Q3 2019 Earnings Call
Good morning up my name is Dennis and I will be your conference facilitator today I would like to welcome everyone to the Goldman Sachs third quarter 2019 earnings Conference calls.
This call is being recorded to date October 15th 2019. Thank you Ms. minor you may begin your conference.
Good morning. This is how their Kennedy minor head of Investor Relations at Goldman Sachs. Welcome to our third quarter earnings Conference call. Today, we will reference or earnings presentation, which can be found on the investor Relations page of our website at www Dot G.S. Dot com no information on forward looking statements and non-GAAP measure.
Appear on the earnings release and presentation. This audio cast is copyrighted material and the Goldman Sachs Group, Inc. and may not be duplicated reproduced or rebroadcast without our consent.
Today, I'm joined by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Steve I'm sure.
They will start with a high level review, our financial performance and the operating environment will then provide a brief update on several strategic items, including key investments, we're making to drive future growth.
Yes against the Apple cart launch specifically as it relates to other technology innovation or preferred and recent personnel changes to align with our longer term strategic priority.
Stephen will then cover third quarter results across each of our businesses they'll be happy to take your questions after that.
Now pass the call over to David David.
Thanks Heather.
Thanks to everyone for joining us this morning, I'm happy to be here with you.
Let me begin on page one we reported third quarter 2019 revenues of $8.3 billion down 6% versus last year.
Net earnings were $1.9 billion, resulting in an earnings per share $4.79.
Year to date, we produced an order we have 10.4% and then also ti or 11%.
Our business performed well against an uncertain geopolitical backdrop.
To rise by increased volatility and shifting client sentiment.
A few highlights worth mentioning you.
In investment banking, despite lower results first as a strong third quarter in 2018.
We continue to have the world's leading franchise.
Ranking number one in global announced and completed M&A and number one equity underwriting year to date.
And I see us we generated year over year gross demonstrating the blessed about client footprint, including progress across both fixed income and equities.
We produced record net interest income debt investing in lending, which annualizes to $3.6 billion.
In investment management, our assets under supervision increased by over $100 billion to another record of 1.8 trillion dollars and we generated record quarterly management and other fees.
Lastly, we successfully launched a new and innovative credit card with Apple.
Turning to page to the operating environment in the third quarter remain mixed and slowed the pace of activity by many of our corporate clients.
During the quarter trade war concerns contributed to a risk off sentiment and sharply lower global interest rates, particularly in August .
Markets were also impacted by turmoil in Argentina.
Brexit headlines in Europe , and a temporary spike in oil prices in September .
Throughout the quarter responses from central banks, including the set of Federal Reserve you see B, we made accommodative supporting both capital markets and the sustainability of global economic growth.
Looking forward our economies continue to expect global GDP growth in excess of 3% for this year in next.
That said global growth is not without risk as trade issues remain challenging in Europe growth is decelerating in part due to trade manufacturing weakness with notable challenges in Germany.
In China will trade has been a headwind both monetary and fiscal stimulus support growth estimates of roughly 6%.
Here in the U.S. growth continues to one at about 2%.
Strong labor markets, low inflation and healthy wage growth.
Economic conditions have also been bolstered by the feds to mid cycle weight cuts.
Importantly, and monitoring the data consumers continue to show resilience and remain a meaningful source of strength in the U.S. economy.
That said recent data suggest flowing in manufacturing and industrial production.
Mindful that we remain vigilant, where we all in the economic cycle unconscious all that as we manage risk across our firm.
My regular conversations with Ceos, there's considerable focus on the duration of the current economic cycle.
Well, most Ceos remain focused on growing their businesses and capturing opportunities amid the disruptive forces of new technologies.
Geopolitical issues continue to give rise to some caution.
That said equity valuations remain relatively high financing markets are generally open and attractive to issuers, particularly given the low rate environment and historically low borrowing costs.
In addition to corporates financial sponsors remain active with significant capital so deployed.
Switching gears I'd like to spend a moment discussing our ongoing strategic investments the topic. Stephen is covered in prior calls and will expand on in a moment.
These investments reflect our deliberate and disciplined approach and building new skeletal businesses to serve the broader set of clients, including our markets consumer business recently launched Apple card and a new transaction banking platform.
A border consumer business out of water consumer business, we're very pleased with our progress in building a modern digital consumer bank.
Our competitive advantage is that we have no legacy Brad what technology infrastructure avoiding channel conflicts.
And yet we are back with a sizable balance sheet and a well recognize brand which is needed for successful disruption.
Our strategy is to acquire customers under our own proprietary brand into leverage at Goldman Sachs relationships to embed all products into the ecosystem of our partners.
Three short years, we've raised $55 billion in deposits on our markets platform.
Generate a $5 billion in loans.
Built a new credit card platform and launched Applecart in partnership with Apple and Mastercard, which we believe is the most successful credit card launch ever.
In addition, we're making a number of important infrastructure enhancements across our income the businesses to better serve our clients and to operate more efficiently.
These include investments in our institutional client platform marquee.
Well, we've seen strong gross to over 50000 monthly active users and over 1 million <unk> data requests every day.
We're also investing to develop the next generation of electronic trading platforms, both FICC and equities.
Taken together these investments draw on our returns in the short term, but are critical to expanding our capabilities and our competitive position and we believe will be highly accretive in the medium to longer term.
Next let's discuss the recent Apple card watch, which was an outstanding effort by the teams involved.
Since August we've been pleased to see a high levels consumer demand for the product from an operational risk perspective, we've handled the inflow smoothly without compromising our credit underwriting standards.
Beyond the launch we're proud of the successful platform build which was completed in short order.
This is a testament to the quality of engineering at Goldman Sachs and the collaborative engagement of our business and control functions in developing building and launching a true platform business.
Its success positions us to attract top notch engineering talent.
Most recent technology hires demonstrate.
Execute our plan to go digital platforms across from.
Before passing over to Steven I would like to take a moment to talk about some of the recent leadership changes across the organization.
As a management team John Stephen and I are very focused on creating opportunities for the next generation leaders at Goldman Sachs.
As we set forth in ambitious long term strategic plan for the firm if its natural point in time for some of this transition to occur.
We are fortunate to have an exceptionally deep pool of talent as many of our new business leaders are also 15 or 20 year veterans of the firm.
And as we execute this transition, we envision weight and power leaders across the business the business isn't the Federation.
Going forward I'm confident that we had an outstanding team in place to serve our clients and achieve the long term strategic goals, we are setting.
Lastly, I would like to briefly address source upcoming strategic update we've been actively working to finalize a date and the format first strategic review and will provide additional details to market in the coming weeks. Our target tiny remains late January I look forward to that session as an opportunity for us to engage with you on a number of topics.
You know strategy investments new initiatives forward plans across each of our businesses and a variety of other key issues.
With that I'll turn it over to Stephen to walk through the result, the results in each of our businesses.
Thank you David as David noted at the start our franchise performance was solid this quarter against a mix backdrop in the market as we continued to execute on our strategic priorities, let's move through the numbers in detail starting on page four investment banking produced net revenues of $1.7 billion down 9%.
The second quarter and down 15% versus strong year ago quarter.
Financial advisory revenues of $716 million were down 22% versus last year. Our performance is consistent with roughly 20% decline across the industry and the number of M&A transactions completed during the quarter as measured by deals over $500 million in value, which is a category.
It is an important driver revenues.
That said, we advised on 810 largest M&A transactions this quarter and continue to demonstrate his strong leadership position year to date, we participated in more than 1.1 trillion dollars of announced transactions and closed on just over one trillion dollars of deal volume contributing to our number one M&A.
The table rankings.
Looking forward as David noted the ingredients for continued M&A activity remains solid client dialogue, sorry healthy financing markets are open and we continue to see active interest across sectors, including natural resources and health care.
Moving to underwriting equity underwriting revenues of $385 million decline meaningfully versus a strong second quarter, which included a number of significant ipos and were down 11% versus last year.
Year to date, we ranked number one globally and equity underwriting supported by nearly $50 billion of deal volume across more than 280 transactions.
The recent market reception to certain companies has been less favorable over the long term. We believe investors will continue to invest in growing innovative and disruptive businesses that create value for customers and shareholders.
Turning to debt underwriting net revenues were $586 million down 7% from a year ago, reflecting a decline in industry wide leveraged finance transactions and in line with a decline in M&A related financings. Nonetheless, our franchise remains well positioned evidenced by our number too high yield lead.
Table ranking year to date.
Against the backdrop of the quarter's performance. It is important to point out that our investment banking backlog increased versus the second quarter as we saw improvements in both the advisory and financing.
Given our healthy levels of strategic dialogues are expanding client footprint and the nature of our corporate relationships. We continue to be optimistic that our clients will remain active in executing transactions supported by well functioning and liquid capital markets.
Moving to institutional client services on page five net revenues were solid at $3.3 billion in the third quarter up 6% versus last year, driven by growth across our diversified FICC and equities businesses and as David noted at the start reflective of progress made across our businesses.
In terms of our client and business mix and the development of electronic platforms.
FICC client execution that revenues were $1.4 billion in the third quarter up 8% year over year, driven by higher client activity in a mix operating environment.
Four of our five FICC businesses posted higher net revenues versus the prior year, reflecting the continued strength of our client centric model and improve diversification of our business mix.
<unk> rates franchise generated solid client activity in both the U.S. in Europe and saw increased hedging flows through corporate pension and insurance clients amid the significant rally in government bonds.
In commodities are business was diversified and produce higher net revenues on higher activity in natural gas and power as well as an oil where we supported clients during the September price volatility.
We also delivered solid performance in credit and mortgages, where net revenues increased amidst improved activity from our broadening client base. These results reflect our continued focus on improving the velocity of risk inventory supporting more efficient capital management in the business.
Lastly in currencies net revenues decline driven by a more difficult geo political backdrop in emerging markets as volatility in Latin America, and and in particular, Argentina offset strong performance in Europe .
As we've discussed previously we are investing to expand our capabilities to automate workflows serve our clients electronically and deliver structured solutions inefficient formats.
Our credit business, we're making considerable progress utilizing our systematic platforms to efficiently price risk managed and execute trades. For example, this quarter, we executed a number of sizable trades and U.S. investment grade credit, providing chief financial and insurance clients access to our broad risk.
Intermediation capabilities. Additionally, we recently enhanced our electronic execution capabilities for commodities by leveraging the infrastructure of our murky platform. These efforts ultimately improve client experience execution and pricing while at the same time provide us access to serve a broader client base.
On a more cost efficient basis.
Turning to equities on page six net revenues for the third quarter were $1.9 billion down 6% sequentially from a robust second quarter, but up 5% versus a year ago.
Equities client execution net revenues of $681 million were flat versus a year ago, a stronger cash results offset lower derivative revenues.
Revenues from commissions and fees were $728 million up 8% versus a year ago aided by higher client activity.
Security services net revenues of $468 million were up 7% year over year over the course of 2019, we continued to benefit from new prime balances and a rebound in average balances.
Moving to investing in lending on page seven.
Collectively our activities and I in L. produced net revenues of $1.7 billion in the third quarter given market movements, particularly in certain public investments. There was very clear divergence in the performance of equities relative to debt securities and loans.
Our equity investments generated net revenues of $662 million down significantly versus last year, driven in part by a reduction in market value on our public investment portfolio.
As we discussed on our last call we hold a number of publicly traded equity investments with customary lockups following ipos or public portfolio. Currently includes large investments in October of on tour and trade with these three positions in particular saw significant price pressure during the quarter and were the primary.
Drivers of the $267 million of Mark to market loss in our public investment portfolio.
Taken together these investments continue to represent approximately 40% of our 2.3 billion dollar public investment portfolio.
The performance of our private investment portfolio was also lower versus last year, but showed positive results and continued to perform well given the diversity of our investments private equity net revenues of $929 million were driven by strong underlying corporate performance and events such as sales where dish.
No capital raises against that strength in performance, our private investment portfolio was also burden by certain negative revaluations, including an approximately 80 million dollar mark associated with our position in the week company.
Turning to page eight net revenues from debt Securities and loans were $1 billion and included $891 million of net interest income and modest mark to market gains. Our total loan portfolio was approximately $100 billion up approximately $2.5 billion sequentially with the.
Increase driven by loan growth across the portfolio and we note as we have in the past that 84% of our total loan portfolio remains secured.
Our provision for loan losses was $291 million up $77 million versus last quarter, driven by idiosyncratic impairments importantly provisions related to our Marcus portfolio were relatively flat quarter over quarter.
Our firm wide net charge off ratio decreased by 10 basis points to approximately 50 basis points and remains relatively low.
While credit costs continue to normalize from the cycles low levels, our overall credit exposure remains appropriately size.
On page nine turning to investment management, we produced $1.7 billion revenues in the third quarter, driven by our diversified global asset management business and leading private wealth franchise net revenues included record management and other fees of $1.5 billion, which were up 5% versus last.
Last year.
Reflecting continued growth in assets under supervision.
We also saw a significantly lower incentive fees and modestly lower transaction revenues from our PW I'm client trading activity versus a year ago.
Assets under supervision finished the quarter at a record 1.8 trillion dollars up by $102 billion versus the second quarter, driven by $86 billion of net inflows and $16 billion of market appreciation.
The $86 billion of net inflows included $58 billion and the acquisitions of Snps investment Advisory services business and United Capital $12 billion from organic long term net inflows, primarily from all alternative investments and fixed income and $16 billion organic liquid.
To de inflows.
Now, let me turn to expenses on page 10.
Our total operating expenses of $5.6 billion were roughly flat versus the third quarter of last year.
This reflected lower compensation expense concurrent with lower revenues and higher non compensation costs.
On compensation as I have said in the past our philosophy remains to pay for performance the reduction in the year to date ratio to 35% is a reflection as always of our best estimate, but the appropriate accrual for the firm which for the full year 2018 was just below 34%.
Also as we have noted previously as we grow more platform driven businesses, we expect compensation to decline as a proportion of total operating expenses, making our total efficiency ratio a more relevant metric for the firm.
Platform businesses should carry higher marginal margins at scale and be less reliant on compensation.
As David discussed earlier, we continue to invest in a number of important initiatives across the firm book to build new businesses and digital platforms as well as to enhance the firm's infrastructure to provide you some measure of that investment a meaningful driver of the year to date growth and noncompensation expenses relate.
Just a firm wide technology spending and expenses related to four key projects, Marcus Apple card transaction banking and United Capital.
We continue to expect the depth of that investment cycle will be in 2019, So investment spending will continue into future years year to date, the total pretax impact of our organic projects Marcus Apple cart and transaction banking is approximately $450 million, resulting in a drag.
Roughly 60 basis points on our early.
As these businesses scale over the coming years, we expect distract to reverse becoming accretive to the firm's early.
For the year to date, our efficiency ratio was 66.2% up 200 basis points versus a year ago, driven by lower revenues and ongoing investments, partially offset by lower compensation expense.
Next on taxes are reported tax rate was 22% for the quarter and 21% for the year to date, we expect our full year 2019 tax rate to be approximately 22%.
Turning to capital on page 11, our common equity tier one ratio was 13.6% using the standardized approach and 13.4% under the advanced approach.
The ratios decreased by 20 basis points, and 10 basis points, respectively versus the second quarter, driven primarily by increased credit risk weighted assets and a roughly 10 basis point impact from our acquisition of United Capital.
Our SLR was 6.2% down 20 basis points sequentially.
In the quarter, we returned a total of $1.1 billion to shareholders, including stock repurchases of $673 million and $466 million in common stock dividends, our basic share count ended the quarter at another record low a 369 million shares or book value per share.
It was $219 up 11% versus a year ago.
We note that our $673 million of share repurchase amount this quarter was less than our 1.75 billion dollar quarterly see car authorization during.
During the quarter, we elected to suspend our open market repurchases as we had begun discussions with certain U.S. governmental authorities with respect to the resolution of the one MDB matter.
We have since resumed our repurchases under an existing Tenbfive, one program and given our incremental disclosures. We are now resuming additional open market repurchase activities as resolution discussions continue.
To be clear our decision to step away from the market was not motivated like capital concerns as we remain confident in our strong capital position.
This was the first quarter of a fourth quarter CPR cycle, we will carry forward the unutilized authorization and we'll continue to balance our priorities a prudent capital management and return of capital in excess of growth investment via share repurchases.
Turning to page 12 for our balance sheet.
Our balance sheet was just over one trillion dollars up $62 billion versus last quarter, driven by client demand in repo and equities.
On the liability side deposits increased to $183 billion, including consumer deposits, a $55 billion, which more than doubled since last year to become our largest deposit channel.
Before taking questions a few brief closing thoughts.
Well, our third quarter performance was solid given the market backdrop, we continue to invest in driving the from forward and aspire to delivering high returns in the future as David discussed we are executing on a number of fronts and are making real progress across several of our strategic priorities overall, our client centric strategy.
I mean simple and unchanged first to serve our clients with excellence, that's growing and strengthening our existing business second to diversify our business into adjacent and new areas by expanding our offering or products and services and third to operate more efficiently and effectively across the entire firm as.
We continue to make progress on our efforts we are confident that we can deliver leading long term returns for our shareholders and we look forward to providing a more comprehensive update in January .
With that thank you again for dialing in I will now open the lines for questions.
Ladies and gentleman, we will now take a moment to compile the acuity roster.
Your first question is from a line of Glenn Schorr with Evercore. Please go ahead.
Hi, Thanks very much.
Quite big picture question during the quarter you know we saw the funding markets get all discombobulated still not standing on their own. We also saw the illiquid markets temporarily get hurt.
Whether it be recent broken Ipos recent ideas being broken or resetting of some private valuations. So the big picture question I have for use I'm listening to you.
Talk and you don't sound that concerned like the plumbing is broken.
I know we've seen these things come and go before but I just wanted to see if you could talk specifically towards those two big issues and and just see if hopefully I'm just overstating short term impacts on the market.
Sure. Thanks, Thanks, Glenn and I and we appreciate the question.
I'd say at a high level I don't think the plumbing is broken although I do think.
That you've pointed to two places where there are certainly adjustments and changes in evolution.
There's no question that the short term funding markets I experienced a combination of factors that led to the need for some intervention I would say some of this is market structure and kind of supply and demand of liquidity in the market and some of it is the impact of regulatory change.
Change over a period of time, combining with those things, we actually saw some opportunity to work with clients in the context of that and to play balance sheet and I think you framed it correctly, there's still work to do to move forward with respect to the short term funding markets, but I don't think it's fundamentally broken, but I think that'll be in.
Evolutionary process of finding the right balance with respect to private capital formation. You know again I think the IPO process is alive and well in the United States I do think are actually globally to put it in that context I do think that we are going to see a rebalancing of this price.
Process, a private capital formation, the size and the magnitude of that private capital formation and the period of time with respect to which people get to the public markets.
One of the things that public markets do is public markets provide discipline in process around companies and that the public markets are very efficient and doing that and I think the transparency around some of this private capital formation is going to increase over a period of time it'll be more discipline against it but I don't I don't fundamentally think that it's broken.
I actually think that it's a healthy adjustment for rebalancing.
I'd like feeling maybe to make a comment or two around our balance sheet deployment in the context of some of these changes on short term liquidity, but at a high level. Those are the comments I'd make on those two issues you know Glenn just to pivot off David's comments, you know I would say that we obviously are mindful and watch all of the attending risks that sort of present themselves systemically.
Near term short term liquidity what happened in the repo market is obviously one that we're focused on I would say that in our case as an intermediary we saw an opportunity to source liquidity and to provide liquidity to clients and so for US. This is a lot about the elasticity of balance sheet to serve our clients in terms.
As of what we did in stepping in during dislocation in the repo market you'd had no negative impact to us from a liquidity point of view, we had sufficient liquidity to do it but I think from their perspective over our firm stepping into serve clients. It was a lot about flexibility and balance sheet and globe growing balance.
So as to provide liquidity as an intermediary in the market more broadly.
Awesome I have one little follow up on your comments about the 8-K, which I saw on on one MTV.
So I saw you see I heard you comment on the stopping and starting up.
The buyback and I saw the 47 million reserves.
Taken which I think a lot of people would say is not that much. So I don't want to put words in your mouth, but how does that make you feel the should we feel like you're fully reserved for one MDB where are we in the process. What's your RPL. If you could talk to those issues that'd be awesome sure sure. So I think you should feel comfortable.
Because we feel comfortable that we've gone through you know inappropriate process in assessing what the situation involving one MDB and other legal matters and.
In that context, both with internal an outside counsel, we have fixed RPL and our reserves at the level that the accounting standards require in both of those respects on the RPL.
Bearing in mind. This number is as good as as it is still we get to the 10-Q when its formally set but we have that set now at $2.9 billion, that's up roughly $300 million from where it was.
In the last Q there was as you point out a modest adjustment in reserves and in the context, obviously, both carry a very different accounting threshold and standard one being reasonably possible the other being probable and estimable and in that context, we feel comfortable with where we are given the standing of of legal circle.
Fences, both relating to one MDB and otherwise.
Your next question is from a line of Christian Bolu with Autonomous Research. Please go ahead.
[noise] good morning, David and Steven David as you transition to franchise to your target operating model is there an hour or we flow you'd like to maintain while yard to transition phase I guess is the 9% are are we this quarter or sort of a good way to think about the flow.
Or are you willing to sacrifice you know near term profitability for the longer term vision.
Hi, Thanks to the question, a Christian and I think I understand it I'd I try to put it in you know it through the cycle context, then also short term contacts.
If you look at our if you look at our you know Aro year to date, although he our OE year to date is over 10%, but it's Steven clearly articulated on the call. There's been about a 60 basis point drain on our IR only a year to date given the investments that we're making across our three principal projects the card.
Our markets digital consumer banking platform and also transaction services.
We continue to make investments to drive our firm and the returns of the from higher in the medium and longer term and we are willing to sacrifice. Some short term returns to make these investments that are position and strengthen the franchise and allow us to better deliver for our clients now in the long run.
Okay, great great. Thank you.
And then Steven maybe a couple of questions on on the credit provisions on only impairments maybe more Carlo I think you mentioned it was not Marcus so and just to be Mcallen, what it was and then on Cecil I think you've disclosed.
That's a day one head should be something like 400 to 600 million of which I hope that is about the consumer book, but as we look forward, we think about the Apple cart I brought up plans to grow consume or how should we think about the D to impact sort of any ongoing sicily impacts through 2020 and beyond.
Sure. So maybe I take the second part of your question first in terms of Cecil just to be precise guidance. We've given is a 600 to 800 million dollar adjustment I'd also point out that as the portfolio around Apple card grows in throughout 2020, obviously, we're building that reserve from you know.
A base of zero as it relates to the credit card portfolio itself and so those reserves will be built in the context of the Cecil requirements. So there's no adjustment or two to reflect in is obviously the reserves has not yet been taken on the first part of your question I'd point out that we took at 291 million dollar.
Loan loss provision, which itself was up $77 million quarter over quarter.
Is that related to a couple of things one was for idiosyncratic corporate impairments each of which was less than $30 million, none of which which give rise to any sort of perceptible trend or impact as it relates to the broader portfolio itself.
And net charge off I think as I as I noted in their prepared remarks that ratio was down 10 basis points quarter over quarter to 50 basis points I'd say as it relates to the markets unsecured portfolio. The provisions there were relatively flat quarter on quarter that portfolio is now performing much.
More inline with our initial modeled expectations you've heard me talk before about some of the earlier vintage is performing at a at a a worse loss rate. Those now have come back in this is performing more in line with the model and so what's reflected in the provision is not a reflection of any degradation in that portfolio.
I should point out, though that you know provisions will grow as it relates to growth in the portfolio itself that includes credit cards that includes unsecured loans, but there's no. There's no reflection embedded in that to the quality and the performance of the portfolio itself.
Your next question is from the line of Michael Carrier with Bank of America. Please go ahead.
Good morning, Thanks for taking the questions on me first one just given the later equity in L. revenues I'm in the quarter you mentioned some of the the public you know pressures can you give us maybe some color on the portfolio in terms of the sector break down maybe the current value versus cost just trying to get you. Some context as some of the pressures that we're seeing <unk>.
Valuations and if we could see that you know kind of bleeding into the future or yeah. Most of that you know is with rightsides quarter.
Yeah. So let me start with the public portfolio the public portfolio I think as I mentioned as a carry value of $2.3 billion. The names that I had mentioned.
Robert Trade web and Avant tour comprise about 40% of that portfolio and those were the largest contributors to the downdraft. If you will in the public portfolio itself, where we mark those is obviously the observable market less some form of liquidity discount, particularly in situations, where there is.
The lock up where there are other circumstances that warranted.
In the private portfolio, you know there or the size of that I should say is just shy of 20 billion $19.7 billion and there we mark as I've said in the past, mostly on an event driven basis, meaning we look at circumstances, where there's another round theres been a sale.
We look at the underlying performance of those names and you know we make we set our marks you know in in that regard I had called out you know the week company in particular, because it obviously got quite a bit of notoriety and the press as I mentioned the revaluation there was in the neighborhood of.
$80 million in terms of our loss our carry value. There I should point out is approximately $70 million, which I would tell you is a mean meaningfully higher than where our embedded cost is in that particular name. So if there was further downdraft, there's still embedded profit in the name itself, but I can.
All that out just given the nature of of the press in the notoriety around the name itself.
Okay. That's helpful color and then just as a follow up.
You guys are you a fairly significant any alternative asset managers business youve created some changes in that platform.
Just wanted to get your perspective on like how you're thinking about that business going forward in terms of third party fines would that could mean for fee growth. But then also any shift you and balance sheet usage overtime.
Sure.
Sure Michael and.
We talked about this a little bit on the last earnings call, but we see the opportunity for us as a significant manager of alternative assets, both for ourselves and for our clients at the time at the current time opportunity for us to meaningfully grow the client fees that we have our team's been working hard at developing a medium and long term plan.
With respect to that growth will certainly communicate more about that when we have our strategic update review, but I think it's fair to say that the growth of those assets and the development of that business will happen more over time in the medium or longer term as I think we've stated publicly before and we talked last time that we were on the call we will continue.
Doing best balance sheet capital and people should not see or expect in the short term a change in with respect to the way we deployed balance sheet, but over time, the medium and long term as we evolve this business and grow other revenue streams, we'll certainly reconsider that reevaluate what we think is appropriate.
Your next question is from a line of Steven Chubak with a Wolfe research. Please go ahead.
Hey, good morning, So I'm wondering to start with a follow up to I want to Christians earlier questions. Its one that we've been fielding from a number of investors as well, which is concerned that you have a long time line before some of the newer growth initiatives achieves cow, suggesting it could a lifetime could pass before we actually see the benefits to the P. and now.
Now some of you can speak to how you're balancing the need to execute on the longer term initiatives, while still delivering improved near term profitability and where could that near term profitability improvement ultimately come from if you could site and number of the potential sources that would be really helpful.
Sure and I'll talk about this and look this is a balance and I think it starts from the fact that we have the you know we haven't we have an institutional business. We've historically had an institutional business, it's very capital market sensitive, we're taking the opportunity to grow more fee based durable recurring revenues.
But that will take some time and we're thinking about building those businesses in the medium and long term for Goldman Sachs over a long period of time, we've been around for a long time and we look back historically the way we built our asset management business. The way, we built our international business. The way we built our investing businesses. These are businesses, we built over a long period of time.
I'm organically and that is our thought process with respect to a number of these.
When you say a long time, you know a long time is a is this objective word you know we think about getting real contributions from some of these investments that we're making over the next three to five years, but I understand in the context of short term catalyst that that might feel like a long time in the meantime, though we are very very focused.
On our what I'll call short and medium term performance.
And well, particularly focused on efficiency in the organization and where there are cost and efficiency opportunities and we think over the next 12 to 24 month, we can make meaningful progress on that and when we get a strategic update we will probably quantify that more specifically a in addition, we aren't making investments in platform.
Is that sort of our clients, where we think we will see tangible benefits in the next 12 to 24 months that can be with respect to footprint expansion that can be with respect to technology platforms inside our securities business, a lot better cake connectivity to our clients and so I think there's a mix of things that both.
Enhance our move US along in the next 12 to 24 months and then we've been talking on this call and otherwise about some of what I'll call. The bigger tent pole investments, where we'll see the benefits over a three to five year period, and we have objectives to build bigger businesses over the next decade, Steven the one other thing I'll add to to Davids comments.
Is around funding optimization, and liquidity management, which I think will yield much shorter term benefit to the from overall and that work has has has already begun answer there I'm talking about.
Funding substitution to lower cost retail deposits relative to wholesale it it is being more diligent about overall liquidity management in the firm and sizing liquidity appropriately I think all of those in addition to a David was speaking about in terms of efficiency and overall operating expenses will be too.
Near term elements that I think people can look too you know in the context of the longer term profile to some of the the bigger investments.
Thank you both for that helpful color and just one follow up for me on that.
Election, certainly encouraging to hear that you're seeing your backlog growth I was hoping you could speak about the election uncertainty, how that's impacting CEO confidence and maybe just bigger picture as it relates to some of the growth initiatives given the heightened scrutiny of the private equity business by some of the more progressive candidates how does that inform your decision to employ more reserve.
This is towards that expansion, particularly on the alternative side.
Sure and I appreciate that question and you know as you would expect as I travel around to talk to people people are interested now I'm talking about the election. The election cycle started but I would just highlight that were very very early in the process and I think the speculate on where we wind up with candidates and also depending on which.
Candidates, we wind up with what we wind up in the context of an election.
What we wind up in the context of the legislative process after the election and how some of what's going to get discussed and an election cycle turns into policy I still think there's a lot of ground to cover.
We're building to the second part of your question and investment platform for the long run private investment.
Private investment alternative investment activities, whether its private equity or credit or infrastructure, our growth capital I think despite the fact that there can be dialogue around evolutions in that business or potential regulation of certain aspects of that that will not change the opportunity in those businesses.
As for us over a long period of time. In addition, I. Just also highlight then I think one of the virtues of our organization is that were agile nimble responsive and adaptive we've been around for 150 years, there's been a lot of different political regimes, there's been lots of evolutions in markets and I think this organization has always proven that.
Can adapt and it can respond and so we're watching the environment like everyone else I think it's early to draw conclusions, but we'll always be thinking from both a client standpoint, a strategic standpoint on a risk management standpoint, as we have more information how to best position to firm for returns for our shareholders.
Your next question is from a line of Betsy Gray sick of with Morgan Stanley . Please go ahead.
Hey, good morning.
Hey, good morning Betsy.
Two questions. One I you cited the deposits 55 billion you know obviously, a very large number that you've been able to generate over the course last couple of years and Marcus and others. Just wondering how youre thinking about redeploying that and the growth you're expecting from here into your business is it all into <unk>.
Bonds or.
Can you do more than just loans with the deposits sure. So thanks, but see on deposits.
Obviously, they've doubled retail deposits have doubled in the year and our anticipation is to continue to grow it across the us in the UK platform by about $10 billion a year.
What that does for US is it enables us to fund a variety of different businesses not limited to loans in the context of that which sits in the back and so in as much as we are raising deposits were equally mindful of businesses that can be brought into the bank entity. So as to avail ourselves of the deposits were raising and so there are enough.
Number of businesses, including our rates business and equally the movement of our FX business, which is much more suited to consume short dated retail deposits than longer duration wholesale funding and so we're moving more businesses into the bank both the U.S. and the UK bank, so as to take advantage of the growth and the.
In the more attractive both term and pricing on those deposits themselves.
Okay. That's helpful. And then as you think about see re configuration of how you're presenting goldman's <unk> earnings to the street in January Weird is where does the value of those deposits get allocated does that get allocated to a consumer bank does that get allocated to you know the.
Top of the shop to the Federation.
I'm just trying to understand how you're thinking through the value of that deposit creation, who gets credit for that sure. So I think it would be a little early to get into that granularity you know our objective as it gets where the ended the year and certainly at the end of January when we present to the market. You know our objective is to have a enhancement to our disclosure.
You know, which will give people a much better sense of how we manage the business and therefore, how we talk about the business and easily providing all of you you know with kind of the right lens through which to look at our business more broadly.
We've been taking commentary and perspective from investors and from you in the context of where there's been some frustration I hear it loud and clear in the context of frustration with iron L. as an example, and so we're going to guide ourselves in the direction of segments. You know to meet some of what all of you have been asking for and just.
On that particular issue I think you'll need to wait till we finalize some of what we do.
Your next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Hi, I'm going to Hi, Mike.
If you could just give a little bit more color on the technology investments I mean like your stock trades below tangible book value for a company that's grown book value twice the pace. The S of the S&P 500 over the last two decades, so somebody's not convinced about your investments and eventual pay off so.
As a side note you know how when does that drag 60 basis points to Aro he become positive over you know how many years, but more importantly, what are the external milestones.
That we can monitor to see if you're on track are now or do we just have to wait three to five years and say, okay. You made it or not and I I know my career I've covered other companies. They say it's on track then five years, sometimes 10 years later you got what's it didn't work. So how do we know that you'll be that the good version instead of the bad version and then if you want to.
Adding some governance changes that you're doing Dave it seems like from a tire or to be the destination workplace for technologists.
Okay. So there's there's a lot during the question, but let me let me on Mike a couple of things at a high level and died and first look I certainly expect us to be on the good end of what you're saying and one of the reasons that were working toward the strategic update in January as one of the things that we expect to lay out for you is targets that will be held accountable to.
I can also give you a better sense and more transparency on what we're doing and how you should hold us accountable over a period of time for doing it and I, just say and I noticed this this might be in some ways you know not moving as fast as you'd like or not moving as quickly, but the lens I'd like you to consider you know looking through as we started on this journey.
A year ago.
And in the context of a year, where meaningfully increasing the transparency, we're moving in the direction of doing this and it just takes some time, but I understand the question and the demand that you have that we need to lay out some clear objectives and better metrics and more transparency I think we're on our way too wide to doing that I can't comment on.
You know why the firm.
I'll use US you know where it does but what I do believe that if we continue to compound our book value on both an absolute basis. You pointed out you know over 20 years I'd point out that our book value growth over one year three years five years 10 years has outpaced the appears that if we continue to do that overtime and if.
Overtime, because the investments that we make add more fee based or durable revenue to our business mix and were able therefore to move our returns higher I do believe over the time the market will reward us as Stephen do anything else that you would add based on some of the the questions that Mike Mike laid out no I think Mike maybe to address the question.
In a timeline so not all of these initiatives you know operate in the same sort of time sequence. So as an example, I think that consumer initiative is one you know that will be over the medium to long term what we've built to this point in three years. You know is effectively a bank that is $55 billion.
Deposits and 5 billion in loans and a new credit card platform, that's been done with Apple, but that can go in a variety of different places and partnerships I think that will take some time to sort of see that investment payout.
Shorter term I would say you could look at for example transaction banking, where you know that platform is one where as we've said several times. We are the first customer we are current customer that so right now we processed more than $250 billion of payments for Goldman Sachs through.
Platform.
An equally we are on schedule to bring very consequential corporate clients of the firm onto that platform and I think given the nature of that spend its ability to borrow on some of the technology that was built on the consumer side.
We'll have a much faster sort of pay back if you will relative to the longer cycle around consumer and so I think these will vary but David to 100% right. We will present to you metrics by which you should measure us and we'll hold ourselves to it as we execute along this along this path.
And then just one follow up then I mean, if you're in Silicon Valley, you're saying, what you're doing is just phenomenal I mean, there just saying this is fantastic if you're a competitor of Goldman I'd have to say they are not taking this too seriously base to my conversation. So what is it that your big Universal Bank competitors are and.
Operating and by consequence to shareholders are under appreciating in terms of how they expect to pay off from these investments.
Hi.
I understand the question at <unk> at a high level might but what I'd say here is one way to think about it over the course of the last three years, we've built a digital consumer platform. That's only beginning to evolve that has $55 billion of deposits. It has $5 billion of loans. It has four to 5 million customers. We've also built the first credit card.
Third platform in a meaningful period of time out of launched a partnership with it and what we believe is one of the most successful credit card launches if not the most successful credit card launch I ever. If we've spent on that you know over a billion dollars little over a billion dollars. If you were asked would you spend a billion dollars to get that.
You would say sure you might spend more certainly someone could have justified our spending meaningfully more the kind of acquire that inorganically. We're very focused on proving what we do over time I think this firm overtime as a good track record of building businesses that are successfully integrated into the firm I really succeed overtime.
Hi, My pointed this out earlier on the call when I highlighted our asset management business. It was built over a long period of time for international business. It was built over a long period of time are investing platforms that were built over long period of time and so we're focused on proving ourselves over time, we're focused on our clients them or less focused on competitor views on on these issues.
Your next question is from a line of Brennan Hawken with VBS. Please go ahead.
Hi, Good morning, guys. Thanks for taking my questions. My first one you guys have done some some smaller opportunistic deals recently.
But with the potential it sounds like you are closer and in active discussions on one MDB and putting that behind you, which is great <unk> once you're able to have clarity on that does that open you up for to consider some some larger deals and one place that investors have recently started to focus on would be just.
Broker space, it's been hit recently with commission cuts seems to fit with your new strategic direction.
So when you think about a deal I know you probably wouldn't want to talk about anything specific any particular space, but how would you balance.
Assessing tangible book <unk> regulatory capital hits versus long term growth and maybe attractiveness of low cost deposits and other benefits like that.
Sure as and I appreciate the I appreciate it appreciate the question, Brad and we've talked a little bit about this you know overtime I think one of the things. This management team is trying to do is to think broadly both about our organic growth, but also potential opportunities overtime for inorganic growth.
I've said on this call on previous calls the bar for us to do something Inorganically, especially something significant organically is very very high at the same point if the job of this management team to have a point of view went to be doing work and to be thinking about opportunities that can expand our franchise.
The online or the discount brokerage area is not one that we're particularly focused on we are focused on the growth of our wealth management business in the wealth management channel to the acquisition United Capital that we just made which we think fits very nicely into our eco platform a access the corporation as a unique.
Okay, and differentiated channel through which to access mass affluent wealth and so we're much more focused on the build out of that ultimately timing digital capabilities to that and I think that's in the wealth management area, where in the near term you'll see our primary focus.
Thanks, David that's that's very helpful color and then my follow up provisions are you guys spoke a bit about it idiosyncratic, which makes sense either one books largely commercial so you know preserved provision build tends to be idiosyncratic.
How should we think about that over time, though that portfolios beginning to season should we generally think that that the trend is is generally upward.
And do we do we use this as a starting off point or because they are you able to idiosyncratic we should adjust for it a bit normalize it and then grow it from there is there any color on how to think about that.
Well it.
It's difficult to predict kind of the forward trend because obviously you know will be mindful of where the markets are and what risk looks like in the context of taking on accretive lending opportunities.
In the last year the run rate of net interest income that we are taking in on the book is gone from 2.8 billion on an annualized basis to 3.6 looking at the near 900 million that was generated in the quarter.
We're doing that on the basis of the secured were largely secured book.
And we are experiencing very little in the way of NIM compression in the context of where were lending and so you know I would say will be driven by client demand will be driven by.
Opportunities that are presented more broadly, but we're going to do it only in the context of ensuring that we're mindful of risk we're embedding appropriate covenants into our lending were lending into a diversified book.
And we're trying to achieve as much as we can you know to to kind of the 84% secured book you know that we've been on and I think you know you should take that as the general direction will go in terms of overall corporate lending.
Your next question is from a line of Jim Mitchell with Buckingham Research. Please go ahead.
Hey, good morning.
Just a quick follow up on on the Apple Cart, David You mentioned a couple of times, that's been potentially one of the most successful launches ever could you share any kind of I.
I know, it's early days, but any kind of initial success, whether its lending balances card number of cards out there.
The trend, you're seeing with usage that kind of stuff.
So I'd say couple of things on the card, we're not a position to share kind of detailed information about it would I would tell you though is that we have seen the pretty spectacular reception to the card as a product.
The approval rates early on have been lower and I say that that's a decision obviously Goldman Sachs is making as the bank, but we're doing that in concert with Apple and it is because we're quite vigilant from a risk point of view of not being negatively selected out of the box, meaning over time, we'll start to see better credit.
Appear the approval rates will go up but we've seen an enormous inbound we've issued a considerable amount of cards. We've just been through our first build cycle, which went smoothly and so from an operational point of view, it's gone well too early to tell in a short a period of time as we've launched this as to sort of what the revolver trends.
Dr mix looks like it's just too early.
From an operational point of view from a risk perspective, you know skewing to the higher side of FICO bands I think we're very very pleased as is Apple with this sort of early month or two or three into this and you know we'll have more to say as we get further into the development of the portfolio itself.
That's helpful and maybe just switching gears on a follow up on just sort of the whole.
Fishing see discussion on the on the legacy business you talked about whether its funding efficiency expense efficiency is there anything left to do on sort of capital efficiency standpoint, do you see a material opportunities there as well to those returns or is it mostly.
<unk> expense, whether its interest expense.
Well I would say listen I think the opportunity sits across all of the categories to be honest I mean, you know you're never in a position where you should be satisfied that you're at a static pointing capital is always an opportunity to optimize across a range of different businesses and to look to take capital on a consistent basis and deploy.
But even higher returns than where its deployed at any given moment in time I'd also say that we're constantly looking and as David said, we'll share more with you when we when we present in January at a fairly aggressive opportunity set to look at expenses and equally and as I've talked about.
You know looking at funding opportunities and liquidity overall some of what we've done you know on that score, particularly with as it relates to expenses is as you know in the context of our front to back initiative, which was to take operational and technology resources and put them, but by and large.
Into the businesses that are consuming what it is that those individuals are up to keeping back a very central and strong core both in technology in ops, but part of that is to have the businesses in much better greater more proximate control to the expense base in the context of both operations and technology.
And we're going to continue to look around the organization, you know to do that and and and and in the course of it you know lower operational risk and raise our overall efficiency.
Your next question is from a line of Chris Kotowski with Oppenheimer. Please go ahead.
Yeah. Good morning, I, just wanted to get clarification from Steve on two items. One is when you talked about the pace of investments you said something like.
That that.
That that kind of.
The message I took permit as I kind of your at the run rate of investments now and that it doesn't necessarily increase in 2020 was that means that the right way to interpret that well do it the way I would consider it is that you know the rate of growth is going to decrease right in subsequent years on the static book of initiatives that we're looking obviously.
If there are other opportunities that present themselves that we deemed to be accretive to the overall you know just shareholder value, we'll pursue them, but against the book of initiatives that were up to 19 should be the depth of what you see the depth, meaning okay.
And then on the buybacks you mentioned, the 673 versus kind of the 1.75 pace that you know what one would have a nice assume from the C car and you said you would come or or come back into that I mean does that mean, we should expect the pace to go back.
Back to 1.75 are we going to catch up but.
Well you weren't able to do.
This quarter through the rest of the year.
Sure. So so let me be clear, we pulled ourselves out of the market you know in the context of what I had cited which was discussions ongoing with respect to one MDB on the back of the disclosures that we've made and just an assessment that we always make about the prudence of being in or out of the market on any number of days.
Front variables, including one MDD, we are now back in the market Weve been back in the market based on an existing Tenbfive. One program that we put so as to avoid the vagaries of being in or out.
Equally we're now in a position to be back.
Repurchasing in the open market.
I mentioned that you know it was in some sense fortunate that this was the first of the four quarters within the C. CCAR cycle. Therefore, we have the opportunity to carry forward. What we did not use in the context of this last quarter and our intention as we sit here given from a position of capital stock.
Aim is to continue along the strategy and philosophy that we've had which is to return capital back to shareholders as in to the extent that theres not other deployment that's accretive in the context of growth and shareholder value. We'll continue to do that obviously now with the benefit of the unused.
Capacity from last quarter now to put against what we can do this quarter.
Your next question is from the line of Devin Ryan with JMP Securities. Please go ahead.
Great. Thanks.
And David Stephen I.
I guess a couple follow ups here just on some of the newer growth initiatives in transaction services, you're you're testing your own platform. It sounds like Ah, that's going well, but I just wanted to dig in a bit since you're moving closer to onboard and clients. So the question is if you can talk a little bit doctors, the early feedback from customers and how you're framing.
The competitive advantages and it really just how you expect that business is going to ramp meeting.
Expectation that you're gonna when kind of a small piece of customers wallets initially and then potentially could scale from there or are you expecting some chunky mandates early on sure.
So as I said, we are now using the platform operationally and so it's not in sort of small amount testing we've been through that period now we're using it you know as I said to the tune of more than $250 billion of payments being made for Goldman Sachs in terms of the forward and.
Clients, we have been engaged as early as the diligence around the idea was a number of very large corporate clients. So as to ascertain a couple of things one.
What did they think was missing from that which they are using currently and secondly, what could we be building a you know toes so as to satisfy the needs of what they want many big corporates have a platform that carries three or four banks on that platform much as our longer term ambition is to be a major player in the place.
In the space and to sit in one or two you know our early ambition is to be in the three or four slot and work our way into the platform and we will start you know across the five major currencies.
What I think and what we're hearing many large corporates say about the attractiveness of what we're building is twofold. One that is the technology interface is much better much newer not nearly as manual in terms of reconciliation as what clients have been accustomed to.
Used for technology that largely has not changed over the last many years second you know in the context of funding and operational deposits. Obviously Goldman Sachs is a good buyer of incremental deposits. We've shown that in the context of retail deposits it will be true around sticky operations.
All deposits and while were not intending to lead with cost you know doubling if you will what big commercial banks are paying in terms of one or two basis points to sort of three four or five basis points. I can assure you will be meaningfully accretive to the firm in terms of funding substitution. So I think a function both of.
The technology interface.
The the spend or what we will pay out for operational deposits. I think are two elements are in terms of what's driving the attraction of certain corporate clients you know into what it is that we're building.
Yeah.
Thanks for all the course either appreciate it.
Just a follow up here you almost exactly a year ago, you announced Aimcos a.
Hi profile partnership with Google to provide financial wellness to kind of the entire employee base and I know.
Some of the recent.
She is in the United Capital transaction are gonna be synergistic theirs is I think David mentioned in the prepared remarks, I'm just curious how how you're going to market as you focus more broadly what kind of full employee bases of firms and and really you know whether you are aggressively marketing the platform to some of the larger organizations that I know Goldman has relationship.
With the war, if it makes sense to or their hey, logic behind trying to connect more into kind of your consumer offering essentially waiting to to really push hard.
So do you have a broader platform before you really kind of go through kind of all those relationships you have on the.
It's a firm level, just trying to think about kind of how to gauge.
What you're doing what kind of full employee bases of Oh, the firms that you're working towards on the wealth management side. Yeah. So I'd say, we obviously think we have a unique distribution channel to echo and our corporate relationships as you highlight Devin I am we've started the process of going after that but I'd say, we still have a lot of upside I'd say the footprint if it goes connectivity to the fourth.
And 100 is high the footprint of connectivity to the Fortune 1000, there's an awful lot of upside and one of the things that the acquisition of United Capital does is it allows us to accelerate the penetration in those corporations and one of the things. We found is if you deliver a good product and service to the top.
Comps of those organizations or the most senior people in those organizations. The ability then to next step moving through the organization follows on quite clearly so we see a good opportunity and a lot of upside to expand that channel. That's why we're very very focused on it overtime I do think as you highlight there can be.
Digital connectivity as we build a more digital to market platform, but that's still something that's off in the future and so we continue to focus on really penetrate a broader set of corporate clients, where we have good relationships and access to their employee base.
Your next question is from line of Gerard Cassidy with RBC capital. Please go ahead.
Thank you good afternoon, Stephen Devin.
Hi.
Question I had is obviously as you guys pointed out in your numbers your number one a year to date in global equity underwriting could you guys give us some color and what your views are about the direct listing there was a apparently a big meeting out in California, you probably saw written about in the third quarter or more.
I believe in October , but can you just give us your thoughts on the threat to the equity underwriting business, possibly could from these direct listings.
Sure.
You know what a in a high level I'd say that the utility of direct listings and the number of directly or things that we'll see overtime is still something what I think there's a lot of question there have been to direct listings.
We've participated as.
And we need advisor or the lead advisor in both those direct listings.
I think the companies or in some way unusual in the context of the way they approach the market, but I still think that whether or not this is the best path or a path that could be opened two lots of companies approaching the market is still something that's that's questionable no <unk> one of the things that the IPO process does generally is you raised.
Capital and therefore, there is a price discovery around creating depth of liquidity because people actually raising capital obviously, the two companies have gone through direct listing process did not need to raise capital. It's interesting to note you know where those companies are at the current point.
We are engaged as others are in dialogue about this we're very very open to helping our clients I if they're interested in considering a direct listing and so we're participating actively in those discussions I'd say I think the the noise around this really disrupting the IPO market or potential.
We just lumped in the economic opportunity for the leading banks like ourselves and a handful of others in the IPO market is overstated at this point, but I do think that they'll continue to be evolution in these processes and if there are ways that we can serve clients better or find ways to get them to market more efficiently. You know, we're certainly willing to do that.
I like where we sit as the leading from a one of the leading firms because whether a direct listing or a traditional IPO process, we benefit from both those channels.
Very good and then.
Moving over to the equity markets business.
Really we've all seen on the consumer side.
Charles Schwab fill the bring their commission rates down to zero and we know in cash equities institutional rates have fallen and Electronification has helped everybody you know manage that decline in rates do you guys ever in vision that we could get to zero commissions and cash equities similar to what we've seen the retail side.
I you know look I think it's I think it's a more complicated equation because I think for the leading franchises in the equity business you really have an integrated platform at scale on a global basis, that's providing value in a variety of wave and it's very hard to pulled out of part entirely so.
The answer to your question is scale really benefits us and the other people that that aren't a leading position it's not just execution, but it's also financing and those things get lumped together I think it's unlikely that it goes to zero, but I do think to the degree there is more pressure on commissions, which there has been and then.
Probably will continue to be the organizations that have global scale and ability to use financing a balance sheet as an integrated capability I think should continue to do well if you actually go back and look at the market share where the wallet share, but the top three platforms have over the last five to 10 years, they've actually gain.
And wallet share in that period of time, and you can really see the benefit of scale.
Your next question is from a line of Brian Kleinhanzl with KBW. Please go ahead.
Yeah I just had one quick question have you given some of the pluses and minuses around expenses and some of the growth investments that you're doing this year, but I mean, if you think about it is the right way to think about this isn't a if you had a flat revenue environment, you still should be able to see expenses decline therefore generate positive operating leverage thanks.
Sure I mean, I think much of the investing we're doing is consuming operating leverage that exists in the business and you know the forward initiatives that Dave and I've talked about in terms of.
No funding rationalization and expense reduction are all initiatives that need and must go on and they'll continue to create operating leverage in the business, which will be put toward growth opportunities in the firm or shareholder return in the absence of them.
Your next question from the line of Marty most be with Vining Sparks. Please go ahead.
Thanks couple of questions. When you look at your net interest margin or 43 basis points.
Can you kind of parse out you know what you get from the markets and what that margin looks like and what the net margin looks like in your banking business because as you are growing though the banking side.
You should be able to see the margin cotton widen out.
We haven't really seen as much of that so up and you know cod counting on that as a part of the business mix is that your higher margin business is gonna be growing faster and Ah just was wondering if that's something we should be able to assume over the next you know you're too.
Well one thing I would say is I would be careful you know to look at NIM across all of our businesses as kind of the relevant metrics for how well we are producing so for example, you know its or it's a less relevant metric or element in for example, our.
Trading business.
You know Rachel move up and down there is higher turnover et cetera, et cetera, I think the the relevance to NIM is more in our debt I an l. line.
Because that looks and is more like the extension of credit and you know the margin you harvest on credit extension more broadly and as I think I responded earlier you know our NIM has been very steady marginal literally marginal compression in the overall NIM in the book and I say that in.
Context of that book growing you know to an annualized basis of something on the order of $3.6 billion year again with all the attending vigilance to risk and the like and so I think NIM is more relevant in the context of debt I NL less relevant in terms of you know observable metrics about the performance of our business.
As most notably within the trading business itself.
And could you give us some feel for what level of margin in that business. So there's more relevant to that particular business.
Well I don't see him in a position to sort of you know give out the margins for each of the businesses I would say that as you look across our businesses. It wouldn't surprise you that.
On a segment basis investment banking and investing in lending you know carry with them very hard and margins lower margins in the context of certain of the other businesses, most notably in FICC and equities.
So I think that's probably a good survey if you will have sort of general direction of margin as an among the segments themselves.
At the same they're under for the questions. Please continue with any closing remarks.
Okay. Since there are no more questions I'd like to take a moment to thank everyone for joining the call on behalf of our senior management team, we hope to see many of you in coming months, if any additional questions arise in the meantime, please don't hesitate to reach out to Heather otherwise enjoy the rest of your day and we look forward to speaking with you in January Thank you.
Ladies and gentlemen, this does conclude the Goldman Sachs third quarter 2019, the earnings conference call. Thank you for your participation you may now disconnect.