basis.

Ebrahim Poonawala:

I guess maybe just the first question, when we think about potential for obviously pick up in the back half, David, as you just mentioned but give us a sense of rightsizing the business, given the slowdown that we've seen over the last year or so, -- are we there headcount-wise, infrastructure-wise, where you want it to be on the expense base and as we anchor back to the efficiency target around 60%. Just give us a sense of how you think we get there and where the where Gold minister in terms of just rightsizing the expense base?

Denis Coleman:

I mean just to add for you. So end of the second quarter, we ended -- headcount was 44,600 down about 2% on the quarter, about 8% year-to-date. I think the more comparable metric is probably the year-over-year metric of down 5% because we'll have new joiners in the third quarter. But as David said, we're happy about taking the action early in the year, positioning the firm reach towards our target of $600 million in run rate payroll efficiencies.

Denis Coleman:

Sure. So you have pieces of the answer to my question to the question for my answer. So what we would say, obviously, very pleased with the CCAR results -- we have 190 basis points of cushion. We intend to deploy some of that excess capital into the client franchise to continue to grow our activities there. We announced our increase in dividend. We've been very committed to sustainably growing our dividend and we're going to increase our level of buybacks. We are mindful of Basel III revisions but we also recognize that we will get a rule. There will be a comment period for the rule. There will be a period in which that's implemented, some suggestions in the beginning of 2026. That implementation may even have a phase-in period. So as we think about the way in which we manage capital we think we should be optimizing for our client franchise and for our shareholders. We obviously will make sure we're in a position to adopt any new guidance and to do so on time and early -- but in the intervening period, we're going to continue to manage our capital to grow the firm and to deliver returns of capital to shareholders and we thought we would indicate that, that intention is to step it up from where we are.

Steven Chubak:

David, there's been a fair amount of price speculation covering how you’re -- the consumer business, specifically even some recently suggesting you might look to sell some additional receivables tied to partnership with Apple and GM. I know price speculation might not be representative of what's actually being discussed. So it might be helpful just to hear about your strategic priorities for the consumer business, maybe how your vision has evolved in recent months just given some of the challenges facing that business and maybe not fitting with your -- aligning with your core competencies.

Steven Chubak:

It's great color. Maybe just for my follow-up on equity financing specifically. The contribution in the first half actually implies an incremental $1 billion in fees year-on-year. You've definitely been highlighting the commitment to grow the financing piece. And just wanted to better understand, one, the durability of the gains that you saw in the first half and as we look out over the next few years, how significant of a contribution to the trading business do you expect from the financing component both across equities as well as FIC?

Denis Coleman:

Sure. So that is the strategic direction of travel. We are allocating a lot of time and resources, human capital, financial capital to grow those activities Equities financing revenues are nearly 50% of overall equities revenue this quarter and that's something that has been growing. Even the combined FIC and equities financing as a percentage of pick and equities continue to grow. So remain very focused on prioritizing activities in that space with clients. And we're also observing that there's a virtuous reinforcement of our commitments to grow market share and to cover clients more holistically over a multiyear period. It's paying dividends both across dividend and intermediation and recognizing David's comments with respect to market valuation levels which drive changes in balances and changes in behavior, there's also activities that we've been taking to sort of systematically identify components of the client base across the financing activities and make sure that we're capturing more share in underpenetrated portions of the client base. So remain committed to growing that activity. It's relatively more durable than intermediation but like other line items, it can fluctuate on the forward.

Betsy Graseck:

Just one follow-up to that last question and then a different one. But just on the last question. So you mentioned durability when you were talking about financing, that was part of what I wanted to understand. Do you feel like this quarter of financing revenue is a good jump off point for us to grow from. And if there's any puts and takes on how you would think -- how would you want us to think about that level of durability, that would be helpful.

Betsy Graseck:

And you highlighted capital obviously have excess, significant excess. So there's that flex between buybacks versus deploy. This is an opportunity to deploy. I guess the follow-up I had to that was in your comments earlier on the Basel III end game. I think you mentioned that you -- look, you're in a position to be opportunistic, whether or not you want to meet the requirements early. And I guess that was the question I had on when you say on time, of course but early just meaning within that phase-in period early. And again, I kind of asked the question with the context of you've got this opportunity in financing. So how should I think through meeting it early versus leaning into financing versus other options you might have.

Operator:

We'll go next to Mike Mayo with Wells Fargo.

Denis Coleman:

Okay. Mike, it's Dennis. I'll start and then I'll turn it over to David. So we called out our severance expense year-to-date was $260 million the vast majority of that was in the first quarter in connection with much, much larger levels of headcount reductions then. The reason that we're making an effort to call it out, you will also notice that our comp ratio net of business at 34%. We're just making an effort to provide transparency in terms of what components of our compensation expense accruals are designed for severance. And we think that's important because with the balance -- we're going to be focused on our pay-for-performance Ethos as well as balancing returns for shareholders but making sure that we have the capacity this year to protect our talent, protect the franchise, make sure we're positioned to capture the upside. So, the severance disclosures are just designed to help understand the financial impact of the actions we've taken David will give you more color but we've largely done what we set out to do. We're on target for the payroll efficiencies and that I'll help you understand what the severance picture is relative to the overall accrued level of compensation and expense.

Mike Mayo:

And can you remind us -- so you're taking this pain the charges and you're looking to get to mid-teens ROE in the medium term. How do you define medium term? And what should we be looking at along the way because to the extent that this accelerates this transition. It'd be nice to see some metrics externally for that progress?

Operator:

We'll go next to Brennan Hawken with UBS.

David Solomon:

Yes. So thanks for that question, Brennan. It's a good question. It's an important thing. I'm glad you're asking us to highlight it because I think about it this way and it's very, very important. When you look at our M&A business, a significant contributor to our M&A business is M&A responses and that's come to a halt. It's come to a halt. There are 2 aspects of it. There's buy side and the sell side. The buy side obviously also give us financing and other capital markets activity. The sell side sometimes gives staple and financing opportunity, too but that stuff has kind of come to a hall. Here's one thing I know about financial sponsors. Number one, they own a bunch of assets. They're all for sale and they all will be sold. This environment has slowed down the pace of sale in a better environment that will accelerate. And I think we're going to see that accelerate as we look forward from here. This has been a particularly slow environment for that. Secondly, they have enormous dry powder, okay? And they can't make money unless they deploy. And so as soon as you get to a place, the values reset and financing costs are understood, you start to see people deploy. We're starting to see some of that. You saw this quarter, obviously, a very, very big transaction around FIS. And so you're going, I think [indiscernible] as we move forward. So this is a very, very important part of the investment banking ecosystem that kind of came to a shutdown given the volatility of change in the environment. And I'm not smart enough to tell you this quarter, next quarter but it will meaningfully improve and it's an important component to investment banking activity. And it's one of the reasons why investment in banking activity is running at kind of from an activity level, kind of 10-year lows. And the other part of your question, Brennan, speaks to availability and health of financing markets. I think we certainly have underwriting appetite to facilitate these transactions. We believe we can distribute risk into the market. There's also a number of principal in buckets, both with our clients and within our own funds that are capable of deploying financing to support transaction activity in this environment that could also be an attractive source of activity for the firm.

Denis Coleman:

Brennan, in terms of the process, we're obviously in the middle of the process. We have feedback. I think extra color, just to share with you in terms of how you think about potential on the forward. It's a business we bought for $1.7 billion. We integrated into Goldman Sachs. We're seeing it perform well. It's a good business. We had made the decision to explore alternatives because it's not the right fit necessarily for Goldman Sachs. We've written down the goodwill in the Consumer platform segment. There's no more goodwill to be written down. That business at this point has remaining unamortized intangibles approximately $625 million that we consider for impairment on a quarterly basis and we'll do so in the future. And should we move forward with the transaction with respect to GreenSky, it could happen in a number of different ways. We could sell the platform, we could sell the platform and the historical lending book that we have on balance sheet. And should we choose to sell the loan book, we'll designate that as held for sale, much like the Marcus loans process and you'll see the P&L impact accordingly as we mark the loans and release the associated reserve. So those are the types of things that could occur on the forward given the strategic activity but I don't think there's anything else to say about the GreenSky process given where we are.

Devin Ryan:

In markets we hit on financing. So I just want to look at intermediation here. And obviously, results were off quite a bit from a great quarter last year. But based on the results, it also looks like you did better than the implication on the conference circuit late in the quarter. So just the implication there would be that June got a lot better for intermediation. So I just want to make sure kind of that read is correct. And then did June feel like a more normal month relative to the first couple? And has that continued? Just trying to think about the quarter and the cadence there?

Devin Ryan:

Okay, that's great. And then just on transaction banking and the momentum there, be great to just get an update on some of the kind of the drivers. And really, the question is, it's such a huge market as you guys identified when you got the business. It's still a very small driver for Goldman. And so just trying to think about the growth there? And are there opportunities for more step function growth if you add a certain capability? Or just how should we think about the opportunity to really -- this to become a much bigger business for Goldman?

Operator:

Thank you. We'll go next to Dan Fannon with Jefferies.

David Solomon:

Sure. So it's highlighted as one of those areas within the overall Asset & Wealth Management business which we think has the combined benefit of growth opportunities as well as more stable and recurring revenues, there's a couple of components inside of that line item. We've obviously seen strong growth in the deposit platform which has been contributing nicely and that was the area in which we had our Marcus loans activities which on the for those will obviously have -- will not be contributing on the forward. But the other piece of it which is an area of strategic priority for us is the overall activities with respect to wealth lending activities. And we have, as I think David highlighted earlier, premium ultra-high net worth business that has been growing nicely. But we feel like we're relatively underpenetrated with respect to some of the lending activities with those clients and across the wealth space. And so we have some new leadership across the division in the past number of quarters and a very, very clear mandate that we should be out there aggressively leaning into those relationships and making sure that we can solidify them as comprehensively as possible and we expect that will be a contributor to that line item as well on the forward.

David Solomon:

Sure. I appreciate that question. So obviously, we took you to current on historical principal investments at 23.8%. You know that there is a year-end '24 target of below $15 billion. We said we are well on pace towards that target. I would say that we have line of sight on several billion of incremental reductions. We have a large number of processes and positions that we're exploring for disposition. They're all in various stages of completeness from exclusivity to on offer to being marketed to being prepared. We've moved a large number of positions year-to-date and we have more that we're focused on moving from here. So I would offer that up as it's an ongoing highly engaged process where we expect to make incremental progress.

Matt O'Connor:

So the SCB obviously came down very nicely this year and has been trending down for a couple of years now. We are getting some questions on how some of the consumer loan portfolios have impacted that. And specifically with the sale of the Marcus loans and potentially sale of GreenSky loans and again, according to the media, potentially exit the credit card. I guess the question is, do those loans actually help bring down the SCB? Or what are the puts and takes there as you think about the impact of those loan portfolios in aggregate on the annual FACA.

Matt O'Connor:

Okay. So focus much more on the legacy on balance sheet positions versus the consumer lending portfolios?

Operator:

We'll take our next question from Gerard Cassidy with RBC.

David Solomon:

So again, I'd highlight that Global Banking and Markets, even in this environment, has close to 14% ROE for the first 6 months of the year in what's not a great environment for investment banking. We don't disclose the separate ROE for investment banking but I just highlight to you, it's running way, way below what it's run on average over the course of the last 5 in the last 10 years. We do not have to go back to 2021 kind of levels in order to see a material uplift in that investment banking ROE which would bolster the overall through-the-cycle uplift of our Global Banking and Markets franchise. I'm sure in my lifetime, maybe not my career, I'll see another year like 2021 but 2021 falls into that category of years that come along once in a decade, I wouldn't call that normal either. But I would say that this is not normal and normalize somewhere in between. Our average, I hate the word normal, average lies somewhere in between.

David Solomon:

Yes. One other thing, Gerard, I'd just add, if you go back, it's an interesting thing to do. If you go back and you look at investment banking revenues from people who report them, over the last 20-plus years, go back to 2000 and look at investment banking revenues. There's a change in the environment and investment banking revenues have dropped meaningfully because of that. You can go back and you can see that at other times over the last 20 to 25 years. You can see that from 2001 to 2002. You can see that from 2007 to 2008. You can see that in 2010 to 2011. And obviously, you're seeing it from 2021 to 2022 and '23. What's interesting is to go look at what happens when you come out of the cycle and kind of look at the growth in the upshot because market cap grows, there's growth in the economy, etcetera, I don't think it's going to be different this time. I think this is a cycle. We haven't seen a cycle in a while. And the other side of the cycle will continue to look attractive the services of advising the need for mergers and consolidation, even though there can be headwinds and friction, the need for capital markets activity, IPOs, equity financing, destiny, that's a fundamental part of our economy. It's not going away. It's been depressed for the last 4 to 6 quarters.

David Solomon:

So, thank you. The decision as to whether and when we move it to held for sale is when we make a decision affirmatively that we are selling the business and we're selling the loan portfolio and we will. When we make that decision, we will designate it as such and you will see the P&L consequences of that designation at that point in time. We evaluate the intangibles every single quarter for impairment. And in the next quarter, we will also analyze the intangibles for impairment.

James Mitchell:

Just on Platform Solutions profitability. I appreciate you getting to an efficiency ratio already below 100%. But the other drag on profits is credit. I think you guys noted that in consumer platforms had a 5.8% net charge-off ratio. I would imagine point of sale is lower than cards. So that would imply cards as well north of 6% in terms of that charge-off ratio. How do we -- is that right? And how do we think about the credit quality in that book and where you see it kind of normalizing? SP1 Sure. So a couple of things. On the one hand, the net charge-off in consumer at 5 for the quarter, given the nature of our portfolio, its maturity, the overall operating environment we do expect that, that will continue to tick up over the next couple of quarters.

James Mitchell:

Okay. Maybe just a follow-up question on Wealth Management. I haven't really talked about it in a while but whether it's with AECO and trying to move a little bit down market from the ultra-high net port space. Can you talk to the progress you've made there? And what kind of where you're seeing investments in growth?

Operator:

That will conclude our question-and-answer session. Please continue with any closing remarks.

Carey Halio:

Good morning. This is Carey Halio, Head of Investor Relations and Chief Strategy Officer, Goldman Sachs. Welcome to our first quarter earnings conference call. Today we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. Note information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of The Goldman Sachs Group Inc. and may not be duplicated, reproduced, or rebroadcast without our consent. I am joined today by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Denis Coleman. Let me pass the call to David.

Denis Coleman:

Thank you, David. Good morning. Let's start with our results on page one of the presentation. In the first quarter, we generated net revenues of $12.2 billion and net earnings of $3.2 billion, resulting in earnings per share of $8.79. Turning to performance by segment, starting on Page 3. Global Banking & Markets produced revenues of $8.4 billion in the first quarter, which generated an industry-leading ROE for the segment of 16.6%. Advisory revenues of $818 million were down 27% amid lower industry completions. Underwriting revenues continued to be below recent averages and were lower year-over-year. Despite the difficult backdrop, we were number one in the league tables for completed M&A and high-yield debt underwriting. We also ranked second for equity and equity-related underwriting. Our backlog fell quarter-on-quarter, primarily in Advisory, but we remain cautiously optimistic on the outlook for the second half of the year and 2024, particularly for strategic M&A. We also expect investors will need more certainty before financing markets reopen broadly, but we have seen an increase in underwriting dialogs in the first two weeks of the second quarter. FICC net revenues were $3.9 billion in the quarter, down 17%, as one of our strongest sets of results in rates was more than offset by significantly lower currencies and commodities revenues, which were very strong in the first quarter of 2022. In FICC financing, revenues rose slightly year-over-year. Equities net revenues were $3 billion in the quarter, down 7% year-on-year. A decline in intermediation revenues was partially offset by record financing revenues of $1.3 billion with the sequential increase driven by higher activity and increased balances coupled with improved customer spreads. Moving to Asset & Wealth Management on Page 5. Revenues of $3.2 billion rose 24% year-over-year, given improved results in equity and debt investments, and as management and other fees increased 12% year-over-year to a record $2.3 billion. Though underlying trends in the business remained strong, private banking and lending revenues of $354 million fell year-over-year, driven by the partial sale of our Marcus unsecured loan portfolio as well as a transfer of the remaining portfolio to held-for-sale, in line with our strategic decision to narrow our consumer ambitions. The associated revenue reduction of $470 million was largely offset by a reserve release of $440 million. Additionally, we benefited from NII and incremental reserve releases associated with paydowns. All-in, the Marcus loan portfolio was profitable for the quarter. Net revenues for equity investments were $119 million, driven by $229 million in revenues related to CIEs and $85 million of gains related to our $2 billion public portfolio, partially offset by $195 million of net losses on our $12 billion private equity portfolio, primarily within real estate. This quarter, we experienced approximately $355 million of impairments on our CIE portfolio, which are reflected in operating expenses. Debt investments revenues were $408 million, driven by net interest income of $363 million. Moving on to Page 6, total firmwide assets under supervision ended the quarter at a record $2.7 trillion, driven by $68 billion of market appreciation as well as $8 billion of long-term net inflows, representing our 21st consecutive quarter of long-term fee-based inflows. We also saw a meaningful strength in liquidity products with $49 billion of net inflows from new and existing clients amid the industry-wide flows in the money market funds. Turning to Page 7 on alternatives. Alternative assets under supervision totaled $268 billion at the end of the first quarter, driving $494 million in management and other fees for the quarter. Gross third-party fundraising was $14 billion, relatively solid given the current environment, and bringing total third-party fundraising since our 2020 Investor Day to $193 billion. While we expect the pace of fundraising to slow for the rest of 2023, we continue to feel good about the path forward and remain confident in achieving our 2024 target of $225 billion. On balance sheet alternative investments totaled approximately $57 billion, of which $27 billion was related to our historical principal investment portfolio. Despite the challenging environment, we reduced these on balance sheet historical investments by $2.3 billion in the quarter. We are committed to our strategy to reduce balance sheet density, including reducing historical principal investment portfolio to less than $15 billion by 2024 year-end. I'll now turn to Platform Solutions on Page 8. Revenues of $564 million more than doubled year-over-year, driven by growth in loan balances in consumer platforms. This week, we announced the launch of a savings account for Apple Card users. We are excited to deepen our partnership with Apple through this additional offering and to introduce another source of deposit funding for the firm. In transaction banking, deposit balances ended the quarter slightly higher versus year-end, while revenues of $74 million were modestly lower quarter-over-quarter amid higher deposit costs. As we spoke about at our Investor Day in February, we're focused on further scaling this business with new clients and deepening our relationships with existing clients as we aspire to become their primary service provider. In this regard, we continue to see positive momentum on the platform as our client count grew by approximately 20% in the first quarter. On Page 9, firmwide net interest income of $1.8 billion in the first quarter was down 14% relative to the fourth quarter, driven by increased funding costs supporting training activities within Global Banking & Markets. Our total loan portfolio at quarter end was $178 billion, essentially unchanged versus the fourth quarter. Provision for credit losses reflected a net benefit of $171 million, including the previously mentioned reserve release associated with the Marcus unsecured lending portfolio and model updates, which were only partially offset by roughly $245 million in consumer net charge-offs. Spending a moment on our commercial real estate lending portfolio, as of quarter-end, we had $29 billion of funded CRE loans. This portfolio is diversified by property type and includes $10 billion of exposure in the form of conservatively structured warehouse lending with typical LTVs of approximately 50%. Turning to expenses on Page 10. Total quarterly operating expenses were $8.4 billion. Our compensation ratio for the quarter net of provisions was 33%. Quarterly non-compensation expenses were $4.3 billion, essentially unchanged versus the fourth quarter, but up versus last year. The majority of the year-over-year increase was driven by the aforementioned CIE impairments as well as expenses related to NNIP. Our effective tax rate for the quarter was 19%. For the full year, we expect a tax rate between 21% and 22%. Turning to capital on Slide 11. Our common equity Tier 1 ratio was 14.8% at the end of the first quarter under the standardized approach, 100 basis points above our current requirement and at the top end of our management buffer. In the quarter, we returned $3.4 billion to shareholders, including common stock repurchases of over $2.5 billion and common stock dividends of roughly $870 million. While we expect to continue to focus on sustainably growing our dividend, we would note that repurchases in any given quarter will vary. Though we find our stock price attractive at current levels in light of the current environment, we expect to moderate our repurchase levels in the second quarter relative to the first quarter. In conclusion, our first quarter results were solid in the context of a volatile environment. Our robust financial position allowed us to focus on serving our clients and helping them navigate this period of market disruption. Across our leading businesses in Global Banking & Markets and Asset & Wealth Management, we remain well positioned to continue to support our clients and execute on our strategic priorities. With that, we'll now open up the line for questions.

Glenn Schorr:

Hi, there. Curious, you mentioned being optimistic about M&A in the back-half, particularly on the strategic side. I'm curious what and how you -- what you're seeing that gives you that confidence. Obviously it must be conversations. And then what about the sponsor community? Thanks.

Glenn Schorr:

Appreciate that. And building on that, your comment about companies wanting to build on their strategic position, maybe we could talk a little bit about your transaction banking platform because it's still growing. I'm just curious on the March events that we saw, did it cause any rethinking or maybe encouragement in terms of the direction of what you're doing with transaction banking and taking on those deposits? And did you notice any -- was there any noticeable behavior of how those deposits acted during the March crisis? Thanks.

Operator:

Thank you. We'll take our next question from Ebrahim Poonawala with Bank of America.

David Solomon:

Yes. So I appreciate the question. I mean, it's been interesting -- this morning just watching what I'd highlight is, I think we had a very solid quarter in FICC. We had nearly a $4 billion quarter. And just to put that in perspective, I think that's a top-decile quarter for that. I think we've had -- I think it was the eighth best quarter on record. I think we've got 96 quarters. So it was a solid performance and just the headline number of $4 billion, the way we look at it, that's a very solid FICC quarter. It was certainly a quarter there was volatility in client activity throughout the quarter, and I think we were well positioned to serve our clients and served our clients well. Now, some of the noise that I see just from the early morning release, our FICC business was down versus the first quarter of last year by 17%, but in the first quarter of last year, we had significant outperformance. If I remember correctly, our FICC revenues in the first quarter of last year were up year-over-year 21% when the competitor average was kind of flat or down. And you can go look at that from a base perspective. We had much more significant outperformance in the first quarter of 2022 because of our commodities business and the breadth of our commodities business. So if you remember back in the first quarter of 2022, the war with Ukraine started, there was more volatility in commodities and clients were very active in commodities. And so it was an outsized quarter in commodities in the first quarter of 2022. But overall, I think FICC performance in the quarter was strong. We were there to serve our clients. And by any standards, it was a good quarter. I think given the environment that we're operating in, I would expect activity to continue to be active with our clients. It's certainly an uncertain period of time and there's a lot of movement and positioning, and so we're finding our clients active at the moment.

David Solomon:

Yes. So we commented in the script about the fact that we made more progress on the disposition of our historical principal investments, and we highlighted that we reduced them from just under $30 billion to just over $27 billion during the quarter. Then it's also highlighted in the script that we feel on track to get to the $15 billion target number that we laid out over the course of the next 24 months. We feel good about that progress and we're going to continue to move to reduce that to zero over time. There are a lot of positions. There's no question when there are market headwinds, some of that might go a little bit slower, but we're on pace with what we're trying to do and are committed to it. And obviously, we see a big change in that business as we grow management fees and we take the legacy investments out, the volatility in that business, we believe, will change meaningfully.

Christian Bolu:

Good morning, David and Denis. Just to follow up on the question on the Markets business, March did feel like a very tough month for some of your institutional clients, particularly saw hedge fund closures, we are hearing of deleveraging. So how does that inform your view of the outlook for the trading businesses and your market share, particularly given, I guess, Goldman's exposure to the hedge fund community?

Christian Bolu:

Great. Thank you. And then maybe a question on capital return. Can you just clarify why you are slowing buybacks? Your capital ratio is seen very healthy to your point that the stock is attractive at this level. So not sure that I get it. And then any comments on your appetite for strategic acquisitions here? There's been a lot of stress in the wealth management space, which is a space I know you guys are interested in. So curious here, if you're conserving capital to go on the offense.

Operator:

We'll take our next question from Steven Chubak with Wolfe Research.

David Solomon:

Good morning.

Denis Coleman:

Sure. Thanks. In terms of the overall trajectory for the segment, I think we have to step back. Our number one focus is driving towards profitability. We also mentioned that we look to continue to improve the efficiency ratio. That's certainly over the course of a period of time. Maybe not every given quarter, but we remain committed to what we outlined. As you say, we've seen good top line performance of the business. And on the reserve release, it was a function of owning our point-of-sale business for some period of time, been able to observe it, take in more data. And GreenSky is actually performing better than we had modeled. And so that was a contributor to the reserve release in the segment. As we think about it on a go-forward basis, it's obviously going to be a function of origination activities across the platform. We now have a reserve level of roughly 13% in the consumer space. So that can give you a sense of how to model provisions based on forward origination activity.

Denis Coleman:

Thank you. Thank you very much. So let me take that in pieces. In terms of -- on the compensation expense, any charges associated with severance and some of the actions that we took in the first quarter are included within our overall comp accrual, which is a 30% -- 33% of our revenues net of provisions. That's embedded inside of that number. In terms of the change in non-compensation expenses, they were flat on a quarter-over-quarter basis, but did include, as you know, $355 million of CIE impairments. And so we thought it was important to call that out. And that also explains a bunch of the year-over-year delta between Q1 '22 and Q1 '23. That together with full quarter impact of NNIP helps explain the delta in that line for the first quarter of this year.

Betsy Graseck:

Hi, good morning.

Betsy Graseck:

So just a couple of quick questions here. One, on the consumer repositioning that you talked about today with the Marcus loan sales and with your comments around GreenSky, would you say that as those are done and dusted, that would be it for the consumer repositioning?

Betsy Graseck:

And so there's some nice capital release that comes from that. How should we anticipate you're going to be utilizing that as we look forward here?

Operator:

Thank you. We'll take our next question from Mike Mayo with Wells Fargo.

Denis Coleman:

So we sold about $1 billion of the Marcus loans and the balance has been moved to held-for-sale, and so we'll be looking at moving down that position over time.

Denis Coleman:

So we marked the entire -- we sold a portion of the portfolio, and then we marked the balance to market. And you'll see that reflected in the $470 million number moving through net revenues. And our reserve release was $440 million. If you think about the portfolio overall for the quarter, we generated incremental NII, and we had other net paydowns. So for the whole quarter, we generated revenues north of $150 million and it was profitable for the quarter. As we move forward into the second quarter, we'll continue to generate net interest income on that portfolio and move down the balance of those exposures.

Brennan Hawken:

Good morning. Thanks for taking my questions. I'd like to follow up first on a question that Glenn asked about the transactional banking. In the past, in conversations, I believe that you've indicated that a lot of the competitors are the regional banks there. So I want to confirm that that's the case. And then given some of the stress that we've seen and concerns around some of those providers, how are you adjusting your strategy in order to continue to build on the momentum that you seem to have shown here in the first quarter? And if we see that continued stress, would you pursue inorganic venues to add scale or capabilities?

Brennan Hawken:

Great. Thanks for that color. Appreciate it. And then for my follow-up, you all just announced this morning the new deposit arrangement with Apple. And the yield on that is pretty close to Marcus, a little above. How should we think about the economics of that Apple relationship and the deposits specifically? And then how do you manage potential risk for cannibalization with your own Marcus offering? Thanks.

Operator:

We'll take our next question from Devin Ryan with JMP Securities.

Denis Coleman:

Sure. I appreciate that question. I'll give you some context to help you understand sort of the sequential activity and the direction. So our overall balances were a lot lower into the end of last year based on overall market levels and also as we reduced our footprint. And so as we came into the first quarter, we were able to re-expand the capacity, clients engaged with us. We saw an increase in balances, increase in client activities, increase in customer spreads. We've had in place for some time, a strategy to identify new types of clients that could come on to the platform and engage with us. And so I'd say that we're working sort of full speed ahead on that. We continue to be very, very focused on this as one of the key priorities within the Global Banking & Markets business.

David Solomon:

Well, I think our core banking and markets franchise is incredibly well positioned. You can see the performance this quarter. I certainly wouldn't call it a top quartile for investment banking, traditional capital markets, IPOs, M&A activity. But with a 16.7% ROE in our banking and markets segment, I think it's performing well. We have the breadth, the footprint, the global franchise, I think, to continue to strengthen our share. And as I commented a little bit earlier, we continue to be focused on looking at our performance on the top 100, now expand to the top 150 clients and making sure that we're moving up and capturing share and serving them well. I do think, given some of the things that have gone on, there are other opportunities. I think one of the interesting opportunities is the private wealth opportunity over in Europe. We see lots of customers that had had accounts at both large Swiss institutions with a consolidation. We're certainly seeing opportunities in our private wealth business as people want to diversify the private wealth relationships we have. And so that's an area for share that we're focused on. So we continue to look across both Global Banking & Markets and also Asset & Wealth Management for opportunities that we can strengthen our position and we think both franchises are very well positioned.

Daniel Fannon:

Thanks. Good morning. Wanted to follow up on the third-party fundraising. You had another great quarter, but certainly highlighted that a bit slow this year, and I guess that's not surprising given the environment. But could you talk kind of longer term, as you think about maybe a rebound as the economic conditions pick up? And also, the cycling of your vintages of funds in terms of what could be coming on line this year that might result in continued strength or some pockets of slowness as you kind of go through that cycle?

David Solomon:

And I'd just say, Dan, that one of the things that happens in this business is as you scale and you have the breadth that we have in this business, we set a target for 2024, but there is a longer-term goal on target, and there's lots of room for us to grow and continue to expand our footprint and position given the offering that we have across the broad alternative spectrum, the global nature of our platform. And so this is still -- these are long-dated fundraisings, long-cycle stuff, but there is a lot of runway for us once we get past the 2024 target too.

Denis Coleman:

So at Investor Day, we outlined that over the course of the year, we'd have run rate payroll expense of about $600 million and non-comp efficiency, about $400 million, and we see about half of that reflected in this year and the balance thereafter. I'd say we're on target for those initiatives and those efficiencies. And we continue to look at it, and we continue to see other opportunities to incrementally drive efficiency across our platform. One area we had focused on for quite some time was the overall level of professional fees. We continue to grind that down. And if you look at some of the sequential components of our overall non-compensation expense, you'll see we're making good progress against most of the line items.

Gerard Cassidy:

Good morning, David. Good morning, Denis.

Gerard Cassidy:

David, in your comments about your principal investments, you mentioned obviously market conditions will impact how quickly you get to your targeted goal of $15 billion by the end of '24. In those market conditions, is it more the IPO and ECM markets that have a bigger headwind for you in this area? Or is it just general market levels and the activity we're seeing?

Gerard Cassidy:

Very good. And I know you guys touched on the share repurchases slowing it down a bit and here in the second quarter, you're very well capitalized. If market conditions -- I should ask, I guess, how important is it that the financial markets need to stabilize for you guys to maybe get more aggressive in the second half of the year in buying back the stock?

David Solomon:

Yes. I'd also -- I also just want to highlight, when we spoke at Investor Day, we said clearly that we are focused on accelerating buybacks. That is still in place. Quarter-to-quarter may vary, but that is still in place. And so I just want that also kept in perspective too.

James Mitchell:

Hi, good morning. I think you hinted at improved dialog levels in underwriting to start the quarter. So can you just give a little more color what you're seeing in the market and maybe how you see the ECM and DCM environment evolving, assuming we don't have another major step back in the macro?

James Mitchell:

Okay. That's helpful. And then maybe just on FICC financing, I know that's been a focus of growth as well outside of -- equities saw a pretty strong improvement in spreads and volume, but it doesn't look like we saw that in FICC. Anything to think about on the FICC side, on the financing space and how you see that going forward?

Operator:

We'll take our next question from Jeremy Sigee with BNP Paribas.

David Solomon:

On the second part of the question, I think when you look at Latin America, it's more marginal for us, but there is -- we really do have a global footprint, and there are opportunities for us, especially as so many very wealthy individuals deal in dollars around the world. We also have very, very strong Latin American presence that comes into our presence in Florida, obviously, where our private wealth business is focused on Latin America. So there is opportunity there. We continue to have a broad private wealth footprint in Asia. We haven't been as focused on growth and investment in Asia as we have been in Europe over the course of the last couple of years. We did launch a private wealth joint venture over in Asia over the course of the last couple of months with ICBC, which I think is a small and slow opportunity, but is an opportunity for us. I think the interesting thing is whenever there is consolidation, as we look at very wealthy individuals that are on our private wealth platform, they tend to have multiple providers. So whenever there is consolidation, there are opportunities to talk to people as people then rethink their footprint and the diversification of their footprint. And so our private wealth teams are very focused on that and the way we serve those clients.

Operator:

Thank you. We'll take our next question from Andrew Lim with Societe Generale.

Denis Coleman:

Sure. Thanks. So as you know, we have our card platform business. We've been building that over the next -- over the last several years. We have partnership with General Motors, a partnership with Apple, and we've been steadily investing in those relationships and building our balances. As you indicate, given the overall environment, the total balances actually were down sequentially, just given seasonality and given some of our credit underwriting standards and origination volumes, but this is a business that we continue to invest in and believe it's an overall piece of the firm that is diversifying.

David Solomon:

I don't really have a -- I don't have a comment on that, Andrew. There are a variety of factors in the actions that they took. Ultimately, there was a bank run at SVB and that led to the situation we are. But I don't -- I'm not going to go back and recount what decisions that management and that board made around that.

Mike Mayo:

Hi. First, Goldman specific and then general. The Goldman specific is why now on the consumer repositioning, GreenSky sale and Marcus loans? And then a more general question. To what degree did Silicon Valley impact the capital markets and the advisory appetite out there? Thanks.

Operator:

We'll take a follow-up from Ebrahim Poonawala with Bank of America.

David Solomon:

Sure. Thanks. Thanks, Ebrahim. So across the firm, we have multiple funding channels, multiple sources that we tap in our BAU activities. We have multiple deposit channels that we also actively work with each and every day. We view this as one incremental and diversifying source of deposits, enables us to deepen our relationship with Apple, tap into their ecosystem and the clients that we serve together who are cardholders and want to sort of take advantage of the ease of moving into a deposit account. And we'll take those deposits along with all the other deposits in our portfolio and deploy it into the client franchise.

Carey Halio:

Yes. Thank you all for calling. We appreciate the time and interest in the firm. And if you have any additional questions, certainly feel free to call me or the rest of the Investor Relations team. Otherwise, we look forward to speaking with you soon. Thank you.

Carey Halio:

Good morning. This is Carey Halio, Head of Investor Relations and Chief Strategic Officer at Goldman Sachs. Welcome to our fourth quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. Note information and forward-looking statements and non-GAAP measures appear in the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. I am joined by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Denis Coleman. Let me pass the call to David.

Denis Coleman:

Thank you, David. Good morning. Let’s start on Page 2 of the presentation. In 2022, we generated net revenues of $47.4 billion, net earnings of $11.3 billion and earnings per share of $30.06. As David highlighted, we have implemented our organizational changes, which form the basis for our earnings presentation today. Turning to performance by business, starting on Page 3. Global Banking and Markets generated revenues of $32.5 billion for the year, down 12% as higher FICC revenues were more than offset by a steep decline in investment banking fees versus record results last year. The exceptional performance of our Global Banking and Markets business over the last 3 years, including the market share gains we have generated has served a strong ballast for firm-wide performance. In the fourth quarter, investment banking fees fell 48% year-over-year driven by a significant decline in both equity and debt underwriting as issuance volumes remain muted amid continued market uncertainty. Advisory revenues, however, were $1.4 billion, the third highest in our history rising 45% quarter-over-quarter on higher completed deal volumes. For 2022, we maintained our number one league table position in completed M&A as we have for 23 of the last 24 years and we ranked second in equity and equity-related underwriting. We also ranked second in high-yield debt underwriting, up from number three last year. Our backlog fell quarter-on-quarter on lower levels of activity, but remain solid, particularly in advisory. That being said, clients are focused on stability and financial conditions, pushing out the timing of transactional activity. While we expect investors will need more certainty before financing markets reopen more broadly, we are seeing some positive signs of activity, particularly in investment grade markets, which have had a strong start to the year in both the United States and Europe. FICC net revenues were $2.7 billion in the quarter, up 44% year-on-year. In intermediation, we saw strength in rates and commodities amid elevated levels of client engagement, catalyzed by increased central bank activity and rate volatility and improved market-making conditions. In FICC financing, we saw increases in secured lending driven by higher balances. Full year FICC revenues of $14.7 billion rose 38%. Equities net revenues were $2.1 billion in the quarter, down 5% year-on-year. The year-over-year decline in intermediation revenues was driven by lower levels of client activity, particularly in derivatives, after strong engagement levels throughout the year. Financing revenues of $964 million were relatively resilient despite a decline in prime balances as clients took risk off throughout the quarter. Across FICC and Equities, financing revenues were up 20% in 2022, consistent with our strategic priority to grow client financing activities. Moving to Asset & Wealth Management on Page 5. For 2022, revenues of $13.4 billion were down 39% year-over-year as a steep decline in revenues from equity and debt investments offset an additional $1 billion of management and other fees and a strong increase in private banking and lending revenues. Fourth quarter management and other fees of $2.2 billion were up 10% year-over-year. Full year management and other fees were $8.8 billion putting us well on track to hit our $10 billion target in 2024. Fourth quarter private banking and lending net revenues reached a record $753 million, up 77% year-over-year due to higher deposit spreads and higher lending and deposit balances. Equity investments produced net revenues of $287 million, driven by $270 million of gains on our $13 billion private equity portfolio and roughly $500 million in operating revenues and gains related to CIEs, partially offset by $485 million of net losses related to investments in our $2 billion public portfolio. Debt investments revenues were $234 million, including net interest income of $360 million. Moving on to Page 6. Total firm-wide assets under supervision ended the quarter at a record $2.5 trillion, driven by market appreciation as well as strong net inflows across fixed income and liquidity products. Let’s now turn to Page 7 where I will review a new page in our presentation focused on our alternatives franchise. Alternative AUS totaled $263 billion at the end of the fourth quarter, driving $492 million in management and other fees for the quarter and $1.8 billion for the year. We remain on track to reach our $2 billion target in 2024. Gross third-party fundraising was $15 billion for the quarter and totaled $72 billion for the year. Third-party fundraising since Investor Day stands at $179 billion. The table on the bottom left shows our on-balance sheet alternative investment portfolio, which totaled $59 billion. Despite the challenging environment, we reduced on-balance sheet investments by $9 billion in 2022, of which $2 billion was in the fourth quarter. We remain committed to our strategy to reduce balance sheet density and migrate our alternatives business to more third-party funds. I will turn to Platform Solutions on Page 8. Full year revenues were $1.5 billion, more than double versus 2021. Full year losses of $1.7 billion were driven by $1.7 billion of provisions as we built reserves to reflect $8 billion of loan growth across the portfolio. We also incurred $1.8 billion in expenses as we continue to build out and run these businesses. This included over $200 million of transaction and integration-related costs driven by the GreenSky and GM card portfolio acquisitions. We expect these costs to also impact 2023 results, though at a lower level and decline materially over subsequent years. As David said, our number one priority for this segment is to reach profitability and we look forward to providing you with further details at our Investor Day next month. On Page 9, firm-wide net interest income of $2.1 billion in the fourth quarter was up 2% relative to the third quarter due to higher rates and increased loan balances. Our total loan portfolio at quarter end was $179 billion, modestly higher versus the third quarter, reflecting growth in collateralized lending and credit cards. Our provision for credit losses was $972 million. For our wholesale portfolio, provisions were driven by impairments and portfolio growth. The overall credit quality of our wholesale lending portfolio remains resilient. In relation to our retail portfolio, provisions were driven by continued portfolio growth, net charge-offs and a worsening of our baseline scenario. We are seeing early signs of credit deterioration that are in line with our expectations. We anticipate further pressure in 2023 given the vintage and nature of our portfolio. Let’s turn to expenses on Page 10. Quarterly operating expenses were $8.1 billion. Total operating expenses for the year were $31.2 billion, down 2%. Compensation expenses fell 15% despite a 10% increase in headcount and were partially offset by higher non-compensation expenses. The increase was primarily related to acquisitions, transaction-based costs and continued investments in technology. In addition, client-driven market development costs were higher following lower levels during the pandemic. As previously discussed, we are actively engaged in expense mitigation efforts. This includes targeted reductions across communications and technology spend, professional fees and advertising costs as well as the recent headcount reduction exercise. We expect that the impact of these actions will become more fully reflected in our results over time, remain highly focused on operating efficiency and are committed to our 60% efficiency ratio target as the right place to run the firm. Turning to capital on Slide 11. Our common equity Tier 1 ratio was 15.1% at the end of the fourth quarter under the standardized approach, up 80 basis points sequentially. This represents a 130 basis point buffer to our new capital requirement of 13.8%. In the fourth quarter, we returned $2.4 billion to shareholders, including common stock repurchases of $1.5 billion and common stock dividends of $880 million. Based on our capital levels at the end of the quarter, we started 2023 with a strong capital position, enabling us to support our clients and return excess capital to shareholders. As it relates to our funding plan based on current expectations, we intend for 2023 issuance to run significantly below 2022 levels, though we will remain dynamic with respect to business needs and market opportunities. In conclusion, despite the challenging operating environment in 2022, we delivered double-digit returns for shareholders, returned $6.7 billion of capital and made material progress on our strategic initiatives to better serve clients and strengthen and diversify the firm. We remain focused on executing on our strategic priorities and creating value for our shareholders and we look forward to seeing many of you at our upcoming Investor Day in February. With that, we will now open up the line for questions.

Glenn Schorr:

Hi, thanks very much. So given the capital RWA and expense actions that you have already taken, if 2023 is a little bit better in banking, but it’s kind of the same atmosphere we’ve been in because it feels like it’s lingering. Can you all get closer to your return targets this year? I know it’s very difficult in this backdrop but what I am getting at is do we need investment banking to be a lot better to get there or have the actions you’ve taken start closing the gap? Thanks.

Denis Coleman:

I mean things I might add, Glenn, is in addition to our business mix on the [forward] (ph) I think the reason why we’re taking action with respect to our headcount footprint and some of our non-compensation expenses is to drive efficiency even further. And as you point out, with the capital build that we have as at the beginning of the year, we’re in a pretty flexible position in terms of how we can deploy that either in support of attractive opportunities within the business and/or returning incremental capital to shareholders.

David Solomon:

Well, I think, Glenn, the big thing in that, and it’s always been a big part of it is the shift from a balance sheet intensive asset management business to a client-oriented fee-based business. Our organic growth across our asset management business on a relative basis was still good in 2022 when you look broadly across the industry. We continue to grow our management fees in the asset management business. We’re continuing to grow our wealth business. Our wealth business overall grew nicely during the course of 2022. And so it’s that mix change, less balance sheet intensity, growth in asset and wealth management, continued financing growth in our core Global Banking and Markets business, which you’ve seen and continue to grow and then getting these platforms that we have to operate profitably, which we believe we can do. We believe they are good businesses at scale, but they are in a different stage of the development. Those things should make the business more resilient, and that’s not inconsistent with the strategy we laid out 3 years ago, and we will amplify again next month at Investor Day. What I think was an outlier for sure in this environment is the massive quick swing in asset prices and the impact that our capital markets heavy and balance sheet intense business had, of course, with a drag from some of the investments we’re making in other things.

Ebrahim Poonawala:

Good morning and thank you. I guess maybe, David, just sticking to that, as you make the asset management business less dense in terms of balance sheet consumption, how do we think about the ROTE target you put out last year? Is that still achievable within the 3-year time frame that you had laid out or does that get pushed out given the work that needs to be done and, in a world, where consumer is being deemphasized?

Ebrahim Poonawala:

Okay. And I guess just as a follow-up in terms of growth in asset management, wealth management, significant asset price dislocations. Does that create some M&A opportunities when you think about inorganic growth in those businesses? Or for the time being is the expectation that most of this is going to be organic?

Ebrahim Poonawala:

Got it. Thank you.

Steven Chubak:

Hey, good morning.

Steven Chubak:

So David and Denis, I wanted to start off with a question just on the provision outlook. Admittedly, the loan loss provision came in higher than we had anticipated. And I was hoping you could just speak to, how much of it was growth math related versus deterioration in the macro? And given some of the planned actions you’re going to take for that business, how should we think about like a normalized level of loan growth and provision expectation that we should expect going forward?

Steven Chubak:

Got it. And maybe just for a follow-up on capital. As it relates to the discussion tied to Glenn’s question, I was hoping you could speak to how you’re scenario planning for Basel IV, Basel III end game. I recognize we don’t have a proposal yet, but certainly, it has significant implications for future returns you can generate. You’re running with a healthy level of cushion at the moment. But just wanted to understand how you see it impacting your various businesses? What planned actions can you take to maybe mitigate some of the pain?

Steven Chubak:

That’s great. Thanks for taking my questions.

Betsy Graseck:

Hi, good morning.

Denis Coleman:

Good morning.

Denis Coleman:

Sure. Betsy, it’s Denis. I’ll start with that. So as we indicated, we’re going to cease the originations in under Marcus lending. And then furthermore, expect for that portfolio actually to roll off or we may pursue other alternatives. That should free up a bunch of financial resources. We’re continued within the overall asset and wealth management segment where the deposit business is resident within the private banking and lending line. That remains a strategic priority for the firm, and we’ve experienced very good growth there. That business is achieving more and more scale. So that will remain an ongoing focus. I think once we have reduced some of the resourcing allocated to markets and lending, we will continue to narrow the focus of our ambitions and our investment spend. And within the Platform Solutions business, we’re now down to three different businesses

Denis Coleman:

Sure. Thanks, Betsy. Because we communicated the reductions in 2023, any associated severance expense associated with those reductions will be 2023 expenses.

Operator:

Thank you. We will take our next question from Mike Mayo with Wells Fargo.

David Solomon:

It is my birthday, and I couldn’t be happier to be on this call with you. But thank you. Thank you for that.

David Solomon:

You want – I’m happy to take any question. Any question that you have, Mike. You know that. We’re happy to take questions both positive and tough. I mean it wasn’t a great quarter. So I don’t expect all the questions to be easy.

David Solomon:

Yes. And so I appreciate that. And to – two comments. First, just on the transparency and information comment, I think this management team, Mike, over the last 4.5 years has been super focused on increasing the transparency of Goldman Sachs, and we remain focused on that. If you have certain feedback on things you’d like to see, etcetera, we really welcome that, and Carey will reach out to you, and we will take that feedback. But we’re focused on giving our investors more and more and creating the right kind of transparency around what we’re doing. Second, on the evolution and the move to this, what I’d say, and this has been something that’s been a journey that we started a number of years ago, but the firm is now organized and presented externally the same way we run it internally. And that candidly is a difference than the way Goldman Sachs has been during my tenure at the firm. In terms of our core business of banking and markets, there are synergies that we’ve been driving as these businesses cooperate that we think we can now get more out of in our client orientation across our broad franchise that this organization of those businesses together really helps. I highlight that we feel great about the performance of those businesses since our Investor Day. It’s long forgotten. But when we did our Investor Day, back in 2020, nobody believed that we could get the ROE of the markets business above 10%. That was a big question on the minds of investors. And we look now at our combined banking and markets business, this business, we think, is a leader. It outperforms in terms of its market share and outperforms in terms of its returns relative to competitors, and we continue to grow it and continue to stay laser-focused on the client experience and also the returns and the performance of that business. We also think there continues to be opportunity to grow our financing business there, and we’re very, very focused on that. In asset and wealth management, we’ve worked hard to bring a number of businesses together into an integrated franchise so we can really have transparency and focus on our ability to grow management fees and drive performance and serve more clients in that business. And as we’ve said over the last few years, reduce the balance sheet intensity of that. And we’re on a journey. Would I like it to be further along? Yes. If it was further along, there would have been less volatility, particularly in the context of this year in the fourth quarter. But we continue – that’s something we laid out 3 years ago, and we continue to move at that. The change strategically of a narrowing of our focus on certain things in consumer business, I think, is a change. We continue to feel very good about the deposit platform and the contribution it makes. We think our partnership with Apple will provide meaningful dividends for the firm over time. We think GreenSky is a good business that can be accretive, but the platforms are in a different stage of development than our other businesses. They are small in the overall scale of Goldman Sachs, but we think there are benefits to that for the firm. We will communicate more as we move forward around that, but we’re making progress and we will continue to run that narrow focus in a way that we think can drive profitability. So that’s a high-level response. I don’t know if there is something else you want me to drill into, but that’s a high-level response.

Denis Coleman:

Sure, Mike, let me take that. So unpacking a couple components. So we exercised a headcount reduction earlier this year, approximately 3,200 employees left the firm. The run rate expense associated with that group was approximately $475 million, and we expect the benefit in 2023 north of $200 million associated with that. Beyond that, we have a series of non-compensation expense initiatives. We’re setting out guardrails for our business leaders to drive more efficient levels of non-compensation spend. The narrowing of the focus in consumer is important. There are a number of ways in which we could have chosen to expand the offering and capabilities of that. The focus is now narrow. And then finally, as you identify, we have more flexibility with respect to capital deployment, which we intend to take advantage of.

Brennan Hawken:

Good morning. Thanks for taking my questions. I just wanted to follow-up on some of those questions for Mike. And just really be honest kind of surprised to not hear that there were restructuring and severance charges in the fourth quarter, just given how elevated the expenses were. So I guess, can you provide a little bit of color on the inflexibility, revenues down 20% for the full year. And I understand that, of course, markets are competitive, but the positioning of comp in 2021 was – it was a remarkable year. Some of it even identified or segregated as special and therefore, shouldn’t be expected to repeat. So the – was the discipline fully there? Are you doing enough on comp? You have reiterated the focus on efficiency, but the results here in – I get it, nobody is buying Goldman today for 2022 results, but still the results seem to set up sort of a challenging entry point for the beginning of the year.

Brennan Hawken:

Okay. Alright. Thanks for that color, Denis. I appreciate that. This one might end up being moved, but I just don’t want to confirm it. I have spend some time yesterday looking at previous disclosures of J-curve expectation and whatnot, but it seems as though exiting Marcus and the tone down. Should we not even be thinking about a J-curve for the consumer business? Is that not a consideration here any longer because it does seem as though the cross through from the breakeven even ex-provision has been a lot longer than expected. So, should we just forget about that chart given the pivot, or does that still remain part of the consideration?

Operator:

Thank you. And we will take our next question from Devin Ryan with JMP Securities.

David Solomon:

Thank you.

Denis Coleman:

Sure. Thanks for that question. Now, we are very pleased with the progress of the transaction banking business, and it’s a business that has particular benefits as we scale activities on it. We have our tech platform up and running. We continue to grow our clients on the platform. They unanimously continued to give us the feedback that it is a very differentiated and attractive platform to be part of. And we have taken that business, as you say, from its inception to larger scale. We think there is a lot of potential for that business on the forward. And we are very focused at this point in time in continuing to drive deposit balances, continue to drive our customer count, further penetrate, as you mentioned, our international expansion continues. We have opened in our fifth country. We now have increasing capabilities to serve clients across the world. There are true benefits to the network effect of a business like this with global reach. And we continue to see very, very good opportunities for this business.

Denis Coleman:

Yes. A couple of comments I would make. So, I think as it relates to the FICC financing, we have a very good opportunity set in front of us. The progress that we have made with the client franchise and our market shares and given the overall backdrop and the availability of financing in the world right now, our clients continue to come to us. And given the capital position that we sit with at the beginning of the year, we have capacity to fuel incremental financing activities in the FICC business. On the equity side of the equation, obviously, asset markets moved around quite severely, particularly in the end of the year, which drives prime brokerage balances. But as you know, we are also working very hard to reduce our financial resource footprint, particularly our G-SIB level. That brought with it significant RWA reductions. And it was not really the environment that we were pushing on growth, certainly in the fourth quarter. I think as we turn the page on a New Year, there is lots of opportunity for us to continue to drive our equity financing activities, and we have less constraints given that we have now achieved the 3% G-SIB target.

Operator:

We will take our next question from Dan Fannon with Jefferies.

Denis Coleman:

Sure. So, we always have a very, very broad portfolio of funds. And we have been in this investing business for a number of decades, and it’s one of the contributors to our position as the number five largest active asset management firm in the world. And across the portfolio of different funds, we have some extremely mature businesses. Our GS Capital Partners, equity investing business, our mezzanine funds, some of our loan funds. We have multiple mature businesses that are frequently deploying successfully and then going back to raise new monies and continue to support sort of the franchises that we have in that channel. And we continued to diversify and expand our offering and open up new strategies in response to what we see are pockets for client demand. So, as we think about the overall opportunity set, we have a global, broad and deep investing platform that has offerings for many different types of investors, many of which are very, very mature in terms of their track record and some of which are newer.

Denis Coleman:

Sure. So, we continue to focus on market share. Market share data lags, but through the third quarter of last year, it shows that we continued to grow market share in those businesses, sales and trading. So, that remains a very, very core focus of the firm. We continue to make progress, and we think we can make incremental progress. One of the attractive things about that business for us is that we have a number of different business lines, which have enabled us to perform across a variety of environments. The last year, given what happened with rate normalization and energy markets around the world, were a particular tailwind to the interest rate products business, the commodities business. Meanwhile, we had softer performance in credit, mortgages and some of the equity intermediation activities. Certainly, if the new issue debt underwriting markets come back online as early indications on the investment-grade side of things suggest and if the equity underwriting activities are to open up, there is a lot of activity that takes place with investors as they position in advance of and after new offerings that we should be able to capture, given the investment that we have made in the client franchise. So, I can’t predict exactly where activity will come from 2023. Certainly, some of it may be a continuation of those areas that were active in 2022. But it’s quite possible that certain activities that were softer in ‘22 could rotate and become more relevant in 2023.

Matt O’Connor:

Good morning. You mentioned continued interest in asset and wealth management deals, kind of over time. It sounds more like bolt-on, but I guess just are you more open-minded towards maybe a transformational deal as we think out, not necessarily this year, but just in the next couple of years. I mean to-date, you have – what I would characterize, I think most people had characterized, you have piece-mailed some deals. You have done some organic expansion and mixed results in different areas. But just thoughts on maybe more openness to something transformational down the road.

Matt O’Connor:

Okay. That was clear. Thank you very much.

Gerard Cassidy:

Thank you. Good morning. David, in your opening comments, you gave us your three priorities of growing management fees in the Asset & Wealth Management business, maximizing the wallet share and growing financing activities in global banking and markets and then scaling the platform. In your – in the number two, maximizing the wallet share, can you share with us where are you today with the wallet share, both in investment banking and markets? And how are you pursuing to grow that over the next couple of years?

Gerard Cassidy:

Very good. And then as a follow-up on the shift in strategy in the consumer business, you have been very clear, obviously, on how you are positioning this going forward. I may have missed this, so I apologize. But what went wrong? When you go back to when you guys started to move into these businesses 3 years ago or so, I know Marcus deposits has been around longer than that. But when you look back on what you were hoping to do and how it turned out, what went wrong?

Operator:

Thank you. We will take our next question from Jim Mitchell with Seaport Global.

David Solomon:

Yes. Sure. I think that – I think one of the things we are dealing with and it’s over-amplified in our very capital market-centric business is that 2021 was not normal. The second half of 2020 and 2021 were not normal. They were way inflated by the massive fiscal stimulus that created kind of, I would call, on the spectrum of activity, excess activity, pulled a lot of activity forward. And then because of market disruption, we have tightened monetary conditions meaningfully in 2022. It’s the first year in over 50 years that both fixed income and equity markets were down. We had the S&P down 20%, the NASDAQ down 30%. You had a real change in asset values across the spectrum. And when that happens, it takes a period of time for people to adjust. My historical experience would be that period of time is kind of four quarters to six quarters. And so if you think about it, if somebody had a stock that was trading at $100 and the stock goes down by 30%, certainly, for the next couple of quarters, they are still thinking about $100. But if it’s at $70 for four quarters or five quarters, six quarters, then it’s $70. And suddenly, when you look ahead and you think about either an M&A transaction or financing, you have more realism about the reset of values. So, I think we are well into that journey of a reset and expectations. I think it might have another quarter or two quarters to further reset, but I think we are starting to see some additional improvements, people point to the investment-grade debt market. That would obviously be where it would come first. But my expectations would be in the back half of ‘23 meaningfully better. And also, it’s interesting, and I will be heading to Dallas tonight with others, but I was watching some of the commentary, the macro commentary. People are softening their view of 2023. And I would say it’s getting a little bit more dovish, a little bit more of a softer landing than kind of where people were a quarter or two quarters ago. And that too, will affect capital markets opportunity because it’s really tied to confidence. So, I think we are going through that. I don’t think anything has fundamentally changed. I think these capital markets businesses are still very big businesses. But you shouldn’t look at 2022 as normal, just as you shouldn’t look at 2021 is normal. They normalized somewhere in the middle.

Denis Coleman:

Sure. So, as it relates to slowing growth, we actually did slow origination activity over the course of the fourth quarter. Over the course of the year, we have implemented a number of changes to our credit underwriting, tightening some of those provisions. And so we actually did see a slowing of new originations. That being said, the vast majority of the provision build was attributable to the existing balances as opposed to the new originations. So, that’s also something that we are going to watch very carefully as things develop. You notice our overall coverage ratio increasing. That’s a function of what we have observed in our portfolio, but as well as our macroeconomic outlook. And so we have made some adjustments, which reflect our best estimates for performance in the economy going forward.

Carey Halio:

Since there are no more questions, we would like to thank everyone for joining the call. And certainly, if additional questions arise, please don’t hesitate to reach out to me or others on the Investor Relations team. Otherwise, we look forward to speaking with you soon and seeing many of you at our Investor Day on February 28th. Thank you.

Carey Halio:

Good morning. This is Carey Halio, Head of Investor Relations at Goldman Sachs. Welcome to our third quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. Note, information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. I am joined this morning by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Denis Coleman. Let me pass the call to David.

Denis Coleman :

Thank you, David, and good morning. Let's start with our results on Page 8 of the presentation. As David mentioned, we generated earnings per share for the third quarter of $8.25. On a year-to-date basis, we delivered a return on common equity of 12.2% and a return on tangible equity of 13.1%. Turning to performance by segment, starting on Page 9. Investment Banking generated revenues of $1.6 billion, down 57% versus a very strong quarter a year ago. Financial advisory revenues were $972 million, down 41% versus record performance in the third quarter last year. Despite lower volumes, we maintained our #1 league table position year-to-date and expanded our lead. Equity underwriting net revenues were $241 million, reflecting limited industry-wide activity. Nonetheless, we continue to rank #1 year-to-date in equity and equity-related offerings. Debt underwriting net revenues were $328 million, given muted issuance volumes across both high yield and investment grade. While activity remained slow this quarter, our backlog is robust, particularly in advisory and equity underwriting. Our advisory dialogues continue to be strong, though clients are focused on stability and financial conditions, pushing out the timing of certain deal and financing-related activity. Corporate lending generated net revenues of $35 million as solid performance in middle market lending and Transaction Banking was largely offset by headwinds on certain hedges in our portfolio and marks in leverage lending. Moving to Global Markets on Page 10. Segment net revenues were $6.2 billion in the quarter, up 11% year-on-year, as client engagement and activity remains strong. Financing activities continued to demonstrate stable growth, comprising approximately 30% of the total revenues in this segment. Turning now with FICC on Page 11. Revenues were $3.5 billion in the third quarter, 41% higher than the third quarter of 2021. FICC intermediation produced net revenues of $2.8 billion, up 40% year-over-year. We saw strength across our rates, currencies and commodities franchises amid elevated levels of client engagement, catalyzed by increased central bank activity and volatility. In FICC financing, we generated a 41% increase in revenues driven by increased opportunities across repo and mortgage lending. We remain focused on growing this business in support of our clients' financing needs. Our FICC lending portfolio is conservatively underwritten and well collateralized. Moving to Equities. Net revenues in the third quarter were $2.7 billion. Equities intermediation revenues fell 19% year-over-year due to a more challenging market-making environment and lower client activity. In Equities financing, we generated near-record revenues of $1.1 billion as we supported client financing activities despite lower prime balances. Moving to Asset Management on Page 12. Asset Management net revenues were $1.8 billion. Management and other fees totaled $1 billion, roughly flat relative to last quarter and up 42% year-over-year, reflecting management fees from NNIP and the roll-off of fee waivers on money market funds. Equity investments generated revenues of $527 million in the third quarter. More specifically, our public equity portfolio produced approximately $215 million of revenues primarily driven by gains on two investments. Across our private portfolio, we generated approximately $310 million of net revenues. We saw event-driven gains of over $350 million for various positions in our portfolio and operating revenues of roughly $150 million from our consolidated investment entities. These revenues were partially offset by approximately $200 million of marks driven by several investments in the consumer and TMT sectors. Given current market conditions, our harvesting of on-balance sheet investments was limited in the third quarter, but we remain committed to our strategy to reduce balance sheet density and migrate our alternatives business to more third-party funds. We continue to make progress on our fundraising targets, securing $12 billion of alternative commitments this quarter. We also closed West Street Capital Partners VIII, our flagship private equity fund, which at $9.7 billion was significantly above its original target. Net revenues from lending and debt investment activities were $231 million, primarily reflecting net interest income of $267 million. I'll now turn to Consumer & Wealth Management on Page 14. We produced record net revenues of $2.4 billion in the third quarter, up 18% versus a year ago, driven by significantly higher net revenues in Consumer Banking. For the quarter, despite the market headwinds, management and other fees of $1.2 billion were relatively flat sequentially as net market depreciation was largely offset by strong client net inflows. Private banking and lending net revenues reached a record of $395 million, up 35% year-over-year due to higher lending and deposit balances. Consumer Banking revenues were $744 million in the third quarter, nearly double the third quarter of 2021, reflecting higher credit card balances and improved deposit spreads. Moving on to Page 15. Total firm-wide AUS ended the quarter at $2.4 trillion. Combined firm-wide management and other fees in the third quarter rose 15% year-over-year to $2.2 billion. On Page 16, total firm-wide net interest income of $2 billion in the third quarter was up 18% relative to the second quarter due to higher rates and increased loan balances. Our total loan portfolio at quarter end was $177 billion, up slightly versus the second quarter as growth in credit cards and Wealth Management loans was offset by a decrease in real estate loans. Our provision for credit losses was $515 million, primarily driven by growth in our consumer lending portfolio, net charge-offs and worsening economic indicators, particularly in Europe. The credit quality of our wholesale lending portfolio remains resilient as reflected by minimal net impairments in the quarter. On the Consumer side, though we are seeing some signs of credit deterioration and an increase in charge-offs, our credit performance remains in line with our expectations. That said, we're closely monitoring the portfolio and actively using our underwriting in light of the softening macroeconomic outlook. Let's turn to expenses on Page 17. Our total quarterly operating expenses were $7.7 billion. Our compensation ratio year-to-date net of provisions was 32.5%. Through the third quarter, our compensation and benefits expenses are down over 20% relative to 2021. Quarterly non-compensation expenses were $4.1 billion. Year-over-year increases were driven by ongoing integration and run rate expenses related to the NNIP and GreenSky acquisitions, $191 million in litigation reserves and higher transaction-based expenses. We remain highly focused on operating efficiency. As we've previously discussed, we are actively engaged in expense mitigation efforts, and we expect that these actions will become more fully reflected in our results over time. Turning to capital on Slide 18. Our common equity Tier 1 ratio was 14.3% at the end of the third quarter under the standardized approach, up 10 basis points sequentially and representing a 100 basis point buffer to our current capital requirement. In the third quarter, we returned $1.9 billion to shareholders, including common stock repurchases of $1 billion and common stock dividends of $893 million. As a reminder, our GSIB surcharge will increase by 50 basis points in January 2023, bringing our CET1 ratio requirement to 13.8%. We will continue to target a buffer of 50 basis points to 100 basis points above this requirement. In conclusion, our solid third quarter results reflect the diversification and strength of our client franchise. We are mindful of the uncertainty and volatility in the markets, and we will prudently manage our resources and maintain a risk-sensitive orientation as we continue to serve our clients. I share David's enthusiasm of the opportunities ahead of us. The further alignment of our businesses will help drive the organization forward. Successful execution of our strategic priorities, growing management fees, maximizing wallet share and scaling platform solutions will further strengthen the firm and unlock shareholder value. With that, we'll now open up the line for questions.

Glenn Schorr :

I appreciate your macro comments. I was wondering, in private markets specifically, I feel like those markets have changed as well or hopefully only temporary, but great time to be a private lender in private credit. And you're big in that, but not as a great time to be in private equity for marks or capital raising. So I wonder if you could talk as both manufacturer and distributor, just maybe a state of the union in general and then if you could weave that into your thoughts on your gross alternative fundraising target of $225 billion and $2 billion in management fees.

Denis Coleman :

And Glenn, I can add from an alternatives perspective, we mentioned growth of $12 billion in new commitments in the quarter. That brings year-to-date to $57 billion, just shy of $60 billion. We now sit at $164 billion towards our increased $225 billion target. We continue to migrate our alternatives into AUS that sits now at $256 billion of alternatives AUS. So despite the environment, we continue to make progress towards our fundraising goals, particularly in alternatives.

Denis Coleman :

Glenn, thank you -- thanks for the question on RWA. As you note, our RWAs were down slightly on a quarter-over-quarter basis. We have been focused on managing our RWA footprint tightly. Within that number, you'll see reductions in terms of market-based RWAs and increases in credit RWAs. And we're being very thoughtful about the way in which we allocate and deploy RWA capacity to drive efficiencies as well as scale franchise growth activities. And FICC financing happens to represent an attractive opportunity in terms of our RWA deployment. And so that's one of the reasons why you see the ongoing focus in the growth of the FICC financing line.

Steven Chubak :

So wanted to start with a question on expenses. You spoke of expense mitigation efforts as part of the broader realignment strategy. What's the level of non-comp inflation we should be contemplating? Recognizing we're still dealing with inflationary headwinds. You alluded to more proactive measures to mitigate expense growth. Just want to get a sense if the goal is to actually slow non-comp growth or to deliver absolute reductions in expense.

Denis Coleman :

Sure. So if we take a step back, we look at our overall level of operating expenses year-to-date, they're down 6% compared to the prior year-to-date period. They are up 1% sequentially, drivers obviously across both comp and non-comp. If you look at the non-compensation growth over the course of the last year, roughly half of that is attributable to expenses associated with the integration and run rate of NNIP and GreenSky together with change in litigation. So that is representing about half. On the balance, as David indicated, we do see some impact from inflation. We do see the impact of higher levels of transaction-based expenses, but we are also taking actions to reduce expenses within the overall non-compensation category where we can. You may note that on a quarter-over-quarter basis, we reduced our professional fees, something that we indicated in our previous earnings release. And we're going to continue to think very, very disciplined about the way in which we deploy non-compensation expenditures striking the balance of driving towards our efficiency ratio but as well as making the investments that we think are appropriate to continue to strengthen and grow the firm.

Denis Coleman :

Sure. Thank you, Steven. Let me cover that in a bit of detail for you. So obviously, on the $527 million equity line, there's a number of components. As we mentioned previously, we have a public equity portfolio, and that contributed positively north of $200 million for the third quarter. And then also within the private portfolio, you have a number of things that are going on within our private equity portfolio. We have roughly $0.5 billion of event-driven gains that came through over the course of the third quarter, whether those be capital raising activities, strategic transactions or the operating expenses from our CIEs, those positive gains were offset by markdowns in our private equity portfolio, particularly in TMT and Consumer.

Ebrahim Poonawala :

I guess maybe just going back, David, you mentioned in your prepared remarks about rationalize spend. The segment realignment makes a ton of sense. Just give us a sense from the outside as we think about the rationalization of the spend, does this lead to you achieving your strategic targets around costs, ROE at a faster pace? Or do you have a high degree of confidence that you get there relative to the previous plan and understanding the core tenants are the same? But just give us a sense of just your confidence in achieving those targets despite the market backdrop as we look forward and how does the alignment supports that?

Ebrahim Poonawala :

That's helpful. And I guess just one follow-up in terms of -- you talked about organic growth opportunities in private lending given market dislocations. There are a lot of asset values that have been hit, too. Just remind us in terms of M&A, where you're focused on and just appetite to execute M&A.

Operator:

We'll take our next question from Christian Bolu with Autonomous.

David Solomon :

Christian, we've been -- it's interesting because I know you follow us closely, and we've been talking about a variety of things in this. If you go back to our investor update at the beginning of the year, we highlighted a lot of the synergies between banking and markets and how we were working to get those client activities more closely aligned. We also highlighted in our update at the beginning of the year the synergies between Asset and Wealth. And then when John spoke at the Bernstein conference in May, we put a big, big spotlight on the synergies we thought bringing Asset Management and Wealth Management closer together. So it's not that by doing this that we're doing something dramatically different. We've been driving the firm in this direction with respect to client service and One GS for a number of years. And we think as we've done that and we've looked at that and we've learned, we think by organizing the firm this way, it makes it easier for investors to understand and see how we look at our client set and how we're operating against that client set. And so we view it as a natural progression that strengthens our ability to deliver for clients. And so that's why we've moved in this direction. That's with the big businesses, banking and markets and Asset and Wealth Management. On Platform Solutions, we have a bunch of these platforms where we're making investments. We think they're very interesting. They're growing. They require more focus. This alignment of them allows us to shine a brighter, more transparent light on them. And we're very committed to driving them to profitability and a meaningful contribution over time. And we think by organizing this way, it allows us to maintain that focus on what is a small piece of the business, but one that I think in the future allows us a differentiated opportunity to serve our corporate and institutional clients.

David Solomon :

Well, I think, Christian, what -- the steps that we've taken today are reflective of the learnings. And whenever you innovate and you build new platforms and new things, you're always going to be constantly looking and examining what you're doing and saying what have we learned, how can we do this better? I'd say I'm very proud of the team in our Consumer business, the markets team broadly. When I look at the deposit platform that's been built and the growth from zero to over $110 billion of deposits over the last six years, we have 15 million customers on the platform. I think we have a very unique credit card technology that's differentiated. We have a couple of extraordinary partnerships. I think that when you look at all of that together, we have some very good things, but one of the things I think we've learned is that the ability to scale that and attract customers and the direct-to-consumer business needs to be focused in a more directed way. And so we're focusing it by aligning it with our Wealth business where we have access to millions of people. And so I still see a terrific opportunity to take what a really, really interesting digital products and in being aligned with our Wealth business, provide those products and services to clients and customers at Goldman Sachs. In addition, I think the partnerships that we've built also provide good opportunities for us to serve corporate clients with very, very interesting digital capabilities and allow them to ultimately serve their end customers or clients. And so yes, there have been bumps. Not everything has been perfect. I think that always happens when you're innovating. But I also think we've built meaningful things that create meaningful opportunities for the firm as we go forward. And in particular, our ability to have a more diversified funding base and a big deposit platform that we can grow from here and an ability to offer Wealth customers on our platform a broad array of services, I think, positions us well as we move forward.

Betsy Graseck :

So two questions. First, a follow-up on the conversation just now. Is there anything that you're going to be fading as a result of this? Is there any part of the Consumer business that you're not going to do anymore? And I know you did the renegotiation with Apple Card. I guess it's through 2029, if I got it right. And how is that restructured in a way to enhance your ability to generate revenues from that? Because I know you mentioned on CNBC this morning, David, that the balances aren't being carried as much as had been expected.

Betsy Graseck :

And then just on a separate topic, but the question is on the GSIB surcharge. And I think over the past couple of quarters, you've highlighted how you've been looking to take action to bring your GSIB score down such that you don't trip into that next 50 bp bucket in Jan '24. Could you give us a sense as to the progress there this quarter and if that goal is still on the table for year-end?

Operator:

We'll take our next question from Mike Mayo with Wells Fargo Securities.

David Solomon :

So Mike, we're not giving complete transparency on the four-wall look at the Consumer business. It doesn't make money at the moment. I'm not going to go further than that. But what I will say, the deposits are hugely valuable. And we do believe as the platform scales and you stop the pace of growth that we've had, so you're not front-loading reserves the same way, that what we're doing will deliver accretive returns to the firm. And so we continue to feel very, very confident with that. Not everything that's reported is accurate and reflects the journey of innovating and building something like this, but we continue to feel very good about what we've built. We're making some shifts that we think play to our strength and strengthen our ability to accelerate the pace of these tools, this activity contributing to the firm. I'd highlight that the overall performance and the firm -- the firm's overall performance and our targets remain the same. And so again, I know this gets a lot of attention. I understand why it gets a lot of attention, and that's all okay. But we've set targets. We're going to deliver on those targets, and we're going to make investments in things that we think strengthen the firm, and this is one of them.

David Solomon :

Well, I appreciate that, Mike. And look, it's very generous of you to account 150 years of history, but I just highlight firm looked very different in the 1860s than it looked in the 1920s, than it looked in the 1960s. The firm continues to grow and change. I joined Goldman Sachs in 1999, and it was 23 years ago as a partner, it was a fraction of what Goldman Sachs is today. So we're a big business. We have very big businesses. And of course, our Investment Banking and markets business is core to who we are. It will continue to be core to who we are. It drives our earnings and performance. It drives what we're associated with. . We've built over a number of decades a very, very powerful Asset and Wealth Management business, what we're bringing together today. We're the fifth largest active asset manager in the world, and we think we've got a real opportunity to grow that. I understand now that people accept that as being core to Goldman Sachs. When we started back in the '80s, I don't think people viewed it as core. But we also have 11,000 engineers here, and we're doing some very, very interesting things as the world is changing and the world is evolving with technology. After the financial crisis, the regulatory structure came, and we became a bank. And it was clear we needed deposits and we needed to diversify our funding. And so what Platform Solutions represents is a handful of smaller business opportunities relative to the scale of Goldman Sachs that we're investing in where we think we have a capability to serve our clients. We've, I think, done some very interesting things in Transaction Banking, as we've outlined. I think this card partnership is very, very interesting in terms of what it's allowing us to do. And so we think it's an opportunity. It's still small relative to Goldman Sachs. It's less than 5%, but we think it's an opportunity worth investing into as we continue to broaden the scope and scale of what Goldman Sachs can do for our clients. And that's kind of the way we're thinking about it.

Brennan Hawken :

I've got two questions and one is on the Consumer pivot, but I feel like we need a break. So let me just add the other one first. You guys -- how should we be thinking about the efficiency ratio this year? The last six months have been tougher revenue-wise. And so the medium -- we've been above your medium-term target of 50 -- 60%, sorry. Non-comp expense is a little sticky. You guys laid out some of the things that you're trying to do there. But do you think that -- do you fully expect that you'll be hitting your 60% ratio target this year on the efficiency front?

David Solomon :

But Brennan, just to amplify, we're committed to our efficiency target. It was never meant to be a target that would be hit absolutely in every single year exactly the same way. And so this obviously has been a tougher operating environment, and it's having an impact. But we remain committed to the target and are operating the firm to deliver on that target.

David Solomon :

Yes. No, Brennan, I appreciate that. There's no question that the aspiration is probably got more communicated in a way that they were broader than where we're now choosing to go. And we are making it clear that we're going back on some of that. Now we have built some things. We have a checking platform. We have an investing platform. And if you are aligning us with wealth and you have wealth customers, wealth customers can use those things, but it's very, very different to have those capabilities and be able to use them on a broad wealth platform versus directly marketing them to independent consumers on mass. And I think one of the big learnings over the last few years is that we're better to play to our strength. And now our focus is -- I think the technology with Gold is very, very good, and we can now connect it to millions of people that are on our platform, and that is a narrowing of the focus for sure. It is a purposeful shift, tried to make that clear in the script. And I think it plays the strength that we have. But we are a bank. We need deposits. We are a wealth platform. People around a wealth platform want an ability to leave money here. Actually, if you look at other wealth platforms, they have banking capabilities attached to them. And so I think we're strengthening our ability as a broad wealth platform. And I want to amplify this workplace wealth channel where we have access to millions of people is a very, very interesting place for us to attach some of the stuff that we've now built. So I think we've made a significant investment. We are narrowing our focus very clearly, but I still think there are opportunities for us. And again, I want to amplify our other businesses are performing. They drive the overall results. This is still small in the overall scheme of Goldman Sachs, but we think that it's additive, and that's why we're trying to focus it and drive it forward in the best way. And I appreciate the comment that shareholders haven't been excited about it. And that certainly affects some of our decision-making.

Devin Ryan :

I want to ask a question just on Investment Banking. M&A financing markets have obviously become a little more complicated recently and seen some negative marks on recent deals. I'm just curious whether you feel like some of that friction is just transitory or whether financing markets are really starting to maybe become more concerning and crack a bit. And then kind of interrelated, just how much that's weighing on your outlook for M&A advisory business? And where it sounds like backlogs are still solid, but you need functioning financing as well.

Devin Ryan :

Yes. Okay. Great. A quick follow-up here just on deposits. Deposit rate in markets right now, I think, 2.35%. The delta versus many of your bank peers is widening. And so I'm just curious what you've seen over the last couple of months, especially as customer cash sorting has been accelerating in the industry, and then whether you can just share some expectations from here around what you expect in kind of Marcus deposit gathering just as rates potentially continue to move higher from there.

Operator:

We'll take our next question from Dan Fannon with Jefferies.

Denis Coleman :

So thank you for acknowledging that. Obviously, on top of that, our overall growth in management and other fees add up 15% year-over-year; in the last quarter, had almost $2.25 billion. We're well on our way to both our $10 billion total and $2 billion alternative fee targets. And the reality of attracting these types of flows over this period in time, a lot of that has to do with work and performance and track record that has been done previously. Some of these particular flows have longer lead times. Other, shorter lead times. But looking at both the alternative commitments that we were able to secure in the quarter, looking at the change to our alternatives U.S. on the quarter, which was very strong, and then looking at our inflows across the more traditional channels, we are very pleased with the activity that we saw in that regard over the course of the third quarter. And we're very focused on continuing to drive that going forward.

Denis Coleman :

Sure. Thank you. I mean, obviously, for the firm overall, loan growth was just about $1 billion quarter-over-quarter. But we do continue to see good opportunities, particularly across the Wealth Management segment. You saw better growth in that segment. It's a high-quality lending opportunity for us. And we're leveraging an existing set of relationships in existing franchise that's very much in place. We've obviously been recognized for our advice and solution-oriented way in serving those clients, but we are finding that increasingly, they're looking for us also to provide financing to them. And so we're making sure that we're very focused on supporting them as holistically as possible. And we see good opportunities on the floor to continue to grow those types of financing activities.

Matthew O'Connor :

May I keep calling for the normalization of fixed income trading? And I think over last quarter, you guys tried to frame what might be a good kind of medium, longer-term level. But obviously, it continues to be. And I am wondering, has it reset higher kind of permanently due to likely higher inflation, higher rates? And usually, that does bring higher volatility. Even if things settle down from here, are we just looking at a structurally bigger and maybe materially bigger wallet than we thought not too long ago?

Matthew O'Connor :

And in terms of the share gains, how much of it -- so obviously, it sounds that is you're leaning into the business with some investments, including in financing, but how much of it is -- maybe mix has been favorable to you and there's also been some pullback by some global peers as they've been building capital and you obviously have enough to lean into it.

Operator:

We'll take our next question from Gerard Cassidy with RBC.

Denis Coleman :

So thank you, Gerard. It's Denis. So I think as indicated in some of the previous comments and outlined at that original Investor Day, we are very focused on diversifying the funding mix, also benefiting from the pricing and the stickiness of that channel. We've developed, since that period of time, multiple deposit funding channels. The digital markets platform is one of them. Transaction Banking is another. In terms of that original goal of changing the mix, we have achieved that. We continue to be very, very focused on moving that mix. You'll see on a quarter-over-quarter basis that we have improved our deposits, reduced our other unsecured funding. So we remain focused on that. It's an attractive source of funding for us. It also fits within the overall strategic realignment that we've been discussing.

David Solomon :

I don't think it's simple for sure, Gerard. I think it's still pretty uncertain. I do think we have to get to a point where we better understand the trajectory of inflation and, therefore, understand the trajectory of economic growth going forward. The Fed is executing and has sent some very, very clear goals as to where they're going to the tightening cycle in the near term, but I think there's uncertainty whether or not that will get inflation to a place where the policy will shift going forward. And so I think we're in an uncertain period. I think that this warrants, and we're operating the firm this way with a sense of caution as we look forward. But we'll have to watch closely. But I don't have a clear answer for you as to whether or not -- if we get to the Fed's current trajectory, we'll be in a place where economic growth prospects will improve as we look ahead from 2023 into 2024. I think that's still relatively uncertain.

Jeremy Sigee :

You've covered a lot of ground, so I've just got a couple of specific follow-ups, please. The first one goes back to the cost topic and the headcount increase in this quarter. I just wondered if that's mainly seasonal with new joiners because I think the acquisition impacts were all already in the prior quarter. So I just wondered if it is just seasonality really that's driving that headcount increase and just how you think about that relative to the cost focus that you've been talking about for a couple of quarters now.

Jeremy Sigee :

Very clear. And then a separate follow-up just on the Wealth Management -- Workplace Wealth Management, which I feel is a sort of -- it's a new thing for you to talk about in such a high-profile way. Do you have all the building blocks that you need to be successful and to grow that space? Or are there bits that you're going to have to build to make a success of that?

Operator:

We'll take our next question from Mike Mayo with Wells Fargo Securities.

David Solomon :

So Mike, look, appreciate the question, and it's a good question. And I just start by the fact that the firm has a very, very strong risk management culture and is always focused on risk management, risk mitigation and trying to look around corners and think about what's coming. So I've tried in a number of questions today to highlight that I think things are uncertain, that we're being cautious. I think we've taken a number of actions inside the firm as we think about our risk lens in a variety of places and we think about our RWA allocation, as we think about things that we're doing to try to operate as let's be prepared for a more difficult environment. Now obviously, we have exposure to that because we're a large financial firm. So you can't 100% protect yourself from that. But there is no question that we're trying to take actions to make sure we're well positioned. I think you saw during the quarter that we grew our capital buffer during the quarter. I think that's reflective of a conscious decision in this environment to ran a little bit more cautiously, a little bit more conservatively. We've been watching what's been going on in markets across the UK And when we see things like that, we reflect back and spend a lot of time digging in and thinking about other places where those things can be amplified. And so we're extremely focused on issues like that. And I would just say that I think the world is fragile at the moment, and it's uncertain. And we're operating through that lens. We're big financial institutions. So we have exposure. If there were -- if there was bigger volatility or bigger problems, we could potentially have exposure to them. But on the other hand, I think that we've got a very broad global deep franchise. And we're well capitalized, and we're very focused on this. And we're going to continue to be zealous in our risk management practices to make sure on a relative basis, whatever the world throws at us, we'll serve our clients well and operate well for ourselves and our shareholders.

Carey Halio:

Yes. Thanks, everybody, for joining us today, and thank you for all the questions. If you have any additional questions that come up, please don't hesitate to reach out to me. Thanks so much.

Carey Halio:

Good morning. This is Carey Halio, Head of Investor Relations at Goldman Sachs. Welcome to our second quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. Note, information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. I am joined today by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Denis Coleman. Let me pass the call to David.

Denis Coleman:

Thank you, David. Good morning. Let’s start with our results on Page 2 of the presentation. In the second quarter, we generated net revenues of $11.9 billion and net earnings of $2.9 billion, resulting in earnings per share of $7.73. We reposted a return on common equity of 10.6% and return on tangible equity of 11.4%. Turning to performance by segment, starting on Page 3. Investment Banking generated revenues of $2.1 billion, down 41% versus a year ago. Financial Advisory revenues were $1.2 billion. Our global M&A franchise remained strong as we closed over 115 deals for approximately $380 billion of deal volume in the quarter, further strengthening our number one league table position. Equity underwriting net revenues were $131 million. Industry volumes remain muted given the ongoing market volatility. Despite this, we remain ready to deliver for our clients once the market backdrop for equity issuance improves. Debt underwriting net revenues were $457 million, where we saw lower levels of market activity amid sharp rate increases in the quarter. While our Investment Banking backlog is down from the peak levels last year, it is still higher than it has been at any point in our history prior to 2021. We feel good about the quality of our backlog based on our healthy levels of strategic dialogue that span from technology and innovation to defensive repositioning of client portfolios, but we may see some softening if the challenging market environment persists. Revenues from corporate lending were $352 million, up 121% versus a year ago driven by hedge gains associated with our relationship lending book that more than offset approximately $225 million in marks on certain commitments from our acquisition financing activities. We saw continued growth in our Transaction Banking business. The platform now serves nearly 400 clients and has roughly $65 billion in deposits at the end of the second quarter, generating approximately $175 million in revenues year-to-date. Moving to Global Markets on Page 4, segment net revenues were $6.5 billion in the quarter, up 32% year-on-year. Growth in the quarter was driven by significantly higher client activity as we facilitated risk intermediation for clients amid a volatile market. Looking at FICC on Page 5, revenues were $3.6 billion in the second quarter. In FICC intermediation, we saw a 50% increase in revenues with 3 of our 5 FICC intermediation businesses posting higher net revenues versus the prior year, reflecting the strength and breadth of our diversified franchise. Our macro franchise remained incredibly active as we help clients navigate rising rates, tightening monetary policies and continued volatility across commodities. This drove strong growth in net revenues in rates, commodities and currencies. And while revenues were lower year-on-year in credit and mortgages, clients remain engaged. Meanwhile, in FICC financing, we saw considerable strength in mortgage lending and repo activity, which helped delivered record results. Moving to equities, net revenues in the second quarter were a solid $2.9 billion. Equities intermediation revenues fell 2% year-over-year due to a more challenging market-making environment. Activity was also impacted by lower levels of primary issuance volumes. Equities financing revenues of $1.1 billion rose 38% versus a year ago and 14% versus the first quarter. Increased volatility across global equity markets drove higher demand for various forms of financing from our clients. Growth in equities financing, coupled with record performance in FICC financing, is a reflection of our strategy to grow client financing activities, which represented nearly 30% of our overall Global Markets revenues this quarter. Moving to Asset Management on Page 6. Asset Management net revenues of $1.1 billion were materially lower than the second quarter of last year. Growth in management and incentive fees was more than offset by net losses from our on-balance sheet investment portfolio. Management and other fees totaled $1 billion, up 39% year-over-year. This increase was driven by the roll-off of fee waivers on money market funds and the addition of $305 billion of incremental AUS from the recently completed acquisition of NNIP, which contributed roughly $170 million of management and other fees this quarter. Equity investments generated losses of $221 million, driven by sharp market declines during the quarter. More specifically, on our public equity portfolio, we experienced roughly $660 million of net losses, reducing the value of the portfolio to approximately $2.8 billion at quarter end. In our private portfolio, we produced approximately $440 million of net revenues. We generated event-driven gains of over $380 million from various positions across the portfolio. Additionally, we had operating revenues of approximately $165 million related to our consolidated investment entities. These revenues were partially offset by approximately $100 million of marks, particularly in the technology and consumer sectors. We remain focused on our strategy of migrating our alternatives business to more third-party funds. And in the second quarter, we raised over $20 billion of commitments. We also harvested over $1 billion of on-balance sheet equity investments. The pace of our realizations this quarter was influenced by both macro and micro drivers with persistent volatility in equity markets, making it more difficult to harvest assets. Net revenues from lending and debt investment activities in asset management were $137 million, down 78% versus a year ago as net interest income of $275 million was partly offset by mark-to-market losses of approximately $140 million due to spread widening. I will turn to Consumer & Wealth Management on Page 9. We produced record net revenues of $2.2 billion in the second quarter, up 25% versus a year ago, driven by higher net revenues in both Wealth Management and Consumer Banking. For the quarter, wealth management and other fees of $1.2 billion rose 10% versus last year, driven by higher placement fees and higher average assets under supervision. While private banking and lending net revenues of $320 million were down relative to record results last quarter, revenues were up 23% year-on-year due to higher lending and deposit balances. Consumer banking revenues were $608 million in the second quarter, rising 67% versus last year and 26% versus the first quarter. Now moving to Page 10. Total firm-wide AUS ended the quarter at $2.5 trillion. Combined firm-wide management and other fees in the second quarter rose 22% year-over-year to $2.2 billion. We expect our fee revenues to continue to grow as we progress towards our fundraising and management fee targets we laid out earlier this year. On Page 11, total firm-wide net interest income of $1.7 billion in the second quarter was down modestly relative to the first quarter due to lower net interest income in Global Markets. Our total loan portfolio at quarter end was $176 billion, up $10 billion versus the first quarter primarily due to growth in corporate, wealth management and residential real estate loans. Our provision for credit losses in the second quarter was $667 million, up from $561 million in the first quarter. Provisions in the quarter were primarily due to growth in our consumer lending portfolio and higher modeled losses due to economic indicators worsening quarter-over-quarter. Overall, our portfolio fundamentals remain strong as reflected by minimal impairments across our wholesale lending book. On the consumer side, while we do not see signs of meaningful credit deterioration, we are closely monitoring the portfolio and are taking mitigating actions as appropriate. Now, let’s turn to expenses on Page 12. Our total quarterly operating expenses were $7.7 billion, down 11% year-over-year. Our compensation ratio for the quarter net of provisions was 33%. Quarterly non-compensation expenses were $4 billion. Year-over-year increases were driven by integration and run-rate expenses related to the NNIP and GreenSky acquisitions as well as continued investments, particularly in technology, and higher levels of business activity. Together, NNIP and GreenSky contributed approximately $200 million to non-compensation expenses this quarter. Given the challenging operating environment, we are closely reexamining all of our forward spending and investment plans to ensure the best use of our resources. As a result, we are taking a number of actions to improve our operating efficiency. Specifically, we have made the decision to slow hiring velocity and reduce certain professional fees going forward, though these actions will take some time to be reflected in our results. We are keeping in mind, however, that while we are being disciplined about our expenses, we are not doing so to the detriment of our client franchise or our growth strategy. Turning to capital on Slide 13, our common equity Tier 1 ratio was 14.2% at the end of the second quarter under the standardized approach, down 20 basis points sequentially and representing an 80 basis point buffer to our current capital requirement as we enter the second half of the year. This past quarter, we returned $1.2 billion to shareholders, including common stock repurchases of $500 million and common stock dividends of over $700 million. As David noted earlier, in the third quarter, our Board of Directors increased our quarterly dividend by 25% to $2.50 per share. Looking ahead, we will remain nimble in response to both ongoing opportunities to support clients and the current operating environment. While we will continue to deploy capital in our business where returns are accretive, we are actively evaluating share repurchases in light of our current stock price. In conclusion, our solid second quarter results reflect our ability to navigate volatile markets, while actively supporting our clients. We remain confident in our financial position, capital base and liquidity, which will help us serve clients as they navigate these challenging markets. And we are committed to executing on our growth strategy and delivering for our shareholders. With that, we will now open up the line for questions.