Q4 2020 Goldman Sachs Group Inc Earnings Call

Good morning, My name is Dennis and I will be your conference facilitator today I would like to welcome everyone to the Goldman Sachs for fourth quarter, 'twenty and 'twenty earnings Conference call.

This call is being recorded today January 19th 'twenty and 'twenty. One. Thank you Ms. Miner, you may begin your conference.

This is Heather Kennedy miner head of Investor Relations at Goldman Sachs and welcome to our fourth quarter earnings Conference call. Today, We will reference bolt our strategic update and the earnings presentation, which can be found on the Investor Relations page for a website at www Dot G. S. Dot com no information on forward looking statements and.

Non-GAAP measures appear in both presentations. 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 by our Chairman and Chief Executive Officer, David Solomon and our Chief Financial Officer. Stephen Scherr. This morning, we are pleased to review the firm's fourth quarter and full year performance. In addition to providing an update on the strategic plan, we outlined at last year's Investor Day.

David and Stephen will be happy to take your questions. Following their remarks, I will now pass the call over to David David Thanks, Heather and thank you everybody for joining us this morning.

And we begin with page one of our strategic update presentation I'm pleased to report the 'twenty and 'twenty was a year of strong performance for Goldman Sachs. As we successfully navigated unexpected operating backdrop characterized by near record volatility and correspondingly high client activity.

This year was marked by an extraordinary decline and economic activity and the second quarter brought on by COVID-19, and a dramatic reversal and the third and fourth quarter as economic output and unemployment partially reversed course.

This volatility contributed to severe dislocation across asset classes, which was met by profound fiscal and monetary actions taken across the globe.

Goldman Sachs met the needs of our clients rely on on dynamic management of the firm's liquidity and balance sheet to provide complex risk intermediation financing solutions and advice and innovative thought leadership.

Momentum remains strong into yearend as we produced record revenues for the fourth quarter of $11 7 billion, resulting in record quarterly earnings per share of $12.08.

For the full year, we grew revenue by 22% to $44 6 billion, our highest revenue production and more than a decade, which allowed us to generate meaningful operating leverage we delivered a full year ROE of 11, 1% notwithstanding a nearly four percentage point impact on litigation expense.

This revenue growth was clearly driven by a larger opportunity set given the extraordinary activity throughout 2020, well industry wallet grew and we also took meaningful market share across businesses and geographies. We continued to demonstrate the strength of our diversified business we.

We maintained our leading global position and completed M&A as we have for 19 of the past 20 years and strong leadership position and strong league table positions and underwriting, including a number one ranking and equity and equity linked offerings and a top three ranking and high yield.

We delivered robust performance in global markets, and both FIC and equities and solid client activity across our global platform and grew market share across businesses and client groups are next generation trading talent now and positions of leadership demonstrated strong risk management discipline and client focus and executing against and.

And the opportunity set.

And asset management, we had record management and other fees as well as continued growth and our assets under supervision.

We also generated solid revenues from on balance sheet investments driven by public marks and event driven gains on our portfolio. We continued our broader effort to reduce the balance sheet and intensity of this business as we transition to more third party investing.

We continue to provide high quality advice to our wealth management clients producing record revenues and generated strong growth and our consumer business.

Finally, and perhaps most importantly, we maintained a resilient and highly liquid balance sheet and demonstrated agility and the deployment of capital to serve clients and mid high levels of market volatility and evolving regulatory constraints.

While we are cautiously optimistic given improving macro trends, we recognize that the operating backdrop will continue to evolve.

Although we are now seeing the initial rollout of vaccines and the U S U K and other nations there remains significant uncertainty and the path forward related to virus resurgence vaccine distribution and further fiscal stimulus and geopolitical risks.

Let me underscore the progress on economic growth is contingent on an effective vaccine rollout program globally.

Urge political leaders at all levels and across all jurisdictions to do everything possible to implement a coordinated and country comprehensive distribution plan and its absence economic recovery will be unnecessarily delayed.

Economists continue to anticipate a mixed outlook for near term growth the.

And the expectation is that will take at least until at least the second quarter return to pre pandemic levels of output.

Our economists expect GDP growth this year of roughly six 5% both globally and in the U S, which would suggest a more rapid recovery.

Still circumstances around COVID-19 remains fluid and we remain vigilant about risks on the markets and potential weaknesses and the broader economy.

Looking ahead, the extreme volatility of 2020 is unlikely to repeat given the government actions taken last year, Nevertheless, and I'm confident the Goldman Sachs will continue to benefit from the established wallet share gains made in 2020 across and expanding client set, particularly and investment banking and global markets and continue to develop more durable revenue.

Is across asset management and consumer wealth management.

Let me turn to page two and.

And the 12 months since our Investor day, we've made steady progress towards our medium term goals and we remain confident that we will achieve these targets as well as our longer term goal of mid teens or higher returns.

Our 2020 ROE when adjusted to exclude the impact of litigation comfortably exceeds our 13% medium term target.

We are pleased with our progress on funding diversification as we grew deposits by $70 billion and 2020.

While the fed funds rate declined faster than the reduction and our deposit rates, we have since adjusted our pricing, which should allow us to achieve our funding optimization goals by 2022.

We're making headway and realizing expense efficiencies throughout the organization and have achieved approximately half of the $1 3 billion initial target we presented at our Investor Day, We will continue to make progress from here and we will evaluate additional opportunities for further expense savings.

Finally, with respect to capital our CET one ratio stands at 14, 7%.

This positions us well to serve clients and accelerate capital returns to shareholders and the first quarter. We continue to believe that a 13 to 13, 5% ratio is appropriate for the firm over the medium term. We are encouraged by the results of the recent mid cycle stress test.

We will continue to proactively reduce the stress capital intensity of our businesses, including through continued sales of our on balance sheet private equity investments.

And John Stephen and I have emphasized many times, we are committed to holding ourselves accountable and being transparent with our stakeholders on a progress we are tracking roughly 30 firm wide kpis and many additional business level metrics on a regular basis to measure our success as we execute on all aspects of our strategy.

Let me now turn to page three well last January's Investor day, It seems distant given the events of the past year. The pillars of our strategic direction remains unchanged. Our strategy is simple first to grow and strengthen our existing franchise and capture higher wallet share across a wider client set.

And to diversify our products and services in order to build a more durable earnings stream and.

And third to operate more efficiently so that we can drive higher margins and returns across the organization.

We are seeing early success and each category.

Moving to page for the strength of our firm's culture is the foundation for our performance as individuals on the firm and is central to the success that we achieved in 2020.

Delivering the entire firm to our clients through our one Goldman Sachs approach is crucial to our mission and clients remain for center of everything we do.

The investments, we made to breakdown internal silos and motivate better collaboration across the firm had been critical and will continue to guide our approach going forward.

Equally corridor mission is delivering on our firm's purpose to advance sustainable economic growth and financial opportunity. This purpose is fundamental to our 10 year 750 billion dollar sustainable finance commitment that cuts across two broad pillars climate transition and inclusive growth.

During the year, we have worked closely with our clients to deepen knowledge and expertise developed capabilities and accelerate commercial activity.

We are delivering integrated ESG solutions across our client base and I am proud of the firm's leadership on this topic and optimistic about the benefits that these opportunities will bring to our clients.

As we pursue these ambitious goals. We will also continue to focus on our people.

Diversity is an imperative for our organization for Goldman Sachs. It is about bringing diverse people perspectives and ability abilities together to best serve our stakeholders and fosters a more creative thinking and supports the inclusive sustainable growth that is core to our long term business strategy, while our recent progress is encouraging including the most day.

<unk> campus analyst class ever to join the firm this past summer and improved diversity of our most recent partner and managing director classes. The events for the past year have reinforced how much further we have to go to enhanced diversity and inclusion throughout the firm. This remains a personal priority for me and we will continue to hold ourselves accountable to make further advancements.

Including through our new aspirational goals to drive diverse hiring more levels of the firm.

Let me now take you through each of our four operating segments and we'll start with investment banking.

Well, we remain the advisor of choice for corporations around the world and 2020 as measured against the goals set out at our Investor Day, we maintained our number one ranking and announced and completed M&A and equity and equity linked offerings. We also ranked on the top for for wallet share and global debt underwriting through the third quarter. We spoke last January.

Our aim to grow share and our core business, we began to execute on this goal in 2020 as announced M&A deal count was up along with our equity underwriting and wallet share.

Our footprint expansion efforts on our footprint expansion efforts, we have met our investor day target for client coverage, we generated in excess of $800 million of revenue and 2020 from this client set and we expect this to be an important source of growth going forward.

Across the business, we have added approximately 2700 net new clients since 2017, and we will continue to add new clients to sustain the space we.

We are cautiously optimistic on the outlook for investment banking, given the robust activity levels and the capital markets and the elevated strategic activity on the back of improving CEO confidence reflected in our near record backlog at the end of the year.

We are also pleased with the early success of our transaction banking platform with which since its last launch last June has attracted roughly 225 corporate clients and nearly $30 billion of deposits and is well positioned to drive growth and more durable revenues for the firm.

Combination of our attractive product offering strong client receptivity and tailwind created by the macroeconomic environment drove deposit growth ahead of expectations as we work to deliver greater functionality the clients and continue their on boarding we will convert more of these deposits to operational providing increased funding utility.

And to the firm.

We also continue to look for innovative ways to expand the reach of our platform to new clients as we did with our recent partnership with stripe, which embeds, our transaction banking payment and deposit solutions directly into stripes platform, making these products available to its millions of small business customers.

Let me now turn to page six.

And 2020, our global markets business posted its strongest net revenues and a decade.

<unk> and our return targets laid out for the business at Investor Day.

Global markets is a business that many believed should have been downsized when John Stephen and I took our seats.

While it's only a single year the performance of the business and 2020 is on early validation of our decision to stay the course.

The teams worked diligently to serve our clients through the challenges of 2020, providing liquidity across asset classes intermediate risk and engaging and structured solutions, while also supporting significant volumes across expanding digital platforms.

We also advanced on our Investor day objective of moving into a top three position with more of the top 100 institutional clients. We are now on the top three across 64 of these firms up from 51, a year ago. We gained 120 basis points of wallet share through the third quarter of 2020, which we intend to make.

Turning to our deepened client relationships superior risk intermediation, and ongoing investment and technology platforms.

We set a goal and January to increase our client financing activity a record fixed financing revenues for 2020 demonstrate our ability to meet this target. Additionally, we continued to strengthen our prime business, where we closed the year with record balances. The result of a multi year investment and platform enhancements and other client oriented initiatives, particularly.

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Finally, while we saw meaningful revenue growth and global markets. We remain focused on operating efficiency, we achieved roughly $400 million and expense efficiencies last year, and allocated 1.1, and a quarter $1 billion of capital and that business to more accretive opportunities. Both ahead of schedule.

Across any level the industry wallet the progress that we've made and global markets has improved the businesses structural return profile.

Let me now turn to page seven.

Current management business experienced solid performance in 2020 marked by continued growth and assets under supervision driving record management and other fees.

Our status as one of the world's leading global asset managers has served us well during this volatile period.

Asset management business provides clients with offerings across the spectrum from liquidity to alternatives and we will continue to grow this business opportunistically by serving our clients' needs and differentiating our offerings with holistic advice investment solutions and portfolio implementation.

We're progressing well towards our longer term objectives of $250 billion of growth and traditional equity and fixed income products and $100 billion of net inflows two alternatives.

Does that and we spoke at Investor day about growing our third party alternatives business and we are pleased with our early achievements, we have raised approximately $40 billion and commitments to date across asset classes, including private equity private credit and real estate.

This is good progress toward our goal of 150 billion and gross fund raising over five years. Additionally, we are encouraged by the expanding number of institutions that are investing with Goldman Sachs. Many pension funds and international institutions participating and recent fund offerings, our new investing clients to the firm.

As we shift towards a greater emphasis on third party funds. We also continue to work to optimize the capital consumption of our asset management business.

And we sold or announced the sale of over $4 billion of gross equity investments and 2020 with the related 2 billion of expected lower capital.

We will continue to advance the sell down process and 2021 and beyond to achieve the objectives, we set out on our Investor day.

Fortunately as we highlighted at Investor day incentive fees on portfolio remain unrecognized until investments are sold and fund return thresholds are achieved our estimated unrecognized incentive fees currently stand at $1 8 billion.

Turning to page eight.

We made meaningful advancements this year and growing our consumer and wealth management segment, particularly and expanding our customer base building on our technology platform and leveraging on our corporate franchise.

We remain committed to delivering tailored advice and simple and transparent financial solutions to our individual clients across the wealth spectrum and our goals here remain integral to our strategic priorities.

Our wealth management franchise remains a crown jewel for the firm.

Revenues grew 10% year over year to a record $4 8 billion as our clients largely remained invested through on certain market conditions.

And our private wealth management business. This success has long been built on the strength depth and trust and client relationships, which became even more relevant as COVID-19 limited face to face interaction.

Throughout this period, our private wealth advisors have continued to maintain high levels of client and the engagement and deliver trusted advice.

While the environment has caused us to slow some of our hiring efforts in this area. We remain committed to the growth potential of this franchise.

We also continue to expand our high net worth platform through <unk> and personal financial management, our rebranded United Capital business. Our eco platform achieved its annual goal of bringing more than 30, new corporate clients onto the platform and 2020 as corporates of all types increasingly look to a go for financial plan.

And while on the solutions.

We remain well positioned to meet this ongoing need given and it goes broad spectrum of offerings as well its connectivity with our investment banking franchise, and our new personal financial management capabilities, we've already begun to see significant synergies as a result of these advantages with over 4000 referrals and 2020, representing over 7 billion.

The U S opportunity across these channels.

Moving to page nine I want to provide some additional detail on our consumer business, which continues to perform well and deliver strong growth.

The pandemic has reaffirmed our view that traditional banking has not kept up with the way people live their lives today and the Goldman Sachs is uniquely placed to step into this GAAP.

We've had early success launching online savings lending and credit card and we are now moving to the next phase of our growth plan, taking us from a series of singular products to a more comprehensive offering.

We are particularly excited about the launch of Marcus and desk platform and the U S. This quarter, which for the first time brings the investing and expertise of Goldman Sachs directly to mass affluent customers. Following our U S launch we plan to expand for the U K and the second half of the year.

Mark is invest will offer individuals' the ability to invest as little as $1000 and our propriety part proprietary asset allocation strategies with options raising from index funds and ESG focused etfs.

Digital investing features will be integrated into the Marcus App and website and we will combine the accessibility simplicity and transparency of markets with our leading investment advisory capabilities.

In addition, our new digital checking offering also scheduled for launch this year will delivered and enhanced customer experience that is simpler and more trend and more transparent on what traditional banks have historically offered providing smart money management tools that help consumers take control of their financial lives.

As we will grow as we grow we will not only serve customers directly through the Marcus platform, but we will also serve customers through our growing partnership channels and.

And 2020, we launched for new partnerships with Amazon and Walmart Jetblue and AARP all following our first partnership with Apple.

We also recently announced our second co branded credit card with General Motors and other side of our ability to be the banking partner of choice for leading corporations across a variety of industries, our partners value our scale innovation engineering prowess robust infrastructure regulatory status.

And importantly, the power of the Goldman Sachs brand.

And the opportunity set here is very large with each partner, reaching tens of millions of individuals through their existing customer bases.

With that as background. Let me also comment on 2020 consumer performance, which exceeded our expectations, but which also has implications for our financials. As we go forward, we proactively adjusted our strategy beginning in March as the impact of COVID-19, and the evolving market conditions began to take shape.

We tightened underwriting standards to reduce risk deliberately slowing our consumer loan growth across both unsecured loans and Apple card given.

And given the economic outlook, we also significantly grew our reserves for potential future losses.

At the same time, we continued to raise deposits at a pace meaningfully higher than we had expected as clients remained attracted for the value of our products and the strength of our brand taken.

Taken together, our pre tax loss and consumer excluding reserve build was reduced versus 2019 levels and lower than our expectations for 2020.

Looking forward, we have a clear opportunity to achieve breakeven excluding reserves for our existing product set including checking and investing in 2022.

And that achievement would be one year later than initially anticipated due to business adjustments driven by Covid for.

For 2021 pre tax loss for our consumer business, excluding the impact of reserves is likely to be higher and look more like what we had initially expected for 2020. This is driven by lower value on deposits and tighter credit standards and Additionally, the investment and our new General Motors credit card Bill.

Beyond 2021.

And messages.

Beyond 2021, we will continue to invest where appropriate and opportunities to build additional functionality with our digital bank as well as to pursue further growth and our partnership channel and.

In terms of broader functionality, we may look to develop additional products driving more comprehensive customer experience over time.

These investments if pursued may delayed our planned breakeven for the business.

Want to emphasize however that should we choose to invest and additional products to broaden our consumer capabilities. It will not affect our ability to meet our enterprise level targets.

With respect to partnerships these opportunities with corporate clients of the firm allow us to commercially engage with a broader consumer population and are designed to build on the platform based architecture that we have built for our proprietary markets business just as we did with Apple card. Our intent is to develop differentiated products and services service offerings.

That are embedded and our partners ecosystems and tailored to the spending borrowing and investing needs and their customers from an economic perspective. These opportunities are designed to materially reduce our customer acquisition costs and leverage the embedded cost base of our systems. Furthermore, partnerships, we seek to pursue offer the firm potential.

For mid teens returns at scale.

Each partnership.

And is intended to extend beyond a single product and brings scale to our business on favorable economic terms.

Goldman Sachs has a history of building businesses with a long term orientation, our investment and our consumer business will continue to be dynamic and appropriately sized to support our ability to achieve our long term financial targets and and the interim it will not prevent us from reaching our medium term firm wide goals.

Before I close let me share that I'm incredibly proud of the progress we've made in 2020, which was a transformative year for Goldman Sachs.

Our success could not have been achieved without the extraordinary efforts of our people who continue to put clients at the center of everything we do.

I am humbled by the level of commitment I see across our organization every day, knowing many of the personal and professional challenges our people are navigating and.

We look forward I know there will be further challenges, but I am optimistic about the potential for Goldman Sachs and the coming years.

I believe and our strategic plan and our leadership team and our culture and and the raw talent of our people.

Taken together these attributes will better enable us to achieve higher and more sustainable returns for our shareholders. Let me now turn it over to Stephen to review funding expenses and capital and the part of the Investor Day update.

Thank you David and good morning, Let me continue the presentation on page 10, we are pleased with the progress made to date on the diversification of our funding the achievement of our medium term funding goals remains a significant source of forward value for the firm.

As you will recall, our ambition is to achieve $1 billion and annual revenue uplift over the medium term from growth and deposits enhancement to our asset liability management and the optimization of our liquidity pool.

Along with the broader industry, we experienced material shifts and the rate environment and 2020 with fed funds declining over 150 basis points the relative value of our deposits remained positive, but lower than projected at investor day, what's more since we are modestly asset sensitive as a firm our assets re price.

More quickly than our liabilities as 2020 progressed, we were able to adjust our deposit pricing to reflect the broader downward movement in rates, while we did not achieve savings in 2020 with greater volume and now updated pricing and the consumer channel we remain on track to achieve our $1 billion run rate.

Savings target, we also remain well positioned to capture further savings as we expand our offerings and Marcus and deepen our client relationships and rely less on pricing as a lever for customer acquisition.

While the focus has been on consumer deposits. Our total deposits grew by $70 billion in 2020 across multiple strategic channels, including particularly strong flows in transaction banking imports.

And importantly deposits comprised approximately 50% of our total unsecured funding base at year and in line with our medium term target as the recent environment has helped accelerate our deposit gathering efforts growth will likely be more moderate and the near term and light of our entities funding needs. We continue to grow assets.

And within our bank entities, where we have traditionally lagged our peers. We now have approximately one quarter of the for my balance sheet held and the firm's banking entities versus roughly 15% and 2017.

We have also made improvements and our asset liability management that we continue to employ a conservative funding approach focused on term and diversification let.

Let me now move to page 11, and expenses, we remain on track to achieve the targets laid out at Investor day of $1 $3 billion and expense savings over the medium term accomplishing approximately half of our goal over the past year.

The achievement of these efficiencies has enabled us to partially offset the cost of investment and our business and our people and 2020.

Our experience over the past 12 months has given us even greater confidence and several of the key elements of this plan.

In particular, we are already seeing important benefits from our investment in automation and consolidation of platforms, including increased straight through processing rates and reduce cost per trade.

In addition, we continue to generate efficiencies from structural adjustments to our employee base through our front to back realignment location strategy and evaluation of pyramid structure.

On the non compensation front consolidation of offices in London, and Bangalore true focus on transaction based expenses and more centralized expense management processes have all contributed to early success.

The remote work environment is also catalyzed and increased focus on our location strategy.

And January we expected that 40% of our employees would ultimately work from one of our strategic locations and we will continue to evaluate the potential for that number to grow over time.

We will also look to expand into new strategic locations around the globe as well as consolidate our footprint where appropriate and keeping with our evolving business mix.

Now turning to page 12, and capital our capital management philosophy remains unchanged, we seek to deploy capital on accretive terms, both in our incumbent businesses and and areas of growth investment and otherwise return excess to our shareholders. While our ratio is initially declined and early 'twenty and 'twenty as we committed.

Capital to support clients navigating the pandemic and we received and FCB result, and the 'twenty and 'twenty CCAR process that was higher than anticipated our standardized CET one ratio at year end was 14, 7% accomplished through strong earnings lower capital return and disciplined balance sheet management.

Importantly, we are pleased with the results of the recent interim stress test and we intend to resume share repurchases this quarter as in the past and as permitted we will continue to reassess our dividend commensurate with the strategic direction of our business.

We will be dynamic and our approach both to reflect proactive steps to reduce capital consumption and the business and.

And as a function of capital requirements more in line with the results of the interim CCAR examination.

As such we continue to target a CET one ratio of 13 to 13, 5% over the medium term, which will inform our capital deployment decisions as.

As we look ahead, we remain engaged with the federal reserve to improve stress modeling in CCAR.

As David mentioned earlier, we have already sold or announced the sale of $4 billion and assets with $2 billion of related capital reduction.

That said in the first quarter, we will adjust our equity attribution across our segments to more appropriately reflect the firm's higher SCB based on the results for CCAR 2020, given.

Given the higher stress loss intensity of our equity positions the capital attributed to asset management will be larger and so will the capital reduction associated with our intended sell down of assets.

This change will not impact our stated medium term targets and in fact, we intend to increase the size and accelerate the pace of asset sales beyond that anticipated at Investor day, So as to further reduce the capital intensity of the segment beyond our original ambition.

And speaking more broadly there are several key drivers affecting capital requirements for the firm overall first our stress capital buffer, which we expect to improve and as I have noted second our G. SIB surcharge, where we ended the year at 3% to meet client demands and the impact of which will take effect in 2023.

And lastly, our management buffer, which we plan to run between 50, and 100 basis points accounting for volatility and client activity.

Before turning to our earnings report, let me finish on page 13, with a slide that David first presented at Investor Day, one year ago, our strategic direction is guided by these objectives. We are pleased with our progress to date and strengthening our existing businesses growing our and new businesses and operating the firm more.

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Early success in 2020, however, does not diminish our focus on forward execution, we have work to do from here and we'll continue to drive more durable earnings and enhanced returns for our shareholders and all cases, we will continue our commitment to transparency and accountability and we look forward to updating you further.

And on our progress and the year ahead.

With that let me now switch gears to our separate earnings presentation to cover the fourth quarter and full year results.

First to quickly recap our financial results on page one.

Fourth quarter net revenues were $11 7 billion <unk>.

Resulting in $44 $6 billion for the full year, a growth rate of 22% and.

And the fourth quarter, we delivered net earnings of $4 5 billion and record quarterly earnings per share of $12 and <unk>.

As David mentioned the firm delivered full year ROE of 11, 1% litigation burdened our full year returns by nearly 400 basis points.

Turning to page two and our individual segments.

As we noted earlier investment banking delivered outstanding performance in 2020, and the fourth quarter net revenues were $2 6 billion advisory revenues were $1 $1 billion more than double third quarter levels, reflecting growth and the number of completed M&A transactions.

We advised on over 350 transactions that closed during the quarter representing over one trillion dollars of deal volume roughly $150 billion ahead of our closest peer.

Equity underwriting produced a record $1 $1 billion of revenue in the quarter as industry volumes remained elevated and we continued to gain market share.

This drove record full year revenues and equity underwriting a $3 4 billion.

Supported by $115 billion of deal volume across nearly 600 transactions.

And and extra extraordinary year for equity issuance. We participated in 120 traditional ipos 70, private transactions and a number of spec ipos, providing clients advice and access to capital and and innovative forms.

Turning to debt underwriting net revenues were $526 million down 8% sequentially, reflecting lower investment grade transactions, partially offset by strength in leverage finance full.

Full year revenues of $2 $7 billion were and near record and up 26% versus 2019.

Our franchise remains well positioned and as evidenced by our number three high yield league table ranking for the year.

Looking forward as David mentioned, our investment banking backlog is at near record levels significantly higher versus the third quarter and a year ago client dialogues remain robust and we are optimistic on activity across a broad set of sectors, including TMT fig and healthcare.

Fourth quarter net revenues from corporate lending were negative $119 million, reflecting roughly $250 million of hedge losses against the relationship loan book as credit spreads tightened recall that for risk management purposes, we maintain single name hedges on certain large relationship lending commitments.

Of note and relationship lending the total notional drawn or funded on revolvers is now back down to pre COVID-19 levels.

Moving to global markets on page three.

Net revenues were $4 $3 billion and the fourth quarter up 23% versus last year for the full year global markets generated $21 $2 billion of net revenues up 43% versus 2019, driven by stronger FIC and equities intermediation performance. This represents the highest.

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Turning to fit on page for fourth quarter FIC net revenues were $1 9 billion up 6% year over year, our growth versus last year was driven by higher FIC intermediation revenues, where we saw increased client activity, while fixed financing revenues were roughly flat.

Three out of five FIC intermediation businesses posted higher fourth quarter net revenues versus the prior year, reflecting the continued strength and breadth of our business in credit we saw significantly better performance helped by elevated activity and market share gains driven in particular by outperformance and.

Portfolio trading, notably across our digital platforms.

And commodities net revenues were driven by stronger performance across most assets, including metals and agricultural products and currencies net revenues rose on solid performance and emerging markets as volatility rose across most currency pairs.

And mortgages and rates net revenues were lower year on year low client activity remains solid, particularly in mortgages around see MBS and mortgage intermediation and in rates activity remained elevated as a consequence of a number of macro events, including the U S election, and Covid and the overall reflationary theme.

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Moving over to equities net revenues for the fourth quarter were $2 4 billion up 40% versus a year ago full year revenues of $9 $6 billion were the highest since 2009 for.

Fourth quarter equities intermediation net revenues of $1 $8 billion reflected stronger results and derivatives across all regions as well as higher cash revenues helped by strong performance and program trading <unk>.

Equities financing revenues of $591 million were down 19% year over year due to higher net funding costs, including the impact of lower yields on our liquidity pool, and importantly, as David mentioned client balances rose to record levels.

Moving to asset management on page five on.

Our asset management activities produced net revenues of $3 $2 billion from the fourth quarter for the full year asset management generated net revenues of $8 billion down from a strong 2019 as equity and debt investment performance was challenged and the first half of 2020.

And fourth quarter management, and other fees totaled $733 million up 10% versus a year ago on higher average assets contributing to record full year net revenues of $2 8 billion.

Across the asset management segment are stood at a record $1 five trillion at.

At year end.

Our equity investments generated $1 $8 billion and the fourth quarter on gains on our public and private investments.

More specifically on our $3 billion public equity portfolio, we generated roughly $745 million and gains from investments, including cash and sprout and on our $17 billion private equity portfolio, we generated net gains of approximately $775 million from various positions.

<unk> substantially all of which were driven by events, including corporate actions such as fund Raisings capital market activities and outright sales. Additionally, we had operating revenues of $250 million related to our portfolio of consolidated investment entities.

Net revenues from lending and debt investment activities and asset management were $637 million on revenues from net interest income and gains on fair value debt securities and loans. This reflected tighter credit spreads on our portfolio of corporate and real estate and investments.

On page six we show the composition of our asset management balance sheet consistent with the information that we've provided to you and prior quarters on equity and Cie portfolios remain highly diversified by sector geography, and vintage and our debt investment portfolio is also diversified.

With segment loans largely secured.

On page seven turning to consumer and wealth management, we produced $1 $7 billion of revenues in the fourth quarter for.

Full year net revenues were $6 billion up 15% versus a year ago, driven by higher management and other fees and strong consumer banking growth for the quarter wealth management net revenues included record management and other fees of $1 billion full year revenues of $4 $8 billion.

10% year over year and assets under supervision rose to a record 615 billion at year end total client assets and the segment exceeded one trillion dollars at the end of 'twenty and 'twenty.

Consumer banking revenues were $347 million and the fourth quarter contributing to full year revenues of $1 2 billion, which rose 40% year over year and were diversified across lending card and savings consumer deposits remained stable during the quarter, despite and additional rate.

<unk> ending the year at $97 billion across the U S and UK up $37 billion versus last year.

<unk> consumer loan balances were $8 billion of which $4 billion were from Marcus consumer loans and $4 billion from credit card lending importantly, the credit behavior of our loan and credit card portfolio outperformed our expectations the portfolio benefited from improved underwriting as well as the consequences.

Of our consumer assistant plants.

Next let's turn to page eight for firm wide assets under supervision.

Total rose to over $2, one trillion dollars during the quarter and are up nearly $290 billion versus a year ago and <unk>.

Change was driven by $17 billion of long term inflows 6 billion of liquidity inflows and $86 billion of market appreciation.

On page nine we address net interest income and our lending portfolio across all segments.

Total firm wide NII was $1 $4 billion and the fourth quarter up versus a year ago, primarily reflecting growth and the firm's balance sheet, particularly in global markets as well as the benefit from credit card balances and repricing of deposits and consumer and wealth management equally this activity is reflective of the.

Decision to allow our G SIB surcharge to increase to 3%.

Next let's review loan growth and credit performance across the firm our total loan portfolio at quarter and was $116 billion up $4 billion sequentially, largely driven by modest growth in loans, and consumer and wealth management and real estate warehouse lending.

Our provision for credit losses, and the fourth quarter was $293 million roughly flat sequentially and down versus a year ago. The corners provisions were driven primarily by continued growth in lending and our consumer business and wholesale impairments offset by some reserve releases driven by improving macroeconomic conditions.

Given our announced partnership with General Motors and the planned acquisition of the current loan receivables from capital one and we expect to recognize approximately $200 million of associated provisions in the first quarter.

At quarter, and our allowance for credit losses for both loans and commitments stood at $4 4 billion, including $3 9 billion for funded loans. Our allowance for funded loans was flat versus last quarter at three 7% for a $103 billion accrual portfolio, including and allowance for wholesale.

Loans of two 7% and for consumer loans of 15, 9%.

For the full year, we recognized firm wide net charge offs of $907 million, resulting in an annualized net charge offs charge off ratio of 0.9% up 30 basis points versus last year.

Next let's turn to expenses on page 10, our total operating expenses were $5 $9 billion and the fourth quarter for the full year, our efficiency ratio was 65%, which includes a nearly 800 basis point impact from litigation expense.

On compensation, our philosophy remains to pay for performance and we are committed to compensating top talent, while compensation expenses were up 8% year over year relative to growth and revenue net of provisions for credit losses of 17% our full year compensation ratio is at a record low reflecting.

And the operating leverage and our franchise as we have said in the past we view the compensation ratio metric is less relevant to the firm as we build new scale platform businesses.

On non compensation expense our costs for the full year 2020 rose 25% versus last year <unk>.

Excluding litigation our full year operating expenses grew by only 8% inclusive of investment spend across the business and higher variable expenses associated with transaction volumes growth was partially offset by efficiency savings and lower travel and entertainment costs due to the circumstances of Covid.

<unk> 19.

And finally on taxes, our reported tax rate was 18, 7% for the fourth quarter and 24, 2% for the year, reflecting the impact of non deductible expenses. We continue to expect our tax rate over the next few years to be approximately 21% under the current tax regime.

Turning to our capital levels on slide 11, as previously discussed our common equity tier one ratio increased to 14, 7% at the end of the fourth quarter under the standardized approach up 20 basis points sequentially earnings were largely offset by higher <unk> as we stepped in to serve our client.

Our ratio under the advanced approach increased 50 basis points to 13, 4%.

Turning to the balance sheet total assets ended the quarter at 1.2 trillion dollars rise.

Rising 3% versus last quarter as we deployed resources to facilitate client activity, particularly within our prime brokerage business, we maintained very high liquidity levels with our global core liquid assets, averaging $298 billion, reflecting the current backdrop on.

On the liability side, our total deposits were roughly flat at $260 billion as planned rolled on roll off of higher cost brokered deposits was partially offset by modest growth and consumer private bank and transaction banking deposits and.

In conclusion, our strong fourth quarter, and 'twenty and 'twenty results reflect the diversification of our client franchise and resilience of our business model strong risk discipline and flexibility and our balance sheet deployment, David John and I are proud of our people for their efforts this year and serving our clients and delivering on our strategic goals.

Especially given the challenges of COVID-19, we look forward to furthering our progress on our medium and long term targets and we remain confident and execution of our strategic plan will drive better client experience more durable revenues and high returns for our shareholders over time with that thank you again for dialing in and we'll now open the line.

And for questions.

Ladies and gentlemen, and we will now take a moment to compile the Q&A roster.

Your first question is from the line of Glenn Schorr with Evercore. Please go ahead.

Hi, Thanks very much.

I'm curious on slide six and the strategic update you went back and remind us and the medium term target.

Of 10% for global markets.

14, one.

In 2000 ton abbacy plenty was just kind of repositioning and need need for Ya.

Thanks.

But is that just you being conservative on your best guess of normalized trading like nothing changed there and.

And I'm just curious.

The way capital is being re shifted towards.

Asset management for private equity I, just didn't know if we should be reading anything more than the obvious Inc.

Medium term sales target.

Hey, Glenn it's Stephen No Theres nothing more to read we were just on this slide reiterating our medium term target that we had set at 10% I would point out that while reported ROE and 2020 for global markets was 14, 1% the performance ex litigation, that's otherwise allocated to the segment was 18, 1%.

And I think the other point I would make here is that as we look forward and as we've commented several times impossible to know what 2021 and be on hold in terms of what the industry is presented but I think there have been some fairly profound.

<unk> structural shift in that business. One of course is the expense base is being reduced the second is we're much more attuned to the sort of agile deployment of capital across but I think perhaps most important is the improvement of wallet share and the focus on clients and Dave.

<unk> commented a couple of times on the improvement in overall wallet share growing by 120 basis points through three quarters, and we'll see what played out for the full year, but I would also say that a step up and where we stand.

And with the objective of being top three across the top 100 institutional clients and global markets. I think also reflects that we will capture at or better than our share on a going forward basis again acknowledging that the market may not look as robust on the forward as it did and 20 for this business, but the structural changes are important.

I appreciate that maybe the same kind of concept for the follow up.

Related to.

Investment management.

So I guess the allocation of more capital and get the capital that you've freed up on the announced sales.

I know that when you initially going down this path. So we're optimistic of your ability to raise lots of third party money and you have.

And the wonder if you have.

A thought process on 'twenty, one or it's just continue marching towards the 150 and then.

I was I was concerned about.

Selling down private equity would leave and earnings pickup at some point, but beyond that you have almost 2 billion and unrecognized incentive fees can you feel like you can continue down this free.

Capital sell down private equity raise third party path without a big hiccup shores.

<unk>, yes.

So let me take both of those first on fund raising.

I think what's gratifying about the progress made in 2020 was common David made about and increasing number of clients new to the firm that are investing with Goldman Sachs and so that leaves us optimistic about the prospect of the fund raising pipeline in 2020, which.

B across a range of different investing sleeves, and we'll start to see.

That growing number of investing clients look across a range of different product offerings that we have.

And on the sell down and we're very attentive and have always been to the prospect of creating kind of a canyon and we don't anticipate that to happen and will continue to manage with.

That and mind you draw the right observation, which is there's $1 8 billion of embedded fees to take which we will take when gains become irrevocable or era of irreversible and so that will buffer.

But.

The point here is that our objective is to reduce the stress loss intensity of that segment and so we've spoken about $4 billion and balance sheet sales deal $2 billion of capital relief.

Equally have line of sight into another $2 $5 billion of sales, which could generate another $1 billion of of of cash.

Capital relief and I'd also point out, though it is not obvious and the way in which the results play but over the course of the year, we sold $2 $1 billion of public equities to offset about $1 billion nine of appreciation and market value and so that equally has capital consequence.

And for Us and so Youll continue to see us move along along that road.

Finally on the question or the observation you made about what I was speaking to about what we will do in terms of.

<unk> equity to that segment that has no bearing on what our objective is which is to bring capital down but as CCAR 2020 was higher and more capital came to the firm we don't keep for corporate segment. So we allocate or attribute that equity out to the segments by definition because of its and.

Tensity asset management will pick up more capital obviously on a unit of balance sheet reduction more capital will come out as we reduced positions, which is why we're confident that we'll maintain at or better than what we're indicating in terms of capital reduction and the segment overall.

Yeah.

Your next question is from the line of Christian Ballou with Autonomous. Please go ahead.

Good morning, David and Stephen.

I'll start on Marcus and the digital bank.

Thanks for the update there.

But stepping back a bit how do you think digital banks current and future offerings.

Stack up against the very successful Fintech like a sulfide or time and then just given the very big valuations those companies have gotten us.

Is there a way for you as a management team.

And to better on lock.

Maybe the value of the.

Bank for shareholders.

So Christian.

I'll start with that good morning, and thank you for the question.

And we tried to highlight this and the update that we're working to go from a product structure, we handful of products to a much more integrated offering for our customers and so when you ask about comparison to some of the some of the Fintech I'd just say the fin techs are much more narrow in scope in terms of what they offer.

And don't have the broad capabilities that we have and we're betting and were expanding on for our clients. So just on the context of the two examples that you gave and highlighting Sofia chime. When you think about spending across both checking and credit cards. When you think about borrowing across credit cards and loans and you think about the same.

<unk> and also investing and the investment capabilities that we have.

And a wealth manager we have a much broader integrated offering and we continue to get feedback that the state of the art product platform and the digital applications that we have a really excellent by any standards. So we're going to continue to move forward with that long term strategy I don't really have a comment on the on the valuation.

Of these businesses, although I'm watching with everyone else and I'm looking at what we have the number of clients we have.

Number of customers the size of our business.

Scale that we have as we continue to move forward.

And I'm looking at that opportunity for growth that we have and if people like those businesses I think at some point in time, they should like and value our business more fulsome way, but we will continue to execute and wait on that.

We really like our model of having a proprietary platform for markets. But then also given our corporate relationships for potential for partnerships is very very strong for us and I think you saw that and our execution. This year by adding for more partnerships by capturing the GM card and I think youll continue to see us do more on.

On this front and so we feel good about it but as I said on my comments, we're taking a long term view and what we're doing and none of this will affect our medium term targets that we're working toward at the end of 2022 gets a lot of attention, but it won't affect our targets.

Okay. Thank you.

Maybe the question I was asking really around the valuation was is there something you can do it on a spin out the division or something to get.

Better valuation and better currency to build the business, but I hear you.

And your points.

Maybe my second question and apologies just wanted a bit of a nitpicky question, but I'm trying to understand the impact on interest rates on the markets business I guess and the earnings release, you called out higher funding costs and lower yields on the liquidity reserves as the headwind to the markets business.

Also.

And the actual Dec, we saw a really big step up in global markets NII quarter over quarter.

So let me just step back here remind us how interest rates impact the business, whether it's the current.

And the level of interest rates the shape of the yield curve and then some other liability management actions, you've taken and how does that impact and markets business.

I guess at what the coming year sure. So NII Christian as you noted grew.

It was at $1 4 billion for the firm in the quarter that was driven largely by balance sheet growth, notably in growth markets and most especially in prime so our prime balances were up.

The challenging aspect for us and the reference made and the context of funding is that our liquidity grew over the quarter, we were slower to adjust particularly on the retail deposit side pricing of our liabilities and so we didnt capture quite what we wanted obviously, we've now brought rates down.

And so we're able to sort of.

Allocate that cost out to the business so liabilities are important and.

And I expanded because our balance sheet and.

And impacted overall net funding costs and so that's the reference if you will to the headwinds notwithstanding prime balances growing funding costs were higher than we wanted that notwithstanding NII grew because of overall balance sheet growth over the course of the quarter in prime and by virtual over.

For all of moving to a higher G SIB and the context of meeting client demands.

Your next question is from the line of Michael Carrier with Bank of America. Please go ahead.

Good morning, and thanks for the update and taking the questions.

First let me get the moderation and global markets can you provide some color on what areas of the business and strategic initiatives.

Our best position and potentially create some offset overstated and next one is years I think it seems like asset management could be one of those well some of the initiatives maybe further out but any color on timing on growth away from some expected moderation and global markets.

Sure I mean, I think that first obviously.

What we've been speaking about within the asset management business and the growth of third party alternatives and the.

Forward durability of those revenues is one area.

Theres, obviously growth in some of the growth initiatives, including transaction banking as well as what we're doing on the consumer side.

And so youll continue to see pick up and share pickup.

None of those are necessarily meant to be compensating factors for what could be a shortfall in global markets I think within global markets.

He will buffer structurally speaking what might be a less impressive opportunity set on the forward relative to 'twenty by virtue of what we've done around market share gains and equally what we're doing around the cost base and I'd say also if you look within the global market's busy.

<unk>, what we're seeing in terms of the growth in low touch high volume activity around Mark Kaye and the digital platforms, particularly growth and portfolio trading across I think all of those will spell sort of improved performance as a general matter notwithstanding the market.

Finally, I would point out that the investment banking footprint continues to expand and that too will provide an offset to the extent that again the assumption for your question that we see lower opportunity as an industry matter within the trading where global markets business.

Okay, Great and then just on the capital side, given your CET, one ratio and premium above your expected buffer how are you thinking about.

Either needs for the business, either organic or M&A versus capital return and just your commentary on the asset management business and understanding maybe the models is that a bit more like how significant could that be longer term as you kind of reposition that.

Sure. So on capital look at our capital philosophy really remains unchanged, which is we look for opportunities for accretive return on investment and capital and the business and equally meeting client demands that are there.

Separate from that it is my expectation that we will hit our first quarter repurchase expectations, which based on the calculation of the fed will be about $1 $9 billion and the quarter plus neutralizing equity based compensation expense and so we will fill fulfill that.

And the first quarter I would also repeat a comment I made in the prepared remarks is that we will continue to reevaluate our dividend and the context of the shape and form of the business being more durable going forward. Obviously, that's not a first quarter proposition given the fed rules, but you can certainly rely on the repurchase.

<unk> expectations and our fulfillment of them in terms of asset management. This is all about.

And overall reduction in the balance sheet intensity of that business. It is being mindful of revenue in the near term, it's driving down on balance sheet investing and moving that into third party activity doing that across more sleeves with more clients of the firm and I think that will continue.

To take down our capital and I suspect based on the progress we made in 2020 of taking $2 billion on for billions of sales and as I mentioned, our forward view on what's within line of sight incremental capital will come out.

And at or better than the expectations, we carried at the Investor day itself.

Your next question is from the line of Stephen <unk> with Wolfe Research. Please go ahead.

Hey, good morning, everyone.

Wanted to start off with a question on the trading business and your share gains and trading for 2020 were quite impressive and will likely represent the strongest gains across the entire global IV cohort and historically <unk> been the dealer of choice for clients during periods of macro stress given your risk intermediation expertise.

And those client needs are and may will be magnified. This year due to COVID-19 raising questions as to why they are the share gains will be sustainable as those client needs and moderated and was hoping you can give some perspective on what gives you confidence that you could sustain the recent share gains and global markets as activity normalizes and any differences you're seeing across high versus low touch.

And I might be very helpful.

Okay. Thanks, Thanks, Steve I'll start and I appreciate the question and I will just to.

Take your framing you said historically at.

And at times of severe stress, you've been a deal or a choice and you really you make that statement by going back and looking at one window, which was the financial crisis and there is no question on the financial crisis, we had very very significant share gains, but I would highlight that one of the reasons and we had very significant share gains during the financial crisis is on a lot of the people that were.

B and on.

For competitive set we're in a position of very very weak.

Finance structural financial performance at the time, and it's definitely inhibited their ability to intermediate with clients. So one other things I recall hearing at that time as a lot of firms did not show up during the financial crisis, and we benefited from that I think hopefully we benefited for other reasons, but there was a different component we have a very very different.

And right now banks had been a source of strength during the pandemic all of our competitors have showed up in spades and yet we had very very significant share gains now maybe some of that is a branded reputation that where a dealer of choice during a pandemic, but I would argue a bigger impact and really affecting how we perform and I've heard this.

Consistently from our global markets clients is it change strategically and our approach over the last few years in terms of how we're facing clients. Our one <unk> approach and what we're trying to do we talked a little bit and the strategic update and talking about how for the first time over the last couple of years, we have a targeted approach.

And evaluating our wallet share with the top 100 clients seems relatively straightforward, but this is not something we had ever done historically and that we advanced that considerably over the course of.

<unk> 2020 by going from top three with 51 of the clients the top $3 60 for the clients. We have a much more client centric approach I've got a lot of feedback calls this year from our clients noticing what they said was a very different approach and the way Goldman Sachs interacted with them now and versus 10 years ago, and so I would.

And argue across the platform that orientation is helping a while share gains now I'm not going to sit here and say that and a different environment. When the world is more even and we're not on a crisis that theres not going to be a flattening and in fact, I would say that across all our businesses, we tend to outperform and investment banking.

And in times of stress and the market share gains collapsed, a little bit and times when everything is very very easy and so I'm sure there'll be some of that but we have a very very clear strategy and we're very clear client centric strategy and it is different and I think it has led to enhanced wallet share gains I'd also say and we highlighted this in the context of looking at that business.

And this goes back to one of the earlier questions. We've made structural improvements not just on the client approach, but also on the cost base for that business and in our capital allocation and that business and the results are even if we have a different available while client wallet, we have a structurally more profitable business on a go forward basis.

And so that's the way we're thinking about that I hope that's helpful. The one other thing I would add to the part of your question you asked about kind of high touch and low touch which is if you look at our credit business in FIC over Q2, three and for Whats interesting is in Q2 and Q3, you saw amidst very high volatility a lot.

And of the sort of bespoke idiosyncratic block like activity that we've long been known for what's interesting is if you look at Q4, we started to see very high portfolio trading going on rebalancing among asset managers pension funds a lot of that going on across our digital platforms.

I'd just offer you that Q2, three and then through for as a reflection of kind of a more a broader more robust business that is better equipped better capable better positioned to capture what we've long been known to do as we did in the second and third quarter and some other more technology driven platform driven.

Trading.

That is newer and quite sticky and the context of what we can keep yes.

That's really interesting color I appreciate the perspective from both of you and then just for my follow up on efficiency and you spoke of your continued efforts to evaluate additional opportunities for further expense savings and I was hoping you can just give some perspective on what some of those opportunities might be.

Especially as we think about the need to potentially flex and a tougher macro backdrop and just one clarifying point as the $650 million of savings should we be thinking about the savings already captured versus the <unk> 'twenty baseline or is that versus the full year 'twenty expense base.

And.

I'll start on that I'll, let Stephen answer the second point.

On about.

The second point with respect for the 650, but I just.

Stephen I think the way you should understand that we're thinking about this and so we've been re underwriting the firm and trying to do what we can across the platform to operate more efficiently, we set out a target and our Investor day, and we had a very clear view on the path to that target. When we said that a year ago at our Investor day, and we're marching through and more.

Executing on that with respect to other opportunities we continue to evaluate other opportunities and it will be hard pressed to say that we didn't learn a lot this year and the context for the operating environment that that we've that we've look that we've been operating this year and so that's giving us new insights into other places across the platform where things can be.

More efficient in addition, our business like lots of businesses is digitizing and on the context of that it's allowing us to digitize processes that historically, we've used we've executed.

With more manual.

Personnel so to speak so we're going to continue to focus on that we do think there are other opportunities we have more to say to be more specific with our continued focus on transparency, we will give you more specifics.

To the first part of your question achieving $1 $3 billion was annualized savings. So we would realize these savings each and every year and this was as against kind of entry level expenses.

Meaning entering into 2020, when we announced them at Investor day, but this is achieving a $1 $3 billion annual run rate savings of which about half has been achieved.

The only other thing I would add.

On the forward is obviously.

Covid has accelerated our own thinking.

About.

Moving populations and taking aggregations of people into different areas and so I think we feel we feel more shortened confident and our ability to do that the pace of it and you will continue you'll continue to see that play forward and the achievement of the one three or beyond.

Your next question is from the line of Jeff Harte with Piper Sandler. Please go ahead. Please go ahead.

Yeah.

Good morning, I'm, sorry about that.

Hey, Jeff and Mike I'm wondering though yes.

Yes.

On.

Hey, how are you thinking about the cyclical outlook for capital markets activity levels broadly and I guess I come from there's a belief out there that the strength and 2020 was really just the stimulus driven anomaly and that maybe we're headed back to 2019 levels, but when I look at historical cyclicality and activity level indicators.

Suggests potential sustains sustainability, if not continued growth how are you thinking about that as we move into 'twenty and 'twenty, one and 2022.

Well.

It's on.

Ill take that for the high level Jeff.

Obviously, it's hard to and I wouldn't speculate.

Now for multiple years, but what I would say is we're still on the middle of the pandemic, there's still an enormous amount of stimulus and there is also because of the acceleration of digital trends. There are lots of businesses and lots of Ceos that are rethinking and re underwriting strategically and how theyre positioned so corporate activity and therefore, our capital markets activity.

And that context is high.

As we head into 2021 and a lot of indicators that that's going to continue in 2021, certainly in the near term and so our expectation is certainly the yen and the near term that activity will continue to the degree that we get to a more normalized environment and the degree that there is a backing off of physical.

<unk> to the degree over time is a more normalization of monetary policy.

And that obviously can affect this activity level, but that's not something we'd expect and the near term and 2021. So at the moment pipeline and backlog and things that we can see continue to look robust that doesn't mean that we're saying that we expect a repeat of everything we saw in 2020 and there certainly are different parts of both the bank.

And the markets business and I think were elevated in 2020 and our expectations for 2021 are not as robust as they went on 2020, but certainly more robust and they werent 2019.

Okay and.

Thank you secondly.

As you continue to grow deposits are you facing limits on your ability to deploy the incremental deposit growth I guess when I look at your balance sheet.

See deposit investable, earning asset growth as more of a pressing need the additional deposit growth.

Yes, I mean, I think that on the forward you should expect a more moderated level of growth in deposits as we pull more and more assets into the bank I think as I noted in the and the remarks, we've moved from 15% of assets and the banks to 25%, but importantly on incremental assets.

Movement, 90% of the lending that's going on in and around the firm is being booked and bank entities that will consume deposit funding that goes on and the bank entities themselves. I'd also point out that when we speak about banking entities, where not only speaking about our U S bank, but equally the U.

And our bank.

And Continental Europe in Germany.

All of which have slightly different.

And our requirement in terms of the deployment of that funding, but the incremental asset flow is going into the bank and youre going to start to see continued growth from 25% of the overall firm.

Your next question is from the line of Betsy <unk> with Morgan Stanley. Please go ahead.

Hi, Good morning, Hey, Betsy and good morning.

Question on the expense side, just a two part one on the comp and the comp ratio.

And we did see the comp ratio coming down on a full year basis, roughly 400 basis points year on year and I'm just.

And wondering if that really a function of non compensated low revenues that shot up significantly year on year or.

This reflects the commentary on making earlier about moving people to the strategic locations and it feels like a lot and one year. So just trying to unpack.

The major drivers and how we should see that how we should expect that flex is going forward.

Well I think I think the.

The abiding observation here is that there is considerable leverage and the business that is when we grow revenue top line by 22% or grow at 17% net of provision for credit loss, you'll see our comp and benefit line rise by 8%. So there is embedded leverage in this business.

I think as we've also said in the past and this is reflected a little bit and your question.

The comp ratio is going to become much less of a relevant metric in this in part because the profile of the business will change that is as we grow up businesses like transaction banking or the consumer business. They will be less comp heavy in terms of overall expense and that ratio will be ultimate.

Lee less relevant, but I think for where we are right now theres considerable leverage in this where we're capable of rewarding our talent for performance overall, but equally doing that on a levered basis, so that our shareholders and shareholders benefit more broadly from from the overall performance.

And can we just get a sense on the tech budget that you've got right now and how youre thinking about.

And that that size and growth over the next year or so.

Yes, I think the tech budget is going to continue to grow.

It will grow by several hundred million dollars year over year. It will do that really for two reasons. One continued improvement at the core that is the way in which the firm operates more broadly. It is achievement of some of what David was talking about around automation and alike, and then separately it will be.

Focused on particular initiatives like transaction banking like the consumer business.

And so forth and I think part of our focus on the efficiencies that we're capable and the cost savings for capable of getting is such that those savings can subsidize the investment being made in places like technology around the firm and so you'll continue to see that investment.

[noise] out.

We have less remedial activity than perhaps some of the other bigger commercial banks have and as much as we have a lot of new tech build and new activity going on but we're going to continue to look to harvest cost savings too.

And to substantially offset the impact of that increased investment.

For next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi could you give more color on your backlog you said, it's near record its uptake quarter over quarter.

And specifically as it relates to stacks.

And how much cash backs contributed.

And two.

Our revenues in 2020, and whats the multiplier effect I understand it's linked with burgers and leveraged finance for your top three or number one just for color on tax.

And how it relates to the backlog and what thats been contributing and how sustainable that is.

Sure.

So a couple of comments backlog backlog levels as we stated are up quarter over quarter.

And I would say that activity levels broadly across the banking platform are up certainly spec activity is contributing to it but strategic corporate M&A.

Up meaningfully and what I'd say is there was a real.

A real kind of dull drop and.

As the pandemic hit and people were reorganizing, but as we came out and the summer and people started to kind of look through the tunnel and <unk>.

Get a sense for where things were going strategic activity with corporate has really picked up and Thats contributed meaningfully also and that has that has nothing really to do with the stack ecosystem.

On specs, Mike I'll say, a couple of things and there's no question that that.

The growth of stacks.

As a as a product.

Definitely affected activity levels.

There are few things that I would say just to try to frame it.

Specs.

And we're a little bit more than 50% of IPO activity. This year, but when you look at IPO activity IPO.

<unk> for US for example was on a volume basis about 17% of our equity volume. So we did about $20 billion.

Of IPO table against the $115 billion of equity League table, 17%.

If you look at our IPO fees, all ipos stack and non stack and again stacks.

Say around 50%, but if you look at our IPO fees, our IPO fees more or less and 40% of all our equity underwriting fees and then <unk> would be a subset of that now to your point and it also creates an ecosystem around capital raising around advisory services et cetera, and so theres no question that.

That ecosystem at the moment is creating a tailwind for some of these capital market activities.

All other things I'd say first we generally straw, we generally strive to be number one and the lead tables, we do not strive to be number one and the stack League tables, we are very well, we're very active we're very thoughtful about our sponsors and the business that we take on and just looking at last year. If you look at the number.

Stacks that were done and the league table leaders the number one and number two firms did about 33% more deals than we did representative I think of some other things that came to us that we turned away. So we're participating but we're trying to participate.

But picking what we think are the best situations I do think stacks theres a good use case versus a traditional IPO and.

And advantages for sellers and for investors and looking at this ecosystem, but the ecosystem is not without flaws I think it's still evolving I think the incentive system is still evolving one of the things. We're watching very very closely is the incentives of the sponsors and also the incentives of somebody that selling and while I think these activity levels.

<unk> continue to be very robust and that they do continue as we head into 2021 to continue to be very very robust I do not think this is sustainable and the medium term and there'll be something that will.

That will in some way shape or form bring the activity levels down over a period of time.

But we're watching it closely.

And it's something that our clients continue to be very very interested and there are lots of companies that go public via stock that could also go public and a traditional IPO and there are some companies that go public and a stock that probably couldnt go public through the standardized process for the traditional IPO and all of those are things that the market will have to wrestle with.

And one other things I, certainly think as the cases you have something here, that's a good capital markets innovation, but like many innovations theres a point in time as they start where they have a tendency maybe to go a little bit too far and then need to be pulled back a rebalanced and some way and Thats something my guess is we'll see over the course of 2021 or 2022 with stacks.

And then one more general question, David So I think what I hear you say on this call is that it.

Our forecast for kind of your expectation for capital markets for.

For this year might be a little bit less than.

Last year, but it should still be better than 2019 or something like that we had a decade long reduction and wallet share and the markets business do you think that decade long reduction.

Considering a normalized last year do you think thats reversing some people say it is some people say it won't.

And so.

Two points I think Mike for the question if I got it right with I'm not going to speculate on our forecast on a specific forecasts around capital markets activity, but I do think your statement is fair in terms of the way I framed it which is capital markets activity is starting 'twenty, one very robust based on the data we have it seems like it will continue.

To be relatively robust and 2021, but we don't expect it to be at the same level that it wasn't 'twenty and 'twenty with respect to your second question I assume youre asking about global markets wallet share were you asking about banking and markets wallet share.

Mike.

One moment, let me up on Mike's line.

Mike decade, Yes can you hear me, yes trading now over a decade.

Global markets Youre talking about.

Correct, Okay. So I talked earlier on the call.

The way over the last two and a half years, we've evolved our strategy and I think the strategy. We have for our global markets business is a good strategy for Goldman Sachs and like our position and we've consolidated share.

Why have we done that we've done that because we have a very client centric approach a very holistic one Goldman Sachs approach, we have a much more targeted wallet share approach to the largest institutional clients that we interact with and that business and that has allowed us to strengthen our position and so.

I can't go back and make all the direct comparisons that everybody wants but I think there are a lot of things and I stated some of this earlier that are very different about what we saw coming out of the financial crisis, and what evolve versus where we're operating today. So while it may change, but I think we've made material strides and strengthening our position and.

Global markets and I expect us to hold a number of those wallet share gains and we're very very focused on making sure we do.

Your next question is from the line of Brennan Hawken with UBS. Please go ahead.

Yes, good morning, thanks for taking the questions.

First is on.

On the.

The investments that youre, making on the consumer side.

And as regular speculation in the press around.

Maybe what you might be considering on the M&A front and actually.

The speculation is centered on consumer banking and so can.

Can you help.

Is the indication and the idea that you guys are interested in investing and that business and.

Pushing that impacting some of the targets.

And sort of a clear indication that you are really interested in building rather than buying and.

As I sit here I, just kind of wonder Okay. Why would these guys want to invest so much if they had.

There was something large that they were looking to do.

And anything remotely close to the near term just curious your thoughts on that whether that's too big a week.

There's a lot there and what you said, Brian, but I'm going to repeat something that I've said over and over again, we're focused on building and integrated digital platform and the consumer space I think over the last four plus years off to a very good start with giving you lots of metrics. We can track that progress and we continue to roll out on the investments that we're making.

Including as we said Youll see invest this quarter markets invest this quarter and Youll see checking during the course of the year with respect to M&A opportunities broadly, whether it's to expand our consumer offering whether it's to grow our asset management business, whether it is to expand our wealth management capability, we're always looking.

Looking for ways to accelerate our strategic growth plans and if something came along that helped us accelerate or advance our strategic growth plan and we thought that it was a good fit strategically and we thought we could acquired and integrated attractively and we would do it just as we did with United capital, but the bar to do something significant is extremely high.

And it's not an easy thing to do so we'll continue to look for things that can accelerate our growth plan.

But we're going to continue to invest and these businesses and I think the important thing for you to note is that we have a lot of confidence that these can be sizable businesses at scale that are accretive to Goldman Sachs as return, even if we do not do something significant inorganically.

Okay.

Thanks for that and then.

And then.

My second one is on the efficiencies and I know there have been a few questions there but.

From my perspective, it's I guess, it's just a little bit hard to unpack.

Some and see some of the.

On the $6 50 that you referenced as referenced earlier, Stephen you guys have a lot of revenue and volume sensitivity on your expense side.

And that's usually particularly true on the comp front. So maybe how much of the 650 was in non comp versus comp and.

And.

What is your expectation for the timing on the remaining 6%.

And he said.

Yeah. So let me answer the question a couple of ways.

First of all.

Spot observation on non comp expense and the year. So our non comp was up 8% ex litigation of about $900 million of non comp expense increase year over year about two thirds in excess of $600 million was variable expense B C. Any all of which is related to the volume of activity.

And thats coming through and so I just frame that just so you have a sense of how non comp framed out over the course of over the course of the year now if you look at our achievement of about half of the $1 $3 billion of run rate efficiencies that we've set as a target for ourselves I would say up through the end of 2000 and <unk>.

28.

A good proportion of that came out of the compensation side, okay relative to non comp so by that I mean, we've undertaken a very significant exercise over the course of 2020 at spans and layers, meaning we've looked at the sheer number of people we have in a variety of of.

Parts of the organization, we've looked at scope of management and we've been able to sort of achieve efficiencies in that regard, we engaged and a front to back exercise that put more people from and ops and technology point of view in line of sight of the people and the business, who know and understand what their <unk>.

<unk>, Saar and where theyre going.

Third as we've looked at.

We've looked at location of where many of these people are and have accelerated that.

And so that's on the sort of compensation side on the non compensation side I would say that we've done a complete rationalization of campuses and places like London, and and Bangalore harvesting significant savings there we've moved to a more disciplined and centralized planning tool we've looked to central.

<unk>, our expense management through SAP, taking multiple platforms and pulling them into one all of these have sort of put us in a position to realize about 50% of the $1 3 billion and frankly speaking and give us a bit more confidence about what we can achieve on the forward, perhaps in excess of it and.

So net.

And maybe a bit more granular than you want but just to lay out sort of the elements right of where these expenses are being harvested.

Your next question is from the line of Gerard Cassidy with RBC. Please go ahead.

Thank you good morning, David you've been very clear about the difference in your success and this stress period versus 2008, and 2009 and we all know the consolidation of the broker dealer community over the last 25 years has been dramatic.

Can you address your success based on economies of scale and how and I know you've done a very good job on the consumer on the customer centric focus that you've talked about it already but how important is the economies of scale today versus maybe five or 10 years ago and is that an advantage that you and some of your peers have over the smaller broker dealers.

Yes.

And so I think it's I think it's a good question I appreciate it.

I think there is a huge advantage and so putting aside some other things I'm talking about that are strategically based on our conscious decisions. We happened to be one of a handful of firms that is global at scale on a market leader and these global markets and investment banking businesses and I think it is increasingly difficult to compete.

And these businesses unless your global and its scale and unless you have the capacity to make very very significant technology investment into platforms to better connect with your with your clients and so there has been a consolidation of wallet share and to the leading players across these platforms and we continue to be one of those.

Players and I think that that position has only grown and then Dan and strengthened I also would point out that we don't just have scale broadly we've stayed committed as I highlighted earlier on my remarks to all the different silos and asset classes across our markets business. So you can think about them any asset.

Classes across markets, we benefited because we stayed committed to commodities and we have a more fulsome offering for our clients.

And there was a real benefits to that this year. So I think there's no question the leading firms have a strong competitive advantage I think to maintain that competitive advantage and have reasonable margins given the capital requirements for technology requirements for regulatory requirements.

And in a leadership position is much more important today than it was 15 2025 years ago.

Very good and then just quickly Stephen on the capital position and when the Federal reserve releases all the banks from the limitations on share repurchases based on the income equation and they have given you guys would you guys consider and accelerated share repurchase program once everybody.

And just released from the limitation.

Well I think the manner and form of our execution. So that we will decide and proceed forward what I would reiterate is that.

Right now the fed is not quite at the SCB regime that had been laid out initially remember SCB was was meant to put banks and a position all banks and if you're above your minimum you can go about share repurchase dividend et cetera, we're not there yet the fed has limited what we can do on repurchase as I spoke about.

Earlier, we will execute to the capacity that we have to repurchase in the first quarter I don't think its appropriate for me to comment on the mechanism by which we will do it but but certainly safe to rely on the fact that we will look to use our capacity and proceed from there.

Your next question is from the line of Brian Klein Hansel with K BW. Please go ahead.

Yeah. Thanks, just two.

Two questions here first maybe just a clarification on the provision that you mentioned from the credit card relationship I think that it was $200 million attributed to that I was wondering is that a gross number or are you, saying that the provision expense and the first quarter the $200 million on a net basis sure. So just to be clear.

In connection with the back book, there were acquiring relative to the GM partnership we anticipate taking approximately $200 million of provisions in the first quarter. So to be clear, it's not reflected in 2020, I'm, just giving you and and the market sort of an indication of what that will be occasion by the.

And of that back book and Thats an accounting.

<unk> and requirement that we're adhering to.

And then also as it relates to reserve I mean, given what you.

Expectations for economic conditions from here can.

Can you expect to see more.

Reserve releases for larger I guess reserve releases.

On a go forward basis sure so again and the fourth quarter, we're taking provision for credit loss of $293 million I would tell you that embedded and that is a release of about $200 million occasion by better macroeconomic observations and adjusting the model and reserve release.

That release, though was offset in the context of incremental provisions either occasion by impairments or growth and the overall portfolio. So it's not to reflect anything negative or a negative comment on the state of our performance of the portfolio, but rather growth and it across the whole of the firm.

I would say as an aside we continue to see our consumer portfolio performed better from a credit perspective than even what we had anticipated coming into the crisis, but embedded in the provision is release that release offset by growth and and by impairments.

Your next question is from the line of Jim Mitchell with Seaport Global. Please go ahead.

Hey, Hey, good morning.

You seem to be progressing pretty well towards your targets, but I think whether you look at consensus expectations or talked to investors.

And there seems to be some skepticism around youre hitting the 14% Rte the 60% efficiency ratio and 22, I think that reflects some uncertainty around the trajectory of trading and IV, but maybe we could take a step back and just ask it this way I guess, what kind of growth where you are assuming.

And those kind of more volatile revenue streams it.

It doesn't seem like initially it was a lot of growth expected from 19 levels, but I guess, maybe asking the question. This way do you still feel comfortable hitting those targets and 'twenty two.

With revenues and sort of trading and investment banking similar to 19 or does it have to be materially higher.

So remember on the efficiency ratio and obviously, it's implied by your question. There's a revenue and there is an expense component to it.

On the revenue side, we saw more growth and 2020 than had been anticipated, but we nonetheless expect levels of growth consistent with what we anticipated at our Investor Day, and I would also point out that we continue to work on the expense side as we've spoken about and in relation to a number of questions on this.

Call and there continues to be leverage in the business to the extent that revenue growth doesn't materialize as we expected we've got levers to pull unexpected which is why we are comfortable with a view that we will achieve and efficiency ratio at or around 60% by 2022, obviously, we were better than that ex litigation.

<unk> in 2020, there'll be variable variability to it but there are levers to pull as and to the extent that the growth doesn't play, but we're assuming that it will and it is not entirely reliant on global markets.

Alright.

I think the assumption was very minimal growth and sort of those core businesses.

Excluding.

Some of the investment is that fair, yes, I think Thats fair I think that's fair.

Alright, great. Thanks.

Your next question is from the line of Jeremy <unk> with Exane BNP Paribas. Please go ahead.

Thank you and.

And thanks for the strategy update you've talked a bit about growth on the previous question and some of the tier ones.

But growth I'm thinking of the organic build in some of your new businesses the transaction bank and the consumer businesses I wondered if you could put those in the context, and we see evolving environment that faces us and 21 were still some areas of strength, continuing but some areas of recovery.

Each of those new businesses do you see accelerating the growth or slowing or changing the game plan of how you proceed.

Well, it's interesting I mean, I think that.

We should take them each each on their own and transaction banking I think what we have.

We have hit is it resonating cord with our clients about the nature of what we built meaning we've built a new and improved digital interface by which corporations can manage their operational flows and that has been.

A refreshing change to kind of legacy platforms that have been there.

Say that not just simply and observer, but also a consumer of that service, where Goldman Sachs is using its own platform and I think that will continue in part because operational flows across corporates will continue almost notwithstanding what plays out and the context of the market movement overall.

The consumer side may be a different proposition now it depends on the perspective, you take with respect to GDP growth and what happens with rates and the like but I think as David has said.

On the consumer side, we are playing for the long term that is building a relationship with tens of millions of consumers and pivoting in 2021 to a broader and more comprehensive platform that I think will attract more consumers to the platform not simply because there is and attractiveness to the deposit rate on.

For two rate on lending, but because we will offer a more comprehensive package of investing and checking and will become a more.

Reliable primary bank to more consumers and anything that will play out again kind of notwithstanding where the market's otherwise take us on some of the more capital markets intensive activity.

And just a follow up on a different area and the global markets business, we've talked a lot on the call about the outlook for volumes and for volatility.

It feels like one of the elements of strength. This past year has been wider bid offer spreads.

And I Wonder if you could sort of comment do you agree with that observation that's been a contributing factor to the strength.

And how you see that evolving do you think we see a return of pressure on on trading profitability as we can.

Go forward.

So I'm going to go back to.

Our response I made two one other questions earlier, which is.

Q2, and Q3 look different than Q4, we experienced and benefited from wider bid offer during the intensity of what played out in.

Q2, and Q3 and the fact as David has mentioned now several times that we stayed the game and showed up across a range of asset classes helped us and we benefited from that there's no question that as you moved to the back of the year. In Q4, you saw compression from what was wide in Q and Q2.

And Q3, but there again wallet share gains benefited us and equally playing to both high.

High touch and low touch and so the advent of what we were doing through marquee and equally through portfolio trading on these electronic platforms was of equal benefits. So tighter bid offer there as opposed to wider bid offer and Q2, but I think youre seeing a business that is more diverse broader.

And and.

And in a position to continue to intermediate flows and do and do so with.

Very high balance sheet velocity.

At this time there are no further questions. Please continue with any closing remarks.

So since there are no more questions, we'd like to take a moment to thank everybody for joining the call on behalf of the senior management team. We look forward to speaking with many of you on the coming weeks and months and if there are any additional questions that arise in the meantime, please don't hesitate to reach out to Heather and her team and otherwise please stay safe and we look forward to speaking with you on our first quarter.

Call in April thank you.

Ladies and gentlemen, and this does conclude the Goldman Sachs fourth quarter 2020 earnings Conference call. Thank you for your participation you may now disconnect.