Q1 2021 Goldman Sachs Group Inc Earnings Call

Okay.

Okay.

Yes.

Good morning, My name is Erica and I'll be your call.

On the French facility.

I would like to welcome everyone to the Goldman Sachs first quarter 2021 earnings Conference call. This call is being recorded today April 14 2021. Thank you Ms. Miner you may begin your conference.

Good morning, this is Heather Kennedy miner head.

Relations at Goldman Sachs and welcome to our first quarter earnings Conference call.

And we will reference our earnings presentation, which can be found on the Investor Relations page of our website at Www Dot G. S. Dot com no information on forward looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group.

Inc, and may not be duplicated reproduced or rebroadcast without our consent.

And I am joined by our Chairman and Chief Executive Officer, David Solomon, Our Chief Financial Officer, Stephen Scherr, and carry our incoming head of Investor Relations, who will host this call beginning in July.

He most recently served as the firm's deputy treasurer, and CEO of Gs Bank USA and began her career and credit risk is it bank analyst. She brings 22 years' experience at Goldman Sachs to her new role and I leave this seat to assume the role of CFO of our asset management business.

I want to extend my sincere appreciation to each of you for your partnership over the years.

On the call today, David will start with a high level review of our first quarter performance and our client franchise and he will also provide and update on the operating environment and macroeconomic backdrop and Stephen will then discuss our first quarter results in detail, David and Stephen will be happy to take your questions. Following their remarks on that.

I'll pass the call to David David.

Thanks, Heather and thank you everyone for joining us this morning before I begin my remarks, let me thank Heather for leading the firm's investor relations effort for the past four years and welcome Carrie to the wall.

I will begin on page one of the presentation with a summary of our financial results.

And the first quarter, we produced record net revenues of $17 $7 billion.

The strength and breadth of our client franchise continue to be evident as we delivered net earnings of $6 8 billion.

Record quarterly earnings per share of $18 60, and a return on.

Equity of 31% and return on tangible equity of 32, 9% the highest and over a decade.

Our first quarter results underscore the ongoing strength of our franchise and the supportive environment, which we operated during the quarter.

These results also evidence of our successful execution towards the firm's strategic priorities.

We maintained our leading global positions across M&A and equity underwriting.

We delivered the best performance and global markets, and a decade with strength and FIC and equities driven by solid client activity across our platform and reinforced by last year as market share gains.

And asset management, we recognize significant net gains across our public and private equity positions and we continue to harvest on balance sheet investments and our efforts to transition the business to more third party assets, where we're making progress and raising funds across a range of investing strategies.

And wealth management, we continue to provide valuable advice to our ultra high net worth PWM clients, while we further scale, our personal financial management business.

And then consumer we continue to make strong progress on our vision to create the leading digital consumer banking platform.

This quarter, we launched Marcus invest and the U S. Our digital investment and then offering which provides consumers access to diversified investment portfolios with as little as a 1000 dollar investment the customer response and uptake since launch has been positive and we are focused on scaling. The platform. We're also working towards the launch of digital checking and the U S.

S and markets and best in the U K and.

Importantly, we maintained a resilient and highly liquid balance sheet as we continued to deploy our resources to support clients amid an evolving and dynamic market backdrop.

With that let me turn now to the operating environment on page two.

We anticipated we saw improvement and the macroeconomic backdrop during the first quarter.

Which was supported by the continued accommodative fiscal and monetary policies of central banks and governments around the world.

At this stage and it's clear to me that the U S is poised for a strong recovery. This year led by consumer spending and that is rebounding to pre COVID-19 levels.

This sentiment is reflected on the capital markets with U S equities hovering at or near records and bolstered by recent U S employment data and our economists forecast on GDP growth.

Despite these positive developments, we recognized that the operating backdrop will undoubtedly evolve.

And then much of the global economic recovery will depend on the progress around COVID-19, while.

While the rollout of vaccines is well underway and the U S and the U K distribution has been challenged on a number of other countries around the globe and the prospect of new variants and the potential concerns around the trajectory of the economic recovery.

As you would expect we remain vigilant to risks across markets.

We are mindful of elevated valuation levels across certain asset classes increased volatility and certain single names stocks and are aware of the inflationary risks inherent and the actions being taken to stimulate continued growth and the economy.

Let me now also take a moment to share my views on a few important topics, where I've been fielding questions from clients and other stakeholders.

First on the events related to Argos capital.

This was a case of and investor with highly concentrated and leverage positions. This.

This is not the first time, we've seen a situation like this and likely won't be the last week.

We have robust risk management the governance the amount of financing we provide for these types of portfolios on a risk controls all of which were put in place long before the March events worked well.

We identified the risk early and took prompt action consistent with the terms of our contract with the client.

I am pleased with how the firm handle that and it's a reflection of the engagement and communication of teams across Goldman Sachs. Both on the business and on the control side of our firm.

These events rates reasonable questions around market practice and transparency.

And are worthy of debate and we intend to play a constructive role and that dialogue.

Next on specs, we continue to believe that providing sponsors a mechanism to access public markets for capital formation is and innovation that is here to stay.

However, as a meaningful participant in this market, we will continue to be thoughtful regarding the transactions, we underwrite with a particular focus on the quality of sponsors sponsor economics investor protections and disclosure.

We believe the industry should evolve on these important issues and the interest and more efficient and transparent markets.

I also want to touch on the topics of crypto currency blockchain and the digitization of money.

And as activities and these areas progress there will be significant disruption and change and the way money moves around the world.

Many central banks are looking at digital currencies and working to apply this technology to the local markets and determine the longer term impact on global payment systems.

Also significant focus on crypto currencies like bitcoin, where the trajectory is less clear as market participants evaluate their profitability as a store of value.

And at Goldman Sachs, We continue to look for ways to expand our capabilities to support our clients' needs and evaluate applications to improve our organizational efficiency of.

Of course, we need to operate within the current regulatory guidelines for example, we cannot own bitcoin, we're traded as principal Goldman Sachs will play a role and these innovations as they are important to our clients and important to the future of global financial systems.

Another topic coming up.

And stakeholder conversations is sustainability.

We remain steadfast on our commitments to sustainable finance.

Central to our purpose as an organization our programs are commercially attractive and utilize our expertise and capital to support all of our stakeholders.

During the quarter, we issued our first sustainability bond, we raised $800 million the proceeds of which will be allocated towards initiatives aimed at accelerating climate transition and advancing inclusive growth.

We also launched 1 million black women and initiatives and I'm very proud of and through which the firm will commit $10 billion and direct investment capital and $100 million and philanthropic capital for capacity building grants over the next decade to narrow the opportunity gaps for black women and the United States.

Separately, we also committed an additional $500 million to launch with GFS, Our program design and to invest and diversified companies and fund managers, bringing our total commitments to $1 billion.

Finally, I wanted to take a few minutes to comment on our people.

I continue to hear from clients that the quality and dedication of our people is one of our great Differentiators.

<unk> quarterly results on a product of our client focus and the dedication of the employees of Goldman Sachs.

Day in day out notwithstanding the challenges that they have all faced as we mark one year into the COVID-19 pandemic, our people have rallied to the needs of our clients.

I'd like to thank my colleagues around the world I am and all of their performance and our results this quarter due to their hard work dedication and our culture of teamwork.

It will always be a priority for our firm to attract and retain the best talent to serve our clients and execute on our strategy.

We have a vibrant partnership and a deep bench of talent across the organization.

Many will spend on her entire career with us some will even become clients of the firm. This is a virtuous ecosystem that has been in place for decades.

It is also aligned with the evolution of our partnership strategy, where we're working to continue to make the partnership more aspirational.

And I recognize there was an enormous amount of discussion about how companies will operate their businesses post pandemic.

For Goldman Sachs. Our people operate at their best when they are forging close bonds with colleagues and furthering the apprenticeship culture that has defined us.

We have found the best way to do that is to work together in person on a regular basis let.

Let me be clear achieving the objective of bringing our colleagues back to the office is not inconsistent with the desire to provide our people with the flexibility they need to manage their personal and professional lives, which is the way we have always run this firm and given the experience of the past year, I am more confident than ever and our ability to.

Tate this approach going forward.

Over the course of the past few months, we've been welcoming thousands of colleagues back to the office and a manner consistent with safety guidelines and each city and which we operate.

We've implemented testing and other protocols across our offices to make for a safer work environment and to provide those returning to the office with a sense of confidence and the return.

Importantly, I look forward to increasing number of employees returning vaccination programs around the world expands and.

And we welcome new joiners to the firm's offices this summer.

Regarding our junior bankers and others and the organization, who have been working tirelessly to support our clients and at times have been overburdened I have been passionate about the experience of our junior people throughout my career.

As you can now see from our results client activity is extraordinarily high and I fully appreciate how busy our people did.

This has been exacerbated by the isolation of working remotely on a COVID-19 environment.

To address this we are taking concrete actions, including additional hiring reallocating resources and pursuing stricter enforcement of boundaries and this 24, seven and connected world. We have to help those transitioning into the workforce to understand the Goldman Sachs. The place and we worked very hard to serve our clients, but all need.

To be thoughtful about personal resilience and well being.

In closing I am very pleased with how our people delivered for our clients and drove attractive returns for our shareholders.

And I'm confident on the state of our client franchise and the progress we are making as we execute our strategic priorities.

With that I will turn it over to Stephen.

Thank you David and good morning, let me begin with our summary results on page three during the first quarter. The firm's performance reflected meaningful strength across all four of our business segments and investment banking clients remain very active and raising capital, particularly and the equity markets and we witnessed high levels of M&A activity.

Amid elevated strategic dialogues and.

On global markets, we saw strength across all products and regions as client engagement remained high.

And asset management record performance was attributable to gains from our equity investments, particularly as we harvested private equity positions and an attractive market.

We also saw double digit revenue growth year over year, and our consumer and wealth management segment for a third consecutive quarter as we further expand our wealth capabilities and scale our consumer offering.

Turning to specific business performance on page four let me begin with investment banking investor.

Investment banking produced record quarterly net revenues of $3 8 billion.

73% versus a year ago.

Financial advisory revenues of $1 $1 billion rose, 43% versus last year on increased transaction closings and the quarter.

During the quarter, we maintained our number one league table position as we participated in over $400 billion of announced transactions over $100 billion ahead of our next closest competitor and closed over 100 deals for approximately 300 billion.

Deal volume.

The bigger headline and investment banking again this quarter was equity underwriting, where we generated a record $1 6 billion and revenues over four times greater than the levels a year ago.

And we ranked number one globally in equity underwriting with our volumes climbing to nearly $50 billion across roughly 240 deals including over 90 initial public offerings for companies across all markets like Couponing, and Korea in post and Poland, and Bumble and the U S.

Equity underwriting market share increased more than 60 basis points during the quarter, largely driven by improved share and ipos.

We experienced strong activity this quarter and follow ons, and new products, including our participation and a growing number of spec transactions.

And debt underwriting net revenues were $880 million up 51% from a year ago, driven by strong activity levels, particularly in leveraged finance and asset backed transactions. In addition, our engagement with sectors impacted by Covid, including Airlines and hospitality was high.

Notwithstanding the significant realization of revenue and the quarter, our investment banking backlog ended the quarter at record levels with sequential growth supported by sustained M&A activity as well as replenishment from underwriting transactions and.

Revenues from corporate lending were $205 million down 54% versus the first quarter of last year, which included significant gains on hedges maintained with respect to our relationship loan book Rev.

Revenues in the quarter reflect net interest income, including from transaction banking and fees from our relationship lending, partially offset by approximately $85 million of losses on hedges as spreads tightened modestly.

Moving to global markets on page five our franchisee exhibited broad based strength across businesses and both FIC and equities net revenues were $7 $6 billion and the first quarter up 47% versus a year ago and the highest since 2010.

During the quarter, we benefited from a supportive market, making environment and facilitated considerable client activity.

Turning to FIC on page six first quarter net revenues were $3 9 billion up 31% versus a year ago, driven by a 36% increase and intermediation, where we experienced healthy client flows and demonstrated strong risk management and grew revenues and four out of five businesses versus.

Last year.

And mortgages revenues rose significantly bolstered by solid results and agency mortgages and residential loans and high levels of client engagement as the business continues to diversify its revenue across market, making loan origination and financing and.

Commodities higher year on year performance was driven by solid inventory management across products amid volatile markets and healthy client flows.

And rates revenues rose amid strong risk management and client engagement, particularly on the back of anticipated physical activity in the U S and diverging Central bank actions during the quarter.

And credit revenues were up versus a year ago as the business benefited from continued improvement and credit spreads while client activity remained healthy and made robust primary issuance. We also saw increasing volumes related to our automated bond pricing engine and growing activity and electronic trading.

And currencies revenues fell due to lower activity versus a strong quarter a year ago. The client engagement remained high across both the <unk> 10 and emerging markets franchises.

Turning to equities net revenues for the first quarter were $3 7 billion.

Up 68% versus a year ago, as we deployed our balance sheet to support clients and intermediate risk with discipline and.

Equities intermediation produced net revenues of $2 $6 billion up 69%, reflecting the global scale and breadth of our client franchise and aided by elevated client volumes across cash and derivatives as well as strong risk management.

In cash we facilitated client flows across high and low touch channels and executed a number of block trades for clients during the quarter and derivatives. We produced record results as we saw solid activity and flow and structured transactions across both the U S and Europe.

Equities financing revenues of $1 1 billion were the best and over a decade rising 65% year over year average balances and our prime business grew to record levels as we supported clients amid the volatility and market events of the first quarter.

As we continue to grow our prime business, we are well aware of the risks inherent in that business and the resources, including liquidity that are consumed while we avoided losses related to recent events involving <unk> capital as David noted the situation underscores the potential risks of the business and a corresponding.

And so our risk infrastructure and control systems.

As the forward expectations for global markets. It remains difficult to predict client activity, while we do not expect the pace of activity and the first quarter to necessarily persist for the balance of the year. We believe the high levels of primary issuance the current trajectory of economic recovery and diverging Central Bank policies.

<unk> and emerging markets could continue to support elevated client activity.

Our confidence on the forward of global markets rests largely on the market share gains generated last year through a deepening of client relationships and our ongoing investment and technology platforms to enhance client experience and drive efficiencies as we have noted previously this progress has improved the structural return profile of the business.

And independent of the wallet opportunity.

Moving now to asset management on page seven and the first quarter, we generated record revenues of $4 6 billion.

Management and other fees totaled $693 million up 8% versus a year ago, driven by higher average assets under supervision, partially offset by fee waivers on money market funds incentive fees of $42 million were lower versus a strong year ago quarter.

Equity investments produced $3 $1 billion of net gains, including appreciation across our public investments and marks related to event driven activity and our private equity portfolio, such as sales or capital raises.

More specifically on our $3 billion public equity portfolio, we had gains of roughly $340 million. This quarter, we disposed of over $1 $5 billion of positions given attractive market conditions. Despite the quantum of public positions sold and the quarter the more moderate decline and the size of our <unk>.

Portfolio reflects the impacts of Ipos, and our private portfolio and market appreciation.

Across our $17 billion private equity book, we generated gains of nearly $2 $6 billion from various positions more than two thirds of which were driven by events relating to the underlying portfolio companies, including Fundraisings capital market activities and outright sales. Additionally, we had operating.

And use of $225 million related to our portfolio of consolidated investment entities.

We announced or closed on dispositions and private assets of $1 5 billion and the quarter, bringing the total private sales since our 2020 investor day to $4 $7 billion. There is an implied $2 $3 billion of capital associated with those assets. Additionally, we have line of sight on Nir.

The $3 billion of incremental asset sales.

Despite these actions and as I mentioned on our January earnings call. We increased the equity attributed to asset management as a result of our 2020 CCAR stress test. This change was driven by our dynamic capital attribution methodology, which takes various regulatory constraints into consideration on the forward. It continued re.

<unk> and balance sheet positions will produce a more meaningful impact on attributed equity reduction and importantly, we remain on track to achieve our net reduction and segment capital consistent with what we presented at our 2020 Investor day to below $18 billion by 2024.

And the ongoing harvesting of our investment portfolio is consistent with our strategy of migrating our business to third party versus on balance sheet investing and attractive market valuations have accelerated some sales. We are keen to continue such activity as it would be capital accretive to the firm that said dispositions.

And at attractive levels, now will diminish gains from sales and forward quarters, we're mindful of that trade off and are working to offset the revenue impact in subsequent years as we look to realize increasing fee income from the number of alternative funds being formed and invested.

Finally, and asset management net revenues from lending and debt investment activities were $759 million on revenues from NII and gains on fair value debt securities and loans. This reflected modestly tighter credit spreads on our portfolio of corporate and real estate investments.

Let me now turn to page eight where we show the composition of our asset management balance sheet consistent with the information that we provided to you in prior quarters, our equity and Cie portfolios remain highly diversified by sector geography, and vintage and our debt investment portfolio is also diversified with low.

And the segment largely secured.

Moving to page nine consumer and wealth management produced $1 $7 billion of revenues in the first quarter up 16% versus a year ago.

Management and other fees of $1 $1 billion rose, 12% versus last year, reflecting higher assets under supervision, which rose 25% to 637 billion.

Consumer banking revenues grew to $371 million and the first quarter up 32% versus last year, reflecting higher credit card loans and deposit growth net.

Let's turn to page 10 for our firm wide assets under supervision and firm wide management and other fees total <unk> increased to a record $2 two trillion dollars during the quarter up over $380 billion versus a year ago. The sequential increase of $59 billion was driven by 37.

Billion of long term inflows and $23 billion of liquidity inflows, our total firm wide management and other fees group grew by 11% versus the first quarter of 2020 to $1 8 billion.

On page 11, we address net interest income and our lending portfolio across all segments total firm wide NII was $1 5 billion for the first quarter higher versus a year ago, reflecting an increase in interest, earning assets and lower funding costs.

Next let's review loan growth and credit performance across the firm our total loan portfolio at quarter and was 121 billion up $5 billion sequentially, driven by residential real estate warehouse and wealth management lending.

And the first quarter provision for credit losses reflected a net benefit of $70 million. This includes a reserve reduction driven by improvements and the broader economic backdrop and loss expectations, partially offset by portfolio growth, including approximately $180 million and provisions related to the pending acquisition.

<unk> of loan receivables as part of our credit card partnership with General Motors expected to launch by year end.

Next let's turn to expenses on page 12, our total quarterly operating expenses were $9 4 billion, while our ratio of compensation to revenues net of provisions fell to 34% from 41% and the first quarter of last year compensation expense increased reflecting strong performance.

Non compensation expenses were up only 5% versus last year as an increase and transaction based and technology expenses was largely offset by a decline and litigation and travel and entertainment expenses as well as lower expenses related to our consolidated investment entities overall our efficiency.

<unk> ratio for the quarter was 53, 3%, reflecting the operating leverage and our business. We remain focused on our expense discipline and a pay for performance culture as well as our expense initiatives, where we continue to evaluate additional opportunities for further savings.

Our effective tax rate in the quarter was 18%, primarily reflecting the impact of equity based compensation of approximately $175 million.

As noted previously we expect our tax rate under the current tax regime to be approximately 21% I should note that we continue to monitor the impact of various proposals being made and the U S on the federal and state level.

Turning to our capital levels on slide 13, our common equity tier one ratio was 14, 3% at the end of the first quarter under the standardized approach down 40 basis points sequentially. The decline was driven by increased lending and higher market RW ways as we stepped in to serve clients Park.

We offset by strong earnings.

In the quarter, we returned a total of $3, one $5 billion to shareholders, including common stock repurchases of $2 $7 billion, and approximately $450 million and common stock dividends and our book value per share rose to a record $250 81.

While the federal reserve has extended to limitations in place on share repurchases and dividend increases. We nonetheless expect to continue our repurchase plans in the second quarter close to the levels of the first quarter, and we will evaluate and increase to the dividend as permitted.

Turning to the balance sheet total assets ended the quarter at one three trillion.

12% higher versus last quarter as we supported client activity, we maintained high liquidity levels with our global core liquid assets, averaging nearly 300 billion.

On the liability side, our total deposits rose to 286 billion up.

$26 billion versus last quarter, notably consumer deposits surpassed $100 billion.

During the quarter.

Our long term debt rose by $6 billion, driven by $20 billion of benchmark issuance, given the growth and our balance sheet outside of bank entities, particularly due to accretive deployment opportunities in our prime business. We now expect benchmark issuances to be modestly higher than maturities and redemptions. This year.

In conclusion, our first quarter results reflect the diversification and strength of our client franchise, we remain confident that execution of our strategic priorities. We will continue to drive a better client experience more durable revenues and strong returns for shareholders with that we'll now open up the line for questions.

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

Your first question comes from Glenn Schorr with Evercore ISI.

Yeah.

Hi, Thanks very much.

I appreciate your comments on the capital freed up on the <unk>.

Equity investment.

The question I have is I don't remember every number but it looks like some of those sales are a lot of those sales came.

From the older vintages, which is which is good I think but now with most of the book, where all the book six years or younger.

Does that slow that the non.

Monetization process I know you had mentioned you had line of sight on 3 billion more and maybe you could talk about.

How much capital is and so.

Would be associated with that retail yet.

And maybe have pipeline looks from third party capital rates.

And during the year.

Sure Glenn Thanks for the question. So let me just go through the numbers. So we're so we're all level set.

In the quarter, we closed on about $1 5 billion of balance sheet reduction producing about $852 million of AE relief and as I noted in the prepared remarks since our Investor day, we have disposed of balance sheet positions totaling $4 7 billion that produced about <unk> <unk>.

$2 $3 billion of relief as well.

In terms of line of sight as I said.

We have a view into about $3 billion of balance sheet reduction.

My view is that the capital attachment.

Seated with that $3 billion would be I would say well in excess of about $1 billion, probably close to $1 billion for in terms of in terms of AE relief there.

As to the profile vintage and otherwise I think it's important to recognize that and pursuing the strategy of migrating to more third party funds.

Look across the portfolio, regardless of vintage of opportunities, particularly in this market to advance its not only in the pursuit of course, if that strategy, but equally it reduces the capital density of that business and holds the promise of reduced capital that the firm would be required to hold overall and so too.

Ponant in the context of what we're trying to achieve strategically if you look at what we've done just on the last part of your question in terms of fund raising.

Youll remember that through 2020, we noted that we had raised funds approximating $40 billion.

Taking that and extending it through the first quarter were up just north of about $52 billion and are looking to deploy that now.

And obviously management fees get paid on deployment and investment.

And of that fund raising and so the roster of ambition of what we're going to do this year is quite real and we're confident and our ability to achieve it and this is all obviously part and parcel of meeting what I was talking about which is as we see the harvest.

And of positions now and take that revenue and we will seek compensation for that if you will in the context of management fees as we grow and deploy capital and the alternative space.

I definitely appreciate all that color. Thank you maybe a quick follow up just.

Quickly on composition of that pipeline that you talked about I think I heard in your remarks that M&A is pretty darn, good but underwriting actually.

And also I guess my question is how dependent is fulfillment of that pipeline on getting past. This current spat and digestion period that we have and just looking for a little more.

Color on.

On fulfillment of the pipeline. Thanks.

If you look at our overall backlog, which as I noted is that is at record levels.

Say that notwithstanding.

High level of revenue recognition certainly on the investment banking segment were nonetheless, seeing the backlog replenishment.

At extraordinarily high levels and so that's really the sort of best picture forward. If you will in terms of what our clients are engaged and doing I think on the forward as it relates for example to global markets. There it's difficult to say as I noted in the common and David did as well, it's hard to know what the <unk>.

Market opportunity will be the comparative set of results second and third quarter last year versus this.

Will will be challenging just given the volatility we saw last year in those quarters I think the confidence we're taking in terms of sustainability of results lies in our market share and we have picked up market share across global markets across investment banking, both in financial advisory and equity.

<unk> markets and we will rely on that to capture our fair share or better of the opportunity set presented.

Your next question comes from the line of Christian <unk> with autonomous.

Good morning, David and Stephen and subtle and just echo the sentiments and Heather she has been truly exceptional and the IR role. So we will be will be sorely missed.

On to my questions I guess the first one is.

On the trading businesses, just a follow up on the what you just said in terms of market share gains.

It seems like the market share gains actually accident rates and trade in and I'm just curious.

Is there any more color really on what exactly.

He is driving EBIT as gains in the quarter over the last year just be more specifics and then I know you both you and David as I've talked about.

The sustainability issue around trade and but but it feels like trends have slowed a little bit here in April and is moving to the summer. So just any sort of thoughts around.

And what you think will support.

Strength for the rest of the year. Thank you.

So question and I'll start and thanks for the thanks for the question first and I'll start at a high level and then Stephen will probably give you some more granular.

Granular data, but on a high level one of the things we've been very focused on over the last two and a half years.

Is the client centricity of our business and trying to really look at the way clients' experience us look at it Holistically and see how we're serving their needs holistically you've heard us talk about our one GFS mantra, our ability to bring the whole organization together to deliver better for clients and one of the things that im hearing consistently from clients as I reach out and spend time on.

Clients.

Is that they feel like there's been a meaningful change.

And the kind of broad client service theyre getting our focus on them the resources were getting giving or bringing to them. The coordination of all that and I think that has contributed meaningfully that client centricity that culture is contributing meaningfully to market share gains you know and we've put it forward that we talked about looking at the top 100 accounts and global markets. We gave you.

Data last quarter on our progress against those accounts.

Dean top III against those accounts that is of Kpis and we continue to track we made progress last year and we're committed to making further progress this year and so I think that also has an impact on this.

And in addition.

And then obviously you have the market activity, that's generated and so we get the benefit of those market shares.

<unk> against that activity.

And on your second question with respect to.

Kind of activity looking forward, what I would say was the first quarter was an extraordinary quarter I don't think that the expectation should be that activity will continue at that pace through the second quarter third quarter and fourth quarter, but I will say that activity levels continue to be elevated from what I would say was a pre COVID-19 activity.

Level by a meaningful amount and I think as we said on the script that the environment, the monetary and fiscal stimulus.

And in addition, the economic recovery continues to paint a relatively constructive background, but I don't think the expectation should be for it to continue at the pace. We saw on the first quarter. So Christian just to pivot off of David's comments.

All of which I'll give to you and are a reflection or a product of the client Centricity that David was speaking to first of all across the equities business and global markets. I think we're seeing a very clear consolidation of share.

And and among a discrete number of banks and the U S. Among which we are one we saw elevated prime levels part of the strategy that we've been pursuing and as I noted in my comments record prime levels that contributed to meaningful uptick and equity financing.

Moving on the last call I had noted that over the course of 2020 across global markets. We had picked up about 120 basis points of of wallet share across the patch and then when you look at I'll, just take two individual businesses and FIC just.

And pivot to fix for a moment first of all if you look at mortgages. The interesting thing about mortgages is that this business is now sort of per.

Pivoted away from sort of straight market, making and is now itself engaged and financing and loan origination and so doing more for more clients has been kind of the signature. If you will of just expanding and the mortgage space that has grown that business and then if you look at credit we have picked up meaningful.

Market share both in cash and loans in the context of what we're doing and then the last thing I would say, which I think is a contributor to enhance share client engagement and the like has been what we've done and the development of platforms and credit is a good example of that where portfolio trading has grown quite considerably our place in it.

Is is quite high and so again, it's all as David is saying client centricity and engagement client and meeting clients, where they care to execute platforms being a good example.

Great. Thanks for the color.

Maybe shifting on to expense expenses and expense management and looking forward.

I would argue that simple.

The opportunity set across pretty much all your businesses today are much bigger than.

Certainly.

So much bigger today than when you set out some of those expense targets at Investor day in early 2020.

And I'm, just wondering how youre thinking about.

Thanks.

Continuing on along the path.

And what was the expense targets versus capitalizing on revenue opportunities that are ahead of you.

Sure.

I would think about expenses as the following first of all.

And non comp expense more broadly.

There should be no doubt that we have a very keen focus on controlling our expense base I am saying that independent of the efficiencies that we laid out at Investor day, which I'll come on too, but our as reported non comp expense was.

5% ex litigation up 9% and within that literally the totality of the increase in expenses were related to transaction based expenses, so BCE relating to elevated levels in global markets and our technology spend and so I think on the forward you should expect.

<unk> debt, where transaction activity is high where we're meeting our clients where market opportunity is large that variable expense will continue to fluctuate consistent with the market and will carry us there.

The second piece I'll comment on is just the $1 $3 billion of expense initiatives again independent the day to day focus on non comp expense and there we continue to make progress and all of the areas that we had talked about including our real estate footprint as we just announced that we're opening up offices and <unk>.

Birmingham, we did that as it relates to hydro, but all of that is a component piece of what we're trying to achieve and the $1 $3 billion of expenses. The last piece I'd say is the is the is the operating leverage that exists with compensation as we've said many many times we pay.

For performance and so that lever is always available to us.

And to the extent, we see revenue.

And down relative to the kind of performance, we have otherwise seen and this quarter.

Your next question comes from the line and Stephen <unk> with Wolfe Research.

Hi, good morning.

So I wanted to start with a question on capital now how does the fed decision not to extend the SLR relief and form your capital management priorities and maybe just give us a sense as to where you're comfortable running on that measure and some of the areas where you noted some gains like prime are clearly going to be impacted by that.

Prospect of potentially SLR being binding and then just on risk based ratios as well if you could just speak to how youre thinking about the <unk> trajectory as you continue to execute on the planned equity investment sales.

Sure. So first on SLR just to be clear that that has not been and is not a binding constraint on us just to be clear about it obviously, 5% at the Holdco is 6% at the bank we stand.

Higher than both of the minimums and don't find that to be our binding constraint to us and so I would say that at.

And at both levels, we have ample growth capacity in terms of balance sheet growth before that comes on to the horizon is as being an issue for us. So SLR not the issue that it is for some of the other commercial banks in terms of <unk> growth.

I think that Youll see that commensurate with the nature and level of activity Thats. There. The one thing I do want to point out is that risk control and risk calibration.

Means unchanged is as.

As disciplined as you would expect it to be notwithstanding <unk> growth. So the opportunity set that's been presented causes us to extend balance sheet and grow risk weighted assets commensurate with that opportunity, but without compromise to the kind of risk levels debt that we find I mean.

The thing I would say Steve on this is debt if you look at growth and the firm and you look at growth and balance sheet and the service of our clients as David has been talking about.

The resource input to this has been maintained so as to protect protect the risk flank of the firm, we're sitting with elevated levels of liquidity at <unk> north of $300 billion, we sit within and ample capital position, obviously elevated by where the men.

Women sit but within and.

And offensive mode, and a buffer prepared to deal and engage with our clients.

Mary those two resource sort of points alongside risk controls that David spoke about and we feel quite comfortable with the <unk> growth, we're experiencing and keeping it and control and check from a risk point of view.

And thanks for that color Stephen and for my follow up.

And I guess from both for you and David just.

It's a follow up I guess really to Christians earlier question, just on trading and IV normalization and I know this has been asked a number of different ways on recent calls.

But just given this year pace of share gains and David Some remarks, you actually made at a conference this quarter, noting that industry fee pools should normalize above 2019 levels.

It does feel to us like those two factors alone should support more than 3 billion and higher run rate IBM trading revenues, which actually compares to add target for incumbent business growth of just two to 3 billion. So clearly some of the targets that you outlined at Investor day on the revenue side do appear.

Quite conservative just given the share level of progress and I was hoping you could speak to and your confidence around the ability to drive better growth and the incumbent businesses relative to those targets and maybe if you feel like that north of $3 billion and higher run rate IV and trading is a reasonable expectation given the underlying trends that youre on.

And as well as the improved and deepen client penetration.

So on.

So Steve I appreciate the question and.

You think about this in a similar way that we do.

We've always talked about how long term market cap growth has led to long term growth and our business broadly.

But you've got to look at it over a long periods of time I think there are a variety of structural things that has supported growth and our core businesses and I think we're seeing some of that I'm not going to comment specifically on on your numbers, Although I think that your numbers as you point out.

Net very reasonable expectations for us to meet our medium term targets that we set at Investor day. So I will start by saying I am extremely confident of our ability to meet our medium term targets that we set at Investor Day. We also said on Investor day that that is not our longer term aspirations and as the market continues to.

<unk> as we come out of the pandemic as we have more clarity on how the world sets out moves forward. We will give you clear communication about our longer term expectations for our ability to drive the franchise forward, but as we did pre pandemic and Investor day, and reiterate now we do see opportunities to drive the.

Our franchises forward and drive higher returns over the long term than what our current medium term targets are.

Okay.

Your next question comes from the line of Mike Carrier with Bank of America.

Good morning, and thanks for taking the questions.

First just a bigger picture question following on that and that last one.

In terms of the sustainability of some of the things that we're seeing on trading and banking.

We haven't seen this level of GDP growth in terms of the forecast for a very long time.

And wanted to get your historical perspective on <unk>.

Now this cycle.

Cycle acute care and you.

Can that drive more activity and then David I think you mentioned higher inflation.

And I wanted to risk.

Monitoring so I guess, just for you and an environment where that starts day.

Alright and ramp up.

Do you expect that impact on activity levels.

Sure so on so on.

And I appreciate the question Mike.

And Theres no question, if you look on a broader historical perspective growth and activity levels and our business have been correlated to robust GDP growth around the world and so I would state quite clearly and I said on the prepared remarks that we think that we're going to have very very robust economic growth and the second half of 2021 into 2022.

As vaccines continue to accelerate as we come out of the pandemic as we move forward.

No question that there is.

Meaningful consumer pent up demand and consumers have reasonable liquidity and savings.

And then they get going into the pandemic.

And we expect that all of that economic activity and that pickup and economic activity and as a constructive backdrop for.

And for our business. There is no question, given the monetary and fiscal actions that theres and increasing risk of inflationary activity.

And all are watching very carefully comments from central banks around the world.

As we look forward I think in my opinion and Theres No question.

We will see an increase in inflation and the question is how much how quickly and how we respond to that and I think it's early it's very early to speculate but there is a scenario on the distribution, where it would accelerate more quickly and actions would have to be taken that would create more headwinds for our business I don't see that is obvious on the nearer.

Term horizon as we look through this year and we continue to come out of the pandemic, but I do think it's a risk issue from markets that will have to continue to watch very closely.

Great Thanks and.

And just a quick one follow up on that and management business volume Glenn's question.

Fees management fees sequentially, a bit lower I think you mentioned money market fee waivers how significant was that and then on the alternative fundraising and how much of the debt funds that are being raised.

Generate fees on committed capital versus deploying capital.

Yeah, so on on the money market comment.

It was approximately $100 million and fee waivers and bear in mind very common practice as you know throughout the industry. So nothing unusual about that on the alternative space.

And the management fees it will take in our on deployment of of the Investable capital that's already beginning and.

So youll continue to see that.

Note that on one of the charts that we show, which looks at firm wide assets under supervision and firm wide management and other fees. It's a slide where my ambition is to disclose more particularly as these alternative funds.

<unk> deployed we can start to share more with you about how much of that management fee across the whole of the business never mind, the segment and which it sits but across the whole of the firm is being generated by this strategic pivot.

Your next question comes from the line of Betsy <unk> with Morgan Stanley.

Hi, Good morning, Hi, there good morning.

Two questions. The first one is on the backlog you indicated that the backlog is I think you mentioned and historic levels and I'm just trying to understand how much.

Like what's the multiple of the prior peak that your backlog is running at right now.

Let's see I would say that.

I'd have to go back and look at where the prior record was set but it's certainly at a record I'll give you a little bit of of composition and it which is debt.

It's cutting across a range of businesses we're seeing.

Higher than normal replenishment and backlog build.

In EMEA and in Asia than we are in the Americas, but bear in mind overall size of the business and the Americas is quite significant so notional dollars would be higher there, but it's showing some geographic.

Some geographic composition.

To my memory.

I wouldn't view it as a multiple of the prior peak I would call. It is probably 10% higher than where the top the top of that of that number had been historically.

Okay. Thanks, and then separately, Steve I think you mentioned a comment about the dividend and you would look to raise that and as you could could you give us a sense as to how we should be thinking about the sizing of that that is typically people look at the dividend payout ratio relative to.

David forward earnings I'm guessing that's the.

The metric that Youre thinking about that maybe you can give us some color.

Of the.

And the revenue volatility that you have some pieces low or something thats higher maybe give a sense as to what we should be keying in on when we're thinking about where to take <unk>.

And and our estimates so I don't want to peg the exact sort of aspiration of where we'll be and and our ambition is to take the dividend up when the rules permit, but I would say that our ambition is to put the dividend and a more competitive standing than perhaps where it has sat historically by the way.

We've already been on that path, having raised the dividend quite considerably since David and John and I, all took our seats and so.

And my memory, we took it up about 47% or thereabout at the beginning of our tenure and higher since I think that the the ambition here is to have the dividend grow commensurate with an increasing durability of revenues in the business as the more durable businesses or revenue.

Range some businesses grow.

The dividend auto reflect debt and it will and.

So that's probably the best the best sort of forward view on dividend thinking that I can provide.

Your next question comes from the line of Mike Mayo with Wells Fargo Securities.

Hi.

Hey, Mike can you.

Can you just give more color on it looks like market share gains but.

And by different category. So one category would be size of client and I know you've had this middle market expansion effort was that a record and how is that doing a second category.

At a corporate versus others a couple of years ago, you were behind with the corporate you were trying to catch up and a third category would be geographic or you mentioned EMEA and Asia on a go forward basis, but just as we look at the first quarter.

So we don't we don't break down the backlog exactly that way, but let me just provide as much color as I can on this first of all in the middle market that.

And that continues to grow and.

And the revenue that we've taken in and investment banking around the growth and the client set.

Has been quite substantial and frankly, I think beyond that which we otherwise thought we would achieve at the investor day on.

And on the corporate side, you can see it play out in the context of <unk>.

Investment banking revenues broadly I would say equally we're playing to a larger corporate set in our global market segment in terms of those becoming more prolific clients in and what we do and then on the geography as I mentioned before.

We have seen kind of double digit growth in backlog in EMEA.

And in Asia.

And and we continue to see growth in the and the Americas as well.

But again the Americas presents a much larger set more broadly I'd also refer you back to a comment David made and we've spoken about before which is our ambition and our focus around client centricity and global markets. Its always been there as it relates to investment banking has put us in among the.

Top three amongst 64 of the most prolific.

Clients top 100 clients and global markets and Thats up from 51, the year before and so we continue to see growth in the share we're taking by the way this all against the backdrop of consolidation in share.

I would say among.

U S banks relative to the European competitors across a range of product areas in equities and in FIC.

Okay, and you mentioned record prime balances so.

After the recent hedge fund incident do you see some players retreating and.

There you have a flight to quality effect with players coming to you or something else taking place.

I think it's too early to judge whether there'll be a significant shift I suspect that there'll be certain clients that look to migrate.

From from where they were two to a different firm, but it's too early to.

The judge that I think the important thing to note is that <unk>.

Growth and Prime has been a strategic imperative for us it's not the byproduct of the Arca goes incident or the like and as we grow that and this is what David was referring to.

We continue to maintain quite a vigilant posture as it relates to risk that's embedded in it and we recognize risk of concentration we recognize the consumptive nature of that business.

And so we're going to maintain kind of our.

Threshold of risk tolerance in terms of clients that we bring on.

Whether or not it shows consolidation and prime pricing pressure on prime.

I suspect it might but it's just too early to judge that just yet.

Your next question comes from the line of Kian Abbas Hussain with J P. Morgan.

Yes, Hi, al first of all the things to hazard for all of his support.

Two questions. The first one relates to global markets.

Clearly indicated that this has been fueled by the very strong liquidity macro environment that <unk> seen and clearly all top lines have performed extremely well below last year and the first quarter and.

And.

And I wanted to understand how you make decisions about spending additional dollars in terms of investment structurally.

And these businesses considering everything is performing extremely well and most likely it's asking for budget. So if you can just talk about the business lines that you're investing as well as the geography.

Well the one the one that I would call out is credit and FIC and just as an example, and I mentioned it earlier. So this is ware.

And we saw a trend line developing around portfolio trading and so investments that we were making in.

Platforms and technology capabilities and the like have served us well in the capture of.

On a solid percentage of the portfolio trading and the volumes that are going through there and so.

That's an example of of advancing and enhancing our technology capabilities that.

And that are in place.

I'd also point out more generally that over the last couple of years, we've been spending quite a bit of money on straight through processing that is taking note of the demands among our clients around.

Middle and back office and the overall experience of our client set not just on the front end to the trade, but all through to the back each of those investments whether it's technology to build platforms that captures portfolio trading credit where development of enhanced technology to automate and streamline.

And the overall straight through processing all of that subject to and ROI framework with an eye toward improving the overall client and user experience. That's there and so that's just a little bit of insight into how we think about.

On the investment and where we've been making that investment.

And and my second question is is coming back to technology. Stephen You also mentioned in your remarks, clearly the focus on technology platforms.

And the front office experience for client that you have improved and are improving but maybe you could elaborate a little bit more detail. For example, how much of your business is cloud based how much do you want to get to cloud.

How many platforms do you have on the trading side and how many do you envision to have in the future and on the front office side, we hear from a lot of banks that they are very good at the new platform operations debt dealing this but just wondering what is the experience at Goldman and that makes it so different and your view.

Well I'm.

I'm not sure I have it at my at my hand kind of the number of systems and the like but let me answer. The question. This way and let me use transaction banking as being a really good example, okay transaction banking is.

A new platform designed from the front and all the way through to the back into the books and records of the firm. It is cloud based engineering, which has all of the efficiencies and I'm sure you are aware of in terms of.

A lower expense to sort of keep it current in terms of developments around engineering and alike and so.

Our new builds are largely perhaps not exclusively but largely cloud based we're always looking to rationalize platforms and I would say one thing ive learned from Marco Arty and George and engineering is that.

And as important to decommission old platforms as it is to put new ones in.

We're riveted and focused on doing that.

So as to eliminate legacy technology build into cloud and I think some of the newer businesses that we're involved in transaction banking consumer benefit from the absence of legacy so that we can build.

New and efficiently and and the right form.

Your next question comes from the line of Brennan Hawken with UBS.

Good morning, Thanks, and thanks for taking my question.

Just curious you guys are building out.

Marcus as a big strategic priority for you.

You've rolled out to markets and fast we've got check writing coming when we look at some of the.

Our fintech platforms.

And what they've embraced recently theres been a lot of excitement around offering crypto.

You made a few comments on crypto and the outlook for how you.

And to engagement and crypto and your institutional business, but.

But are you also considering including.

The offering of crypto wallets and whatnot on the.

Tumor front, where it seems as though there might be and certainly competitors have found and ability to offer that capability, which has driven a lot of excitement and a lot of growth.

Sure I appreciate the question Brennan and.

At a high level, obviously, we're monitoring this all very quickly.

We have a plan at the moment about the digital bank, that's offering on a ray of integrated basic services and a completely digital frictionless platform and we're extremely focused on that.

At the moment, we are not focused on offering and a crypto wallet ahead of providing what I'll call more basic set of financial services on a digital platform, we'll obviously monitor how the world evolves with this we.

We will see how things progress and we'll continue to watch it.

But I'm not going to comment further on longer term plans for individuals we have been focused on other things and with respect to crypto payment systems. The digitization of money, we've been much more focused on the institutional side.

That's that's fair thanks.

Walk before you run at maybe a little bit different and some of the things that competitive.

And anyway.

Okay.

Broadening it out a little bit and thinking about your strategic targets and and the new directions that youre going Stephen you often flag and the components and how much of the revenue is recurring which is probably underappreciated have you considered you guys have done a lot with disclosure and it's been.

Great and.

Very constructive.

Have you considered making some adjustments in the disclosures, which would help <unk>.

Masters and analysts too.

Model some of those recurring revenues.

And show them as more and mechanical so to speak for example, with consumer banking on the consumer banking is the one that it seems less clear to me.

You just provide the revenue line, but we don't know what the breakdown is and fees versus NII.

We don't know what the direct balances are tied to that.

We don't know.

Credit metrics that would allow for some sort of mechanical calculation and I think might assist and the appreciation of how much of your revenue base is actually recurring amongst the analyst and investor community.

Have you considered any of those changes or shifts and do you think that might help in greater appreciation of those recurring revenue streams.

So Brendan first of all thanks for the feedback I mean, it's a big area of focus for us.

This strategy has clearly been to develop about businesses that.

Exhibit greater durability to the revenue stream and Theres no question that disclosure will follow and the context and providing all of you with greater insight into where we think or where we would define.

Recurring and durability of earnings that are there on the specific point you raised around consumer I think is consumer grows and so David was reflecting before.

That business is now turning a corner to sort of resemble the ambition of a broader platform than it is a series of products, we'd like to find and ourselves in a place where we will and can provide greater disclosure on consumer just and as an example, I would say the same will be true as transaction banking becomes more durable these are areas.

Where as they become more material and we expect that they will disclosure will naturally follow and then I think your feedback is a good one just in the context of providing firm wide a firm wide perspective through disclosure on durability.

Your next question comes from the line of Devin Ryan with JMP Securities.

Yeah.

Thanks, So much good morning, David and Stephen.

A question here just on the M&A environment, obviously, a lot of activity going on and financials and Fintech right now its love to maybe just get some perspective on what you guys are seeing within Goldman specifically in terms of opportunities and what the appetite is and and also whether anything has changed clearly the stock is.

Is it kind of a new level here, it's up 30% year to date still only maybe 10 times earnings but.

And we're at levels that you haven't been at so just loved it and maybe get some context on the backdrop overall and then maybe how the appetite might be evolving.

Appreciate the question Devin on the backdrop overall and.

And I assume by the backdrop overall youre just talking about broad M&A activity there is.

And a meaningful pickup as confidence and the forward curve.

Based on the comments Stephen made about backlog broadly and the constructive nature of this environment is obviously leading to client has been extremely engaged.

Around strategic objectives that allow them to drive their businesses forward and really in all businesses everywhere, we continue to see.

Consolidation of those and are strong.

And with consolidation by those on a strong position because all businesses continue and the digital world, where and with further digitization and require more tech investment more scale more global and so in that context, obviously leaders are continuing to consolidate the strong positions with.

With respect to our space broadly and how we think about this.

I'm going to repeat verbatim, what I said last quarter.

And what I've said before we.

We spent a lot of time looking at opportunities to accelerate.

The growth of our franchise.

And particular as we look at businesses like asset management wealth, if we could find something that we felt would accelerate our strategic growth objectives, we would certainly consider it but the bar for anything significant is as high.

And it has to be the right industrial logic more than the fact that we have a currency because the stock is higher and so we continue to think about ways that we could accelerate our growth, but the bar to do it as high prices are high.

<unk> environment and we.

Feel good about our plan, but we'll continue to do the work can be diligent about looking for opportunities, where we can accelerate the growth of the firm.

Okay terrific and then just a follow up here.

We have received from Investor questions just over some of the recent press reports around some management movement or departures, even if some of the newer businesses and I think the question is more youre clearly Goldman has.

A deep bench and as a larger organization to sometimes but I think the context get lost but the question is more around whether there's any implication of our strategy evolution or shifts.

And from at least what some of the press is picking up and what does this get a common if you count on that.

We feel very very good about our team that's in place we have a very very deep bench.

And.

And I think on a great position with the leaders that debt.

And that are in place one of the things I just observed broadly and it's consistent with our performance is consistent with stock market values and prices, it's consistent with the environment that we're in there is a lot of activity and the world. There's a lot of it.

And there's a lot of liquidity and the world.

And the World is very very competitive for offer great talent.

We've always been a developer of strong talent and we've always been a place where people come to look for great talent and Theres nothing about.

And any of the attrition this year that looks extraordinary when you look back over a multi year basis.

And.

We're very well positioned but there are a lot of opportunities out there and at times as I said on my script people will go choose other things means that bigger opportunities and we work on that often and they become clients when they make these moves we rarely lose people to competitors. So.

And I feel good about where we sit from a talent perspective I feel good about the interest that we're finding people havent coming to be a part of Goldman Sachs and joined.

And the journey that we're on to continue to grow the firm.

Your next question comes from the line of Gerard Cassidy with RBC.

Good morning, David and Stephen Hey, Dara good morning.

Can you guys.

Give us a little more color.

You touched on when you're permitted to increase the dividend, which I would assume would be third quarter. When we go to the stress capital buffer construct that that might be and opportunity for the board to take up a dividend increase but in terms of just with your CET one ratio I believe at Investor Day, and I think you guys said the medium term target was.

13% to 13, 5% could you share with us and how you expect to manage to that number with share repurchases once we get into the stress capital buffer construct.

Well I think the way to think about it is that share repurchase.

<unk> is going to follow up kind of a longstanding philosophy, where we look at opportunities across the firm to deploy capital and where those returns are attractive as they have been this past quarter will continue to do that where we don't we will look to return capital back in the form of share repurchase with the dividend.

And obviously being reflection as I commented earlier of greater confidence and a more durable set of revenues and net debt net dividend increase to reflect it on the achievement of the 13% to 13, 5%.

I would say that the lever is honestly less about share repurchase and more about what we're doing.

And to alter the capital consumptive density of the firm so key among those initiatives sits and asset management, where the pivot from on balance sheet to third Party fund is.

Much about creating a durable and more predictable revenue stream as it is lowering the capital density of that business and therefore of the firm and to the extent that happens we will be doing ourselves the favor of reducing capital intensity, but my expectation is that the fed will recognize it equally.

And subsequent CCAR exams will reflect it as lowering of the requirement that we ultimately will have and its on top of that that we will maintain what I view, we view as offensive buffer to deploy capital for client so less about share repurchase more about fundamental shifts and change that we're bringing to the business both.

To help ourselves and frankly speaking to enable the fed to come to a realization of the lower capital consumption.

A profile of the business.

Thank you.

And then to follow up the outlook that you guys have described as quite positive.

The reserve has pointed out there is going to be strong growth. This year for this economy and the global economy as well as we are expecting.

Aside from the pandemic taking.

So a reversal and it sets us all back.

And aside from a recession and I.

I know David you already touched on inflation as being a risk what is some of the risk that you keep your eyes on that could kind of set the the outlook back maybe not as robust as and it appears to be for you and some of your peers to them.

Well, there's risk and markets constantly and part of markets and economic growth is rooted the confidence and things can go wrong things can go wrong.

Anytime and things tend to pop up and places that you don't see or you don't expect.

We have a very very constructive environment Gerard given that the world is dominated by the pandemic and dominated by the actions that central banks and governments are taking to respond to the pandemic. The weighting of that the heft of that really overshadows, most else thats going on and I do think over time.

We'll be having discussions about the increase and government debt government spending around the world, but we'll be consequence to that that can obviously have an impact over time.

As a general view at the moment that rates are going to be low for very very long certainly given some of the actions that are taking you could see a scenario where the perspective on that would change and could change quickly and.

That would certainly create headwinds to growth and headwinds to activity but.

But I do think we have a very very good backdrop at the moment with a higher probability of distribution of strong economic growth because we had such a sharp reaction to the other side given the pandemic and the <unk>.

Wind of that I think will dominate as we move through the rest of the year into next year.

Your next question comes from the line of Brian on Heisel with K B W.

Great. Thanks.

I had a question on the Prime book and it says that you are at the record and the first quarter.

<unk>.

On this year, but is there a way to frame like the overall exposure from prime and kind of like with the balance sheet exposure is what the market share or from that business.

Well.

Kind of hard to put precision around around that I would simply say that.

<unk>.

We've made it as I've said, a strategic priority to grow prime balances.

I would say that our business is skewed historically more to the long short and.

And less so competitively relative to the comp to the Quants.

But our ambition is to continue to grow it but as I said before.

And that growth is not going to happen apps and corresponding.

Risk insight into how that book grows we're very very aware of the embedded risk in it we're very aware of the liquidity consumption.

Net book and so we mined ourselves as we grow volumes and that but it's been part and parcel again to this theme of durability around financing that goes on in and around that business and so the balances have grown consistent with debt and the only other comment I'd make brian around the around the business is that debt there.

There is a clear consolidation going on with the leaders because of scale because of technology capability.

And I think we're well positioned.

That trend if that trend continues going forward.

And maybe another look at the Prime business, though is there any way to frame kind of where leverage is on the underlying client level today versus where it was pre COVID-19.

Seeing a massive increase in leverage.

Versus where we were before.

Well I would say I mean listen.

And it depends a lot on the collateral pool that you have let me describe it this way.

It's hard for us to know what goes on and every other bank around the street I can only speak to what we know and watch inside of Goldman Sachs and so.

David was describing particularly around <unk>.

The story is less about the events of Arca goes as much is how we're set up to monitor it and so we look at.

Consolidated or overly consolidated concentrated positions and individual accounts, we look for.

Excessive position concentration across the whole of our business.

We look and undertake a daily mark to market on collateral and corresponding margin and in tracking concentration and correlation we adjust what it is that we're doing the level of margin we take the clients. We take in the pricing we put against that prime those are all the important inputs in terms of.

How we grow that business broadly.

Your next question comes from the line of Jim Mitchell with Seaport Global.

Hey, good morning.

Maybe just talking a little bit about the implications of the explosive growth and this back market.

You guys have had pretty good market share there does it I guess number one do you think.

And there is clearly a lot of pent up demand for M&A that has to get done and the next.

24 months does that make you even more.

I'm excited about the M&A prospects for you and the industry.

And should we see a subsequent sort of cooling off and the underwriting side, just because the demand the amount of capital chasing deals seems very high.

So on so a couple of comments at a high level I mean, there's no question that given the number of specs have been raised.

Incentives that are set.

Certainly lead to all those sponsors to look for deals actively and given our position and the M&A market that should be a tailwind.

That said.

Just to quantify it when you look at our M&A activity.

And that M&A activity for us.

<unk> last quarter I think it was a single digit percentage of the M&A activity.

And that we participated and so while it's a tailwind.

And I wouldn't I wouldn't say that that's dominating the M&A activity and the positive constructive comments, we made around M&A, and fact, thats really rooted and much more broad strategic activity.

Debt, we've seen a big pickup and over the course of the last six to nine months with respect to underwriting activity. There is no question that it has slowed.

From the peak of where it was.

I think there's a little indigestion.

And the context of that you've obviously seen returns and some of the shelves.

Kind of slowed at this point I'd also highlight just again kind of backlog that when you look at ECM revenue last quarter stacks and when life from 15% of our ECM revenue last quarter. So this all creates a tailwind, but my guess is and this quarter youll see less new issuance and what we saw on the first quarter and Youll see.

And it continued progress and people try to find M&A targets. The destock all of that should be constructive.

<unk> for our business.

And as a follow up do you see any sort of longer term.

Good or bad with.

Noted that it's an innovation and that's probably here to stay do you see it a net positive for the investment banking industry or just it's another quiver and.

<unk>.

Four.

For financing.

I think it's another form of capital formation and financing, but what I tried to highlight and my remarks, Jim is that I think it has got to continue to evolve I think there's room for improvement and disclosures and Youll see us continue to push to improve disclosures I think youll see different structures around incentive alignment for sponsors and I think you'll see an evolution and that so like any day.

On the innovation.

And they evolve they mature but.

But I do think capital formation that leads to more liquidity and markets and more opportunities for investors to participate is generally a good thing, but how it is done the disclosure around it the incentives the transparency all those things are things, where I think theres room for progress around this innovation.

Your next question comes from the line of Jeremy <unk> with Exane.

Good morning. Thank you I just wanted to go back to the comments you were making on their on and what it means for the prime brokerage business more broadly and then.

Just wondering if you could comment on how unusual.

And was compared to other funds that you do business within prime brokerage and in terms of the leverage or their investment positions. So was this and ordinary situations like multiple others that you do business with just went wrong or what.

Was this some kind of real outlier to start with.

And at a high level and a high level Jeremy it's.

It's.

It's hard to make generalizations around these things.

I think what was unusual here.

For a variety of reasons.

And this particular fund wound up with very concentrated positions very quickly.

And I think that was that was unusual and then the actions that they chose to take or chose not to take on.

Obviously affected the effected the outcome.

It was unusual with respect to the size and the concentration of positions which changed relatively quickly.

And just to follow up do you expect any change in how you do business as a result of this incident on how the industry does business either in terms of.

Risk limits margin levels capital requirements.

And then or maybe the regulators are going to determine for this business.

I think we always look at every experience we have on a day to day basis, and we always try to learn and we always adjust.

And there's no question that we spend a lot of time looking at this even though I feel that we executed very well here. We got this one right. We don't always get everything right. So we always look at every situation to try to tweak and improve our risk management processes.

And how we think about these things I do think that given the visibility of this I do think there'll be regulatory discussion around it as I said in my prepared remarks.

Participate constructively and those discussions, but I think it's too early to speculate one way or another whether it will have any impact I do think to some degree. This was this was a one off event, but as I said earlier, we will see from time to time people get overly concentrated they have too much leverage.

And that leads to unwind.

Okay.

Sorry go ahead.

Well since there are no more questions I'd like to take a moment to thank everyone for joining the call on behalf of our senior management team. We look forward to speaking with many of you and the <unk>.

The weeks and months if additional questions arise in the meantime, please don't hesitate to reach out to carry and the IR team otherwise please stay safe and we look forward to speaking with you on our second quarter call in July. Thank you.

Ladies and gentlemen, this concludes the Goldman Sachs first quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect.