Q2 2021 Goldman Sachs Group Inc Earnings Call
Yeah.
Good morning, My name is Erica and I will be your conference facilitator today I would now.
And welcome everyone to the Goldman Sachs and second quarter 2021 earnings Conference call.
And is being recorded today July 13th 2021. Thank you Ms. <unk> you may begin your conference.
Erika Good morning. This is Cary Holly I'm head of Investor Relations at Goldman Sachs and welcome to our second quarter earnings Conference call. Today, We will reference our earnings presentation, which can be found on the Investor Relations page of our website at www Dot Dot com no information on forward looking statements and non-GAAP.
<unk> appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc, and may not be duplicated reproduced or rebroadcast without our consent I am joined by our Chairman and Chief Executive Officer, David Solomon and our Chief Financial Officer, Stephen Scherr, David.
And we'll start with a high level review of our second quarter performance and our client franchise. He will also provide and update on the operating environment and the macroeconomic backdrop and Stephen will then discuss our second quarter results and detail, David and Stephen will be happy to take your questions. Following their remarks, I will now pass the call over to David.
Thanks, Carrie and thank you everyone for joining us. This morning, I will begin on page 1 of the presentation with a review of our financial results and the second quarter. We produced net revenues of $15.4 billion. Our second highest result on record.
The strength breadth and diversity of our business remained evident this quarter as we delivered net earnings of $5.5 billion and quarterly earnings per share of $15 and <unk> <unk>.
Second quarter results contributed to our highest ever first half revenues of $33 billion and net earnings of over $12 billion, which drove year to date ROE of 27, 3% and <unk> of 28, 9%.
Our performance underscores the strength of our client franchise, and the constructive but more normalized market environment relative to a year ago and.
Results also reflect ongoing progress on the firm's strategic priorities across all 4 of our businesses as laid out and our 2020 Investor day.
And investment banking, we continued to benefit from our leading M&A franchise.
Given this position we observed certain secular changes driving strategic activity as our key clients emerge from the pandemic the drive for scale the push to achieve operating efficiency the shift to a digital company across a broader industry said, we've maintained and number 1 rank and completed M&A for 19 of the last 20 years and have been the leader in equity underwriting.
And for 9 of last 10 years, we are broadening our transaction banking platform and June we launched and the U K and we will now focus on expanding into Japan and other geographies.
And though we are early and the rollout initial client feedback has been quite positive.
We delivered solid results and global markets, where recent market share gains contributed to our performance. We continued to deploy balance sheet to support client activity and we are further expanding our means of engagement with our clients across both traditional and digital platforms.
Good examples on marquee platform, we are where we are collaborating with MSCI to deliver improved portfolio analytics for our institutional clients versus API via Apis.
And asset management, our assets under supervision hit another record of $1.6 trillion as we serve clients by delivering best in class investment opportunities across a growing spectrum of traditional and alternative asset classes.
We also continue to transition the business to more third party funds, we've raised 74 billion and gross commitments of closer to what range of alternative investment strategies since our 2020 Investor day.
Additionally, during the quarter, we received preliminary approval for a joint venture with ICP C. China's largest bank the.
The JV will combine our expertise and asset management with IC BCS extensive access to retail and institutional clients.
Partnership is a testament to our long standing relationship with ICP C and represents a significant opportunity for us to grow internationally.
And consumer and wealth management, we are seeing solid inflows and PWM from new and existing clients and ongoing synergies with our eco and PFM businesses.
We are also advancing on our vision of creating the leading digital consumer banking platform, where customer satisfaction with our products and services continues to be very high.
This quarter, we launched Apple card family, which allows co owners on the same account to both credit together as equals. In addition, as we grow markets invest and prepare for the rollout of checking and other services. We're building a more comprehensive consumer banking offering.
All in the progress on our strategic priorities combined with our continued execution reaffirms my confidence and the strength of our franchise and the increasing durability of our revenues.
Reflecting this confidence our board of directors declared a 60% increase on our quarterly dividend to $2 a share.
This follows and increase of over 50% and 2019 taken together we've increased the dividend by 150% since I took my seat as CEO, while future increases won't necessarily be of this magnitude. We continue to prioritize a robust dividend as a part of our capital management philosophy.
With that let me now turn to the operating environment on page 2.
It's clear that we're in the middle of a significant economic rebound. This is particularly true in countries like the U S and China, driven by the lifting of health and safety restrictions and mid comprehensive vaccination programs.
The broader economic improvement has also been underpinned by unprecedented support by central banks and in the United States. The prospect of further fiscal stimulus and the form of infrastructure spending.
A quarter ago, I mentioned my concerns about the prospect of the U S economy overheating, but recent commentary from the federal reserve indicates that the central Bank is focused on this risk.
Which supports our economists' view that inflationary pressures might be transitory and then any resulting risk could be adequately managed.
From here on remain concerned about the prospect of a pandemic resurgence and the delta variant and so that spread further could spear policy actions and slow economic growth. We have already seen this play out and places like Hong Kong, and Australia, and potentially and parts of Europe.
And while vaccine pickup is progressing and it is not consistent across communities and nations, including parts of the United States.
Widespread vaccine distribution and high vaccine rates are critical to open and thriving economies I want to urge policymakers government officials and business leaders across jurisdictions to do all they can to facilitate these efforts and.
And Goldman Sachs were running programs to facilitate Sachs faster vaccinations for our people and their families and the United States, Hong Kong and India. Among other locations building on the support we are providing communities and which we operate as we all navigate the challenges of this pandemic.
More broadly as risk managers, we closely monitor developments and retain a tenant remain attentive to a variety of potential risks away from the challenges associated with Covid right.
Right now the geopolitical landscape, most notably China, and cyber security on top of mind and.
As always we remain committed to helping our clients navigate these and other risks amid and ever changing market backdrop.
As I look ahead I remain optimistic about the opportunity set for Goldman Sachs. Our investment banking backlog is at a record level and strategic discussions with corporate client with our corporate client base remained high and reflective of elevated CEO confidence and the prospect of continued economic recovery.
Consumer confidence may prove more volatile and <unk>.
Supplemental benefits expire and the U S corporate clients remains steadfast in their efforts to emerge stronger from the pandemic.
And our markets business ongoing client engagement and increased market share have strengthened our competitive positioning notwithstanding more normalized flows and spreads relative to a year ago.
And across our investing businesses.
Current rate environment and search for yield are driving demand for both institutional and individual investors for our world class scaled investment platform.
Before I turn it over to Stephen I'd like to close with a few final thoughts on the people of Goldman Sachs.
We aren't incredibly dedicated and resilient team and I'm. So proud of how we've worked tirelessly to serve our clients and with the challenges of the last 18 months and.
Again and again.
I've heard from our clients.
But they say Goldman Sachs ahead of the curve and let the engagement from our people has been stronger than ever.
Speaking of that as many of you know we formally welcomed our colleagues and New York, Dallas Salt Lake City, Hong Kong and other locations to office this summer.
With roughly 50% of our people in these offices back on a regular basis I can tell you that seen them and our buildings again has been completely invigorating, we recognize that various geographies are navigating different stages of the pandemic and we will continue to provide our colleagues with the support they need.
Going forward, we look to reopen more locations consistent with health and safety guidelines of each city and which we operate.
I've heard from so many of our people over the last few weeks that they are glad to be back and the office and clients. Appreciate that we are showing up.
And we've always given our people the flexibility they need to manage their professional and personal lives and we will continue to do so.
That said I believe bringing us back together forging the close bonds and support a culture of collaboration has renewed sense of teamwork and apprentice ship that allows our people and our business to thrive I am, particularly excited to see nearly 5800 interns and new hires who are joining us this summer many and person working side by side with long term.
<unk> professionals of Goldman Sachs.
I'll close by saying I'm very pleased with how our people continue to deliver for our clients and our shareholders I am, especially confident and the strength of our client franchise amid and improving economic backdrop and.
Fortunately, we are making progress and executing our strategy and I believe we are on a path to sustainable mid teens returns with that ill turn it over to Stephen.
Thank you David and good morning, I will start with our business performance by segment beginning on page 4 investment banking produced its second highest quarterly net revenues of $3.6 billion.
Financial Advisory revenues of $1.3 billion reflected an elevated number of deal closings and a quarter and the increasing market position of our business as we've expanded our client footprint. We maintained our number 1 league table position for the year to date participating and $975 billion of announced transactions with.
The volume market share of 33%.
Activity continues to be strong across geographies, particularly in the Americas with strength across all industry groups, reflecting the breadth of our franchise.
Underwriting performance remained very strong with its second highest quarterly revenues following on from our record performance in the first quarter equity underwriting performance in particular continued to be strong generating $1.2 billion and revenues amid elevated IPO activity and representing our third consecutive quarter with <unk>.
Revenues of over $1 billion, we ranked number 1 globally and equity underwriting for the year to date with volumes and the first half climbing to $85 billion across 400 deals that represents volume market share of 10% up 40 basis points versus full year 2020, notably we led over 1.
160, ipos for the year to date more than all of last year.
In debt underwriting net revenues were $950 million with performance supported by strong high yield volumes, and importantly, robust acquisition financing activity, including <unk> as well as strong M&A and financial sponsor activity.
This performance reflects the integrated nature of our financing and advisory businesses as well as our dominant share and financial sponsor activity. Additionally, ESG remains a focus of the market, particularly in Europe with strong issuance volumes across sustainability linked bonds and loans. We expect this trend to continue.
And in future quarters.
And notwithstanding the realization of record revenue and the first half of the year as David noted our investment banking backlog ended the quarter at a fresh record high with sequential growth supported by sustained M&A activity as well as replenishment from underwriting transactions.
Corporate lending results of $159 million reflect revenues from transaction banking and middle market and relationship lending net of approximately $130 million of losses on hedges in place with respect to the relationship loan book.
Transaction banking is performing well the business is approaching 300 clients generating roughly $40 billion and deposits with an increasing percentage becoming operational.
Moving to global markets on page 5 segment net revenues were $4.9 billion and the quarter driven by solid client activity and a generally supportive market, making environment. Our franchise continued to exhibit strength across both FIC and equities notwithstanding more normalized activity versus a year ago when we.
Significant dislocation and volatility driving elevated client volumes, we remain focused on building upon recent market share gains and have made advances and digital platforms to sustain strong performance and this segment.
Beginning with thick on page 6 second quarter net revenues were $2.3 billion.
And rates performance was impacted by spread compression amid low volatility, though activity remains high with a number of macroeconomic crosscurrents around economic recovery and inflation.
And commodities, we saw solid performance across our increasingly diversified business with contributions from oil natural gas and power Ags and metals and active risk management and a dynamic market characterized by healthy client flows.
And mortgage is strong performance was helped by activity and or is it residential loan trading business offset by lower results in agency mortgages. The business continues to diversify its revenue across market, making loan origination and financing.
Cross, both credit and currencies lower volatility more muted volumes and spread compression led to more modest performance relative to recent quarters low market share gains helped to offset the effects of a relatively subdued trading environment.
Fixed financing revenues of $423 million were driven by mortgage lending offset by lower repo performance.
Moving to equities net revenues for the second quarter with $2.6 billion as we actively deployed our balance sheet to intermediate risk and support client activity equities intermediation produced net revenues of $1.8 billion with performance.
Format is driven by the global scale and breadth of our client franchise in both cash and derivatives.
And cash we facilitated client flows across high and low touch channels and and derivatives. We saw solid performance in EMEA and following a more orderly market and European dividends relative to a year ago and stronger results and structured products across geographies and.
Equities financing revenues of $815 million were strong given record average balances and our prime business growth and balances were a product of rising equity markets and more significant engagement among existing and new clients while growth in equity financing remains a strategic priority we nonetheless.
And a very disciplined focus on risk management pricing and structural terms of engagement.
Moving to asset management on page 7 and the second quarter, we generated record revenues of $5.1 billion management and other fees totaled $727 million, which rose year on year, despite approximately $160 million of fee waivers on our money market funds.
These waivers carryover from prior quarters and are consistent with industry practice in this rate environment incentive fees for the quarter were $78 million.
Equity investments produced record net gains of $3.7 billion amid a supportive market backdrop, particularly in growth equity, which drove roughly 1 third of these revenues the growth equity business has a 15 year track record of generating strong investment returns over the cycle and is focused exclusively.
And on investments and growth stage technology, driven companies spanning multiple industries let.
Let me break down the results more specifically on our $4 billion public equity portfolio, we had gains of roughly $900 million driven.
Driven by market appreciation on investments, including Privy of health no before and fly wire, we will continue to execute sales where possible as conditions permit.
Across our $17 billion private equity book, we generated gains of $2.8 billion from various positions more than 2 thirds of which were driven by events relating to the underlying portfolio companies, including Fundraisings capital market activities and outright sales.
<unk> transactions and the portfolio included investments and Unco clinic us a Brazilian oncology business Sterling a provider of screening solutions and ZIP with our messaging software firm. Additionally, we had operating revenues of roughly $200 million related to our portfolio consolidated investment entities.
Finally, net revenues from lending and debt investment activities were $610 million driven by NII and gains on fair value debt securities and loans. These gains reflected modestly tighter credit spreads and idiosyncratic events on our portfolio of corporate and real estate investments on.
Page 8 we show the composition of our diversified asset management balance sheet consistent with the information that we've provided to you in prior quarters.
Paying with asset management, let me turn to page 9 we included this page and today's earnings presentation to provide greater detail on the progress made and harvesting our on balance sheet investments in asset management over the first half of the year.
This is a critical driver of our strategy to reduce the capital intensity of our business the.
And the message on the pages simple while the overall balance sheet portfolio has increased modestly since the end of last year, we've been actively harvesting positions through the outright sales and ipos of roughly $5.5 billion. These dispositions have been largely offset by markups on the on the portfolio.
Of approximately $5 billion, given the supportive market backdrop mentioned as well as modest additions to the balance sheet, which include early fund facilitation and other commitments. So while the balance sheet is slightly higher we are actively executing on our harvesting strategy the implied capital associated with the total.
<unk> across both private and public equity positions year to date is approximately $4 billion and at this stage. We have line of sight on roughly $3 billion of incremental private asset sales corresponding to over $1 billion of capital reduction as noted earlier, we will continue to pursue this disposition.
<unk>, particularly given treatment of on balance sheet equity investments under CCAR.
Moving to page 10, consumer and wealth management produced record revenues of $1.7 billion and the second quarter wealth management revenues of $1.4 billion included record management and other fees of $1.1 billion as assets under supervision increased to $672 billion.
Private banking and lending revenues were $260 million with loans to private wealth clients up $4 billion sequentially consistent with our growth objectives. We remain focused on synergies between our PFM and PWM franchises, where we continue to see referrals representing a significant.
Opportunity.
Consumer banking revenues were $363 million quarter, reflecting higher deposit balances and credit card loans, the low rate environment as well as a reduced rate of loan growth in the portfolio over the past 15 months continues to impact the business. The forward growth should help to offset this.
Next let's turn to page 11, and for our firm wide view of assets under supervision and management and other fees total <unk> increased to a record $2.3 trillion dollars during the quarter. The sequential increase of $101 billion was driven by $22 billion of long term inflows $16 billion of <unk>.
<unk> inflows and $63 billion of market appreciation.
Our firm wide management and other fees grew by 13% versus the second quarter of 2020 to a record $1.8 billion.
On page 12, we address net interest income and our lending portfolio across all segments total firm wide NII was $1.6 billion for the second quarter higher versus a year ago, reflecting lower funding expenses and an increase and interest earning assets.
Next let's review loan growth and credit performance across the firm our total loan portfolio at quarter and was $131 billion up $10 billion sequentially, driven by wealth management and residential real estate warehouse lending as well as Apple card provision for.
Credit losses reflected a net benefit of $92 million, which includes a reserve reduction driven by improvements and the broader economic backdrop, partially offset by portfolio growth as the credit environment remains benign and we expect loan growth to accelerate in coming quarters, consistent with our strategy to increase lending.
And financing across the firm.
Let's turn to expenses on page 13, our total quarterly operating expenses were $8.6 billion and our efficiency ratio for the quarter was 56, 1%, reflecting the operating leverage and our business and our ability to exhibit expense discipline, while investing for growth our ratio of compensation to revenue.
<unk> net of provisions remained flat at 34% to a compensation expense increased year over year, reflecting strong results in line with our pay for performance culture.
Non compensation expenses were down 43% versus last year due to significantly lower litigation costs, excluding the impact of litigation non compensation was up approximately 6% relative to top line growth of 16% as increases in transaction based and technology expenses.
And were partially offset by lower expenses related to investment entities. We remain focused on the $1.3 billion expense efficiency target announced at Investor Day as we noted at a recent industry conference. We also see increased opportunity for further expense efficiencies beyond the medium term, which permits us to fund.
Investments and growth initiatives and and the talent of the firm.
Our effective tax rate and the quarter was 19, 8% as noted previously we expect our tax rate under the current tax regime to be approximately 21% and we will monitor the impact of various proposals being made in the U S on the federal and state level.
Turning to our balance sheet and capital on Slide 14 on June 28th we disclosed the federal reserve's indicative stress capital buffer estimate for Goldman Sachs of 6.4%, which implies a common equity tier 1 requirement of 13, 4% effective October 1 as David mentioned, we also.
Announced and increasing our dividend to $2 per share.
While our expectation of the Federal reserve stress test results was for a more meaningful reduction in our SCB. The results only served to reaffirm the importance of executing our strategy of reducing the capital intensity of our businesses.
In light of our most recent SCB, we recognize that our standardized CET 1 ratio will remain elevated for this CCAR cycle and achieving our target in the medium term by definition will be more challenging that said, we continue to believe that the 13% to 13, 5% CET 1 target range provided at Investor.
Your day is appropriate for our firm our capital management philosophy remains unchanged, we prioritize deploying capital for our client franchise at attractive returns paying a dividend commensurate with our forward view on durability of earnings and then returning any excess to shareholders via share repurchases and.
The quarter, we returned a total of $1.4 billion to shareholders, including common stock repurchases of $1 billion.
And approximately $440 million and common stock dividends consistent with our capital management philosophy, and and recognition of the accretive capital deployment opportunities across the firm, we lowered our stock repurchases in the quarter on.
Our book value per share rose to a record $264.90.
Up 6% sequentially.
Total assets ended the quarter at 1.4 trillion and 7% higher versus last quarter, we maintained high liquidity levels with our global core liquid assets, averaging $329 billion.
On the liability side, our total deposits rose to $306 billion.
Up $20 billion versus last quarter, and our long term debt also rose by $20 billion, driven by $18 billion of benchmark issuance let.
Let me just spend a moment on funding.
As we noted on our fixed income call in May our year to date benchmark issuance has exceeded maturities and redemptions for the year contrary to our intention at the start of the year, but responsive to client demand and attractive return opportunities for the firm. We expect to continue this issuance should more accretive opportunities requiring.
Non bank funding persist, albeit at a more moderate pace and the 38 billion issued and the first half. Nonetheless, we remain focused on further diversification of our funding channels and opportunities for higher utilization of deposit funding globally to that and we recently completed a realignment.
Certain of our bank entities to facilitate more activity in the U S bank, bringing our banks and nearly 30% of the firm wide balance sheet.
In conclusion, we delivered record revenues for the first half of the year, reflecting the diversification and strength of our client franchise looking forward. The overall opportunity set remains attractive across the firm.
Given strategic progress and recent performance, we are confident around our medium term return targets with a path to sustainable mid teens returns as we continue to execute on our strategy with that we'll now open up the line for questions.
Ladies and gentlemen, and we will now take a moment to compile the Q&A roster.
Your first question comes from the line of Glenn Schorr with Evercore ISI.
Hi, Thanks very much.
A quick follow up on you noted the record prime brokerage Pratt financing balances.
And curious if you could drill down a little bit on.
How much is environment and engagement of clients versus new clients and and market share gains and while we're on the topic I'd love to know if you have any thoughts on following the <unk> incident.
What has or do you expect to change in the industry as a result.
Thanks.
Thanks, a lot Glenn and so on prime balances they have grown they've grown kind of consistent with the broader strategy that we set up.
As to distinguish that growth between the environment and clients I would say, it's both I would say the environment. Obviously by virtue of balances are creating in this market that has grown balances and we've obviously seen opportunity to take on new clients and frankly speaking to be more profound with our existing ones.
But I would tell you that in the context of all of that and I mentioned this in the script.
Clear screen, which looks at where we are pricing. How we are structuring terms, both around new entrants and equally around the back book of our prime balances and so we're being rather judicious in the context of what we bring in to assure that this stays as accretive as we think it can become from a returns.
And a view, but it is both environment and clients and our ambition is to take that share up but to do it and a rather prudent way.
On the part of your question relating to Arca goes look this is obviously gathered kind of in and investigate and investigative per view from.
A number of geographies and across regulators.
Hard to predict exactly where that yields or what that yields I suspect that in the broad category of transparency and disclosure both of which we would be supportive of.
We'll be moves by regulators to achieve that but very hard to say kind of as to where that all plays out as.
As we said in our first quarter earnings call, we aim to be a constructive participant and the kind of regulatory and industry change that will that will come about.
Okay I appreciate that maybe just to follow up on short on 2 of them.
New business Bill you mentioned the family card.
With Apple and I am curious on and.
What customer segment, you're going after with that and maybe a bigger question on.
Do you have any numbers for us in terms of accounts balances, our new partners I want to talk about and maybe that same comment question for transaction banking clients deposits just tracking progress I appreciate it. Thanks.
Sure. So progress on both fronts has been considerable I would say, let's start with Apple card.
The press around creating the family plan was frankly speaking to achieve.
A greater a greater and more positive user experience so that people across a family were treated equally and the context of.
Of the underwriting.
Broadly speaking I think that move will <unk>.
<unk> accelerate share, but I think more importantly, and its objective was to create just a better overall user experience on Apple card generally I would tell you that while we pulled back in terms of rate of growth. During the course of Covid, we've seen the credit profile of Apple card customers to prove positive perhaps even more.
Positive than we thought and.
And we've now opened up the aperture and are now accelerating that rate of growth consistent with the tone of the consumer market that we're seeing and I think there is more opportunities to be had with apple using the card as a medium for engagement with the client set and so youll start to see forward growth and I suspect <unk>.
<unk> will be a fast follower.
The increased and originations and underwriting and Apple card and the family plan will only serve to help that and <unk>.
Transaction banking.
Business continues to grow.
We're upwards of now.
Several hundred clients $40 billion of deposits and perhaps most importantly, when you look at that deposit base, we're starting to see and acceleration of operational deposits approaching 15% and Thats, obviously, the linchpin to creating a deposit base that is more usable.
More and more valuable to the firm I will tell you based on our opening expectations of that business. We have had to put less rate on deposits to attract customers. It's turning out that the user interface and the engagement with the corporate client set just in terms of what we're offering by way of experience and technology.
<unk> is proving to be the winning ticket and so.
Both David and I mentioned in the prepared remarks, we're going to start to see geographic expansion both to the U K and Japan, we've set ourselves up from a bank entity point of view to facilitate that kind of growth with licensees and a variety of jurisdictions and a reorganization of the banking entities and so I think that business.
We'll continue to play forward and perhaps whats what is most illustrative of that is just the power of the corporate franchise and the open doors that are there and the context of kind of the 1 GFS mantra and the way in which we're able to sell and through an existing client base.
Your next question comes from the line of Christian <unk> with autonomous.
Martin and David and Stephen.
Maybe just start off with the equity investment portfolio and thanks very much for the roll forward on slide 9 I.
And I guess I have a 2 parter on that on that slide.
It's a high class problem, but you sold on nearly 6 million and positions that you've made.
And where do you see the equity investment portfolio. So curious what else you can do to bring that portfolio down and then maybe more broadly is it time to rethink sort of disposition strategy.
Your stock is at all time highs the market is rewarding you stop for strong revenue growth and ROE expansion and that they don't really care about capital position. So I mean should you just not just cut the buyback focus on revenue growth rather than on potentially making on economic.
<unk> dispositions.
So why so thanks Christian we appreciate the question and on.
On the first part of the question, we absolutely have made progress on our goals with respect to capital efficiency on the on balance sheet investing and I'll, let Stephen and highlight some of the details and the moment.
At the moment, but we continue to move aggressively.
To manage those positions I think it's a very constructive environment for us to do so and I think youll continue to do that Youll continue to see us do that.
And with with.
With intensity as we see good opportunities to monetize those positions we continue to be committed to both diversifying our revenue streams and also continuing to drive toward more durable and recurring revenues and the fee based emphasis of the fundraising that we're doing and the asset management business is 1 aspect of that on the broader.
Question about opportunity I think 1 of the reasons why.
We decreased our buyback in the quarter is that we see opportunities to continue to devote capital to serving our clients and growing our business and so if we can add accretive returns on our business by deploying capital on that matter, we'll continue to do it but we want to remain and I think we've always been a very very nimble capital allocators and so when we see those.
Opportunities, we will make investments and will continue to grow the business. If for some reason the environment changes and we don't we'll return that capital appropriately to shareholders. Stephen you want to comment just on the progress.
Along those sell downs, because we have made real targeted progress and we will continue to make progress with respect to some of the goals we've set out yes. So.
Let's just start kind of with the FX, obviously on the new page that we showed you $5.5 billion did come off balance sheet, producing $4 billion of capital relief and as I mentioned, there's another $3 billion, that's and site to take $1 billion of capital down.
Now that just looks narrowly speaking at the private equity portfolio Theres consolidated investment entities. There are debt positions all of which are on balance sheet all of which are subject to further reduction all of which will reduce down capital now why does that matter and why do we want to stick to that strategy Christian as opposed to kind of abandoned.
Abandon it and well first of all obviously, we're looking to elevate the capital returns of the firm. The 1 way to do that is to influence the denominator the way to do that is to reduce down the capital density of our businesses more broadly at the same time. This is going to dramatically change overtime the dour.
Mobile revenue forecast for the firm, which is that moving from on balance sheet to fund format and the fact that we've raised since investor day $75 billion of new funds and those funds will increase assets under supervision and equally will increase fee revenue that's being generated.
By those investments in that fund format, and so and a way the <unk>.
Page to watch on the forward will be page 11 of our of our Investor day presentation, because what's going to play out and we've promised more disclosure, which we will deliver but firm wide assets under supervision will go up firm wide management and other fees will go up those will prove to be more durable and predictable.
And I think hold the promise of greater valuation on the back of a lower capital dense set of businesses and I think that's the broader picture. If you will in terms of what we're trying to achieve what we put on page 9 was nothing but an attempt very simply to show progress was made much as it would otherwise.
Be masked.
As you put it kind of a very happy problem in terms of and appreciating equity market also providing us with an opportunity to accelerate into the strategy of disposing of on balance sheet investments.
Okay.
Your next question comes on the line of Stephen <unk> with Wolfe Research.
Hi, good morning.
Good morning, So wanted to start off with a question and just on the investment banking outlook first half revenues a record you cited the record backlog. We are clearly seeing continued strong share gains and 1 of the interesting metric that was provided recently by John at a recent conference was there.
That you saw $1.7 billion benefit just from share gains and global markets and just given some of the momentum and the investment banking side I didn't know if you could help frame how much of a revenue benefit you've seen from those share gains and is there any risk to the disrupt any sort of disruption and the current environment.
Especially given the biting and executive.
Order that was recently published.
Sure.
So a couple a couple of thoughts on that broadly and the environment and.
Environment for investment banking activity.
Steve Stephen continues to be very very constructive.
And I think that there is a good chance that that will continue to play forward and that direction for some time here as the economic expansion continues and my remarks, I highlighted the fact that coming out of the pandemic. There were a handful of factors that we think are structurally driving Ceos and boards.
To think about how they can strategically strengthened their position and and increasingly evolving digital world and we're seeing really really broad engagement across our franchise with respect to the desire of companies to better position themselves on a go forward basis, and a world that's actually evolving quite quickly.
Encouraged by the fact that our backlog levels remain extremely high record levels.
And a lot of that.
I think feels like it will sustain as we move through this environment. Obviously, if there was some sort of a disruption or an economic slowdown sometime in the future that would wear on confidence and slow that but that doesn't seem likely given where we are positioned today.
With respect to global markets, we picked up 160 basis points of market share through quarter, 1 and thats, allowing us to take greater share of whatever the broader trading market provides us I don't have specific market share.
Kpis on investment banking to share.
On this call we can certainly follow up.
And on some things you know obviously, we track we track our league table position, both in and and M&A and equity and debt and there we've been strengthening and our position over time and it's consistently at the top.
Of those lead tables, what I do say is affecting our wallet share and banking is part of our investor day process to serve a broader array of clients was to really expand that footprint and.
And the 4 kind of available clients, let's say, our and the $500 million to $3 billion enterprise value has been significant it has grown and we've continued to expand that footprint and were quite effective at penetrating that and so that's been a very good opportunity for us and I actually think that opportunity will continue.
I think our investment banking business is positioned incredibly well I think we continue as we have been to be a leader and that business over the course and the last decades.
And the quality of the talent, we have and that business continues to be strong differentiated and very very front footed with our clients and.
So.
And there certainly could be macro events.
Over 12, 24, 36 months period that slowed down the current momentum, but at the moment it feels quite constructive.
Thanks for all that color, David and just firm follow up relating to a line of questioning and tied to Christian's question just on the <unk>.
Equity investment portfolio, recognizing that barring a net reduction in that portfolio understanding theres. Other metrics, we have to monitor it might be difficult to really see any meaningful seb improvement at least in the near term and I was hoping to get some perspective, just given the multiple re rating that you've seen the strong.
Momentum and the business.
As well as the fact that the SCB is feeling some upward pressure whether your views on transformational M&A are evolving at all and whether a potential acquisition <unk> potentially mitigate some of the pressures from the global market shock that seem to be driving that upward pressure on the capital ratio.
And at a high level and I. Appreciate the question Stephen I don't think our views on transformational M&A have evolved call after call quarter after quarter, I've said and I'll say again.
But the bar would always be extremely high for us to do something very very significant but I've also said that our drive to diversify our business our revenues and create more durable revenues comes as both Stephen and I have highlighted in our remarks from continuing to invest and and grow our asset management business continuing to invest in and grow the opportunity.
And our wealth management business and for broadening our digital consumer banking platform.
There may be opportunities from time to time that can accelerate the direction of travel and those we look at things constantly if we see things that can accelerate the direction of travel and those businesses and accelerate our goals and those businesses will certainly can and will certainly consider them always always with a high bar. It wouldn't surprise you that prices at the moment are high.
And that certainly has an impact on how we think about these things, but we're making a lot of progress organically.
Organically and we continue to be focused on that organic growth.
Your next question comes from the line of Betsy <unk> with Morgan Stanley.
Hi, good morning, good morning.
Just as a incremental follow up on everything you just said David.
How do we think about the <unk>.
And the sizing of the equity investment block that Youre looking for I totally get that Mark ups are adding to this right now but.
The $1.5 billion and in addition, there's lots of great opportunities out there should we expect that over time.
Equity investments.
On a box should be be rising or is there a goal of size of this portfolio that youre that youre looking to manage to over the next call. It 2 to 3 years.
While the strategy the strategy has been to take.
Broad asset management business, and particularly around alternatives that has been extremely balance sheet heavy.
And turn it into more of a fund based model and we've we've only started to really tap into the relationship network and the platform that we have as a firm to really be a much bigger institutional capital manager across these these strategies broadly and as Stephen highlighted since our Investor day, we've raised $75 billion and funding structure.
I think everybody on this call understands that when we do raise funds, we invest as a GP alongside our institutional investors and so there will always be equity investment through our fund participation, but the cycle that we're going through is 1 of shifting from significant on balance sheet.
Investments over time to a much broader fund mix, where the investment slice, we have and the fund is smaller and therefore, the overall equity position will be meaningfully smaller than it's been now it's a good problem that the market keeps going up and therefore the value seems to be staying the same even though we're making very very significant sales, but over time as we can.
And you to grow the funds.
Portion of the business and we continue on the path of disposing that number will get smaller we haven't put out a target number.
But but by definition it will get smaller and the near term our balance sheet will come down and our target is a little less than $18 billion.
The only the only other thing I would add to that Betsy is that if you look at page 8 and the presentation on the left hand side you can see we've been talking a lot about the $21 billion of equity investments, but equally consolidated investment entities of $18 billion is fertile ground to continue to bring this down and reduce down the AE and the segment and so.
All of that is part and parcel of where we want to go obviously the objective or the near term target as it were of AE of getting down to $18 billion or lower remains that and we're committed to get to it notwithstanding.
The appreciation and the overall portfolio because as you rightly point out that also presents opportunity to accelerate where we can sell down and these positions alright.
Alright, because I should be thinking about the 21 billion and in terms of.
Density of capital usage.
Old methodology, when you were 25%.
And these funds to new which is more like 3 or less.
<unk> investment fund, so obviously, the ladders less capital intensive.
I guess the other question is in addition to page 8 left hand side that you mentioned are there other things we should be thinking about for bringing the FCB down or would you say hey, looking at page 8 left hand side that's really.
The bulk of the actions that we are interested in taking.
Well look I think the way to think about the way to think about this is that we're not waiting for the fed to deliver as a result that satisfactory okay. Much as we're petitioning them on some issues that are relevant and we're taking a lot of self help here we've been talking about 1 the overall push to durable revenues right is going.
To factor in to the way in which the fed determines PNR and the context of the overall Seb calculation. So it's not just limited to this it means what do we do and the pivot to the fees that will be generated as David spoke about and I did of 75 billion and growing and fund format what does it mean.
And in the context of growing consumer business, what does it mean and the context of a growing fee set that comes out of transaction banking all of these will prove to be more durable viewed that way, presumably by the fed to yield a better PPE and are sort of calculation and the overall tests. So we're not exclusive.
Relying on this much as this has sort of considerable consequence, and the way in which CCAR treats on balance sheet investing and then again, we remain quite engaged with the fed as we put our letter in last year, and we will only serve to reinforce those issues. This year on issues that we think are rare.
<unk> to achieving a lower seb calculation.
Your next question comes from the line of Brennan Hawken with UBS.
Good morning, Thanks for taking my questions.
Wanted to ask about M&A.
The advisory business in banking and Stephen touched on this but maybe I wanted to be a bit more explicit.
So.
We've seen a bit more hawkishness on the antitrust side not only with the recent executive order, but also with some of the actions tied.
Tied to certain deals.
What kind of an impact do you expect this might happen have on <unk>.
Volume and velocity in the M&A market broadly and.
And I believe you touched on the fact that sponsor activity.
A big has been a big contributor to M&A volume.
How much of that sponsor activity.
Get a sense is driven by some kind of tax.
Motivation given all the talk about the potential for rising taxes. Thanks.
Sure.
I'm going on I'm going to answer the second I'm going to answer the second part first and then I'll circle back on the executive order and kind of.
And the broader and broader roadmap around M&A, but I don't think the sponsor activities driven by tax the sponsor business at this point as a broad diverse.
Theres enormous dry powder, there is an enormous amount of money moves and that ecosystem, there's real secular growth and the context of the capital allocators and their desire to increase their weighting to alternatives. It's 1 of the reasons why the strategy. We're focused as 1 of the leading alternative managers and the world and continuing to grow that it gives us a lot.
Demand for our clients and so.
I don't think that Theres any overlay from a tax perspective, that's accelerating activity. There I do think that activity has accelerated because the market environment's quite constructive.
And it's been quite and quite.
Quite a constructive environment for asset prices generally.
With respect to the broad M&A environment, and antitrust and the executive order I mean, obviously, the executive order I think services a road roadmap.
For a whole bunch of policy priorities that the current administration would like to get done over the next 4 years that relate broadly to competition and consumer protection.
Issues.
This is it's a broad and ambitious range of ideas.
It's it's.
It's something that I think we'll have to watch very very closely.
Ultimately the order can't direct the agencies that make the antitrust decision to make those decisions, but it cant put a set of construct.
The place that certainly could ultimately have a regulatory impact, but the agencies will have to over time put forward or through the actions. They take create more transparency on that we'll be watching it very closely and doing a lot of work to see how that all evolves with the agencies certainly I think there is a tipping and the balance that.
The barge and have some impact on certain transactions I'd, certainly say broadly around large tech consolidation.
And certainly a lot of discussion in that area, but I think it's early and I think you have to watch it closely and I think the macro environment and the tailwind from the macro environment and some of the things I said earlier about companies' desires to really strength of their competitive positioning outweighs the regulatory overlay, but we're going to have to watch that very carefully.
Great. Thanks, and thanks for that color David.
And then for my second question.
There's been a lot of press coverage recently around junior banking junior banker frustration and we've seen some competitors increased comp.
For the net.
On the junior levels as a result.
Do you think any of those developments will impact retention at Goldman and do you have any specific plans or intentions to respond to this development.
Sales and what kind of impact do you think that might have thanks sure sure sure Brandon and I appreciate the question and as we've highlighted earlier on the call.
And we're quite proud of our leading investment banking franchise, it's been a leading franchise for decades.
And I think 1 of the primary reasons, it's been a leading franchises because of the quality of the people that we're able to attack attract and retain at Goldman Sachs.
And our clients and serve our clients extraordinarily well.
Have always paid very competitively, we've always been a pay for performance organization.
We are performing we have a normal pay cycle for analysts that normal pay cycle happens to be in August.
And we will continue to pay competitively and pay per performance.
But that's part of our strategy that's been in place for a long time and will obviously continue with respect to salaries, we reevaluate salaries and regular course every single year and when appropriate we make sure. Our salaries are competitive so we continue to thrive by having the best people here and.
And paying them appropriately, especially when we perform we're performing and.
I would tell you to expect to see us pay appropriately during our normal cycle.
Your next question comes from the line of Mike Mayo with Wells Fargo Securities.
Hi.
And Mike and Mike.
So.
Look it looks like revenues and profit per employee are up.
Last year last 5 years, <unk> grown employees and about 4% year over year, 17% over 5 years.
So I think what would be sustainable as if you're lowering.
Unit costs and generating revenues for lower marginal costs. So my question is is how much has technology helped you to lower unit costs and how much more is ahead and from the outside Theres No way. We can compete that you have private equity gains you have a lot of moving parts, but on the.
And inside the firm I imagine you are tracking this and in some manner.
I'll start and Stephen Stephen will add Mike, but at a high level and we've talked about this we talked about efficiency and the firm we've talk about Digitization, we've talked about connectivity to our clients and ways that technology can leverage our ability to serve our clients all of that continues.
And there is a significant investment going into that and making the firm more efficient, but most importantly, our people's capabilities to better serve our clients.
I think that we are in the third inning of that.
That evolution.
And there is there's more opportunity, but there have been some real gains.
And Stephen can probably quantify on some basis, how we think about that but I think theres a lot more opportunity for us to continue through digitization and the way, we connect with our clients and the tools, we use to create more leverage broadly and.
So we continue to be focused on that.
Yes, Mike.
The way, we look at it and computed is.
We look at the introduction of technology into a variety of different work streams.
Take risk for example, where there's mandatory production of tens of thousands of reports either by regulators or consumption internally and we go through a zero based budgeting exercise, where we constantly revisit what we need in the context of the introduction of technology and automation debt. Please forward when I think about the forward for.
The firm day.
Real cost gains and theyre going to happen and the production of higher marginal margins are going to play out by virtue of the achievement of scale when we achieve scale and certain of these businesses take transaction banking take the consumer business, even look at what we do and platforms like PFM. Okay. We are building.
Constantly higher marginal margin returns because we've got and embedded base that is built to scale and those businesses will scale over time over the medium to long term and the effective unit cost. If you will of producing what we do will come down and so that's just a sense both in the spot zero based budgeting.
<unk> risk et cetera, but equally on the forward in terms of how to think about the achievement of scale and higher marginal margin and the business.
And as it relates to the executive order from the White House.
What are you guys positioned as a potential disruptor in the consumer business, what do you make and what are the possibilities for you to benefit from making it easier to transport customer data from bank to bank.
Well I would say a couple of things I mean, 1 is to repeat what David said, which is it's a bit early right now a weekend to the issuance of the executive order as to exactly how that plays okay from our perspective.
We started this consumer business on a white sheet of paper so were not retrofitting.
A series of transactions or incumbent businesses and so as we look to continue to build a consumer platform. We're quite open to the notion that there will be shared set of data the data will be portable our focus has been entirely from the customer back which is what does the customer want what is the customer.
Customer need and the build of a very different differentiated new consumer platform and so these products are all about the design and utilization of data. We obviously are consistent and in line with some of our other banking brother, and which is we need to make sure that the security of customer data is paramount.
And no different than any other bank, we take that responsibility seriously, but I think on the newbuild on a white sheet of paper, we are less burdened by these issues less protective of and incumbent business and more focused on where we can take it and where we can build yes. The only thing I'd add to that Mike is that when we started building this business 4 or 5 years ago.
It certainly was on our vision of the world that customers would have a lot more flexibility to move their data and.
And attached to different platforms, and so certainly and our macro design of where we think the world's going the direction of travel that way is not something that's surprising to us.
Your next question comes from the line of Dan Fannon with Jefferies.
Thanks, Good morning, what's up and again a bit of and update on the expense efficiency initiative.
Laid out and kind of where the progress sits today and.
Got it and kind of non comp versus comp on a go forward basis, and then secondly, if you could also update us on becoming operational optimization goals that you have I think the goal of 30 basis point improvement over time can you update us on where that sits today yeah sure. Okay. So let me take the 3 pieces first.
On the $1.3 billion expense initiative.
We are ever confident and the achievement of that and you. All may have heard at a recent industry conference John Waldron indicated that we have.
Further confidence to about $400 million above and beyond that to be achieved outside the 2022 timeline that we set for the achievement of the $1.3 billion. So confident in the existing number and giving and offering kind of a forward indication of where we can take it up from there again all of this.
And actually with some of the prior questions are about creating capacity for further investment and the firm and its people and so that's where we stand as it relates to to the expense initiatives in terms of comp and non comp and the forward. Let me say this on compensation.
And as David has indicated we have always been and a pay for performance mode will continue to be that as the firm performs we will continue to to sort of pay out.
To both attract and retain talent I will say as we've said in the past on compensation.
Compensation as sort of a callout component to operating expense will become less and less important as and to the extent that we build out more of these scale businesses and so therefore youll be looking more at operating expense and its total and then you will as we have historically been rather preoccupied.
<unk> with the compensation ratio in and of itself that's less a reflection of any departure whatsoever from the way in which we want to pay talent. It has more to do with the composition of businesses that we're building and the kind of non comp intensity of expenses related to it on non comp expense.
I would say we have in virtually every 1 of the recent quarter has been quite focused on ensuring that we demonstrate operating leverage and the business that is our non comp expense normalized for kind of excessive 1 off litigation or the like <unk>.
<unk> trends.
At a level, which is inside rate of growth to the top line of the firm. So this quarter as I noted while the as reported non comp expense is down about 43%. That's influenced very heavily by the $2.9 billion of litigation that appeared in the second quarter of last year. When you look at it like for like or non core.
Comp expenses up 6% against the 16% topline revenue growth I think that should be a guidepost for how we're going to continue to sort of carry ourselves on the forward.
On the third question you asked about funding optimization here I would say we are we remain committed and confident in the achievement of $1 billion in funding optimization.
Bear in mind that as I spoke about increased non deposit fundings are increased wholesale funding. The overall funding mix, where the funding taken in total for the firm is going up it's going up and the context of accreted up accretive opportunities, we see inside the firm.
And as much as we grow.
Non bank or wholesale funding, we are equally growing the deposit base, we're doing that now at a lower price point than where we were before it's indicative and of NII growing and the firm and so we're confident that the growth in that deposit funding.
On a price times volume basis is going to continue to sort of bear fruit and take us to $1 billion.
Of run rate savings within the within the timeframe.
Yeah.
Your next question comes from the line of Devin Ryan with JMP Securities.
Great Good morning, David and Stephen.
Hey, Devin good morning.
Quickly follow up on.
Transaction banking and just trying to better understand some of the traction and just given such strong growth and the quarter and and.
What I'd like to dig in a little bit is around 300 clients that you mentioned.
And kind of the wallet share that youre, seeing and and what im getting at is and your clients. I guess currently just testing your platform and so there's kind of and maybe significant embedded potential.
And as those clients move more balances over so any flavor for that and then it seemed like success and is going to be get more success here as.
Proof of concept has obviously been established and so just any other color on kind of what youre seeing in the.
And that the sales process.
And whether there is an acceleration and bringing customers on now that it's fully established.
Sure Devin.
So I would say.
The process of sell through here is <unk>.
Better in terms of rate of growth and we anticipated, but the way in which it's happening is as we anticipated which is that.
We are not new to any 1 of the corporates, who are coming on to this platform. There is a long standing corporate relationship that has opened the door. We had said from the beginning that while our ambition was to grow a very big and very profitable business. We recognize that there was a progression where you have large corporates that have a platform of 3 <unk>.
For participating banks that are breaking point was to be number 3 or 4 and this wasn't condition on is jumping to the number 1 spot on that platform out of the box now my view is that as treasurers and cfos and grow ever more confident and kind of their operational experience on the.
Form we will grow we will have more products and services to offer that corporate client off of transaction off of the transaction banking platform and we will see our ranking if you will on that platform grow if we began at 3 or 4 we'll see ourselves to too and perhaps 1 and that will continue to sort of grow and expand.
And but these are formidable clients of the firm who placed considerable confidence and the firm. So that sell through is as we expected perhaps faster in terms of rate of growth and thats kind of progression I would also say that that will correspondingly lead to greater operational deposits.
It's on the $40 billion growing.
And that we will see because as a client becomes ever more operational as a percentage of their overall business percentage of their deposits with the firm will become more operational and therefore more valuable and so that I think is kind of the progression and the way to think about.
Growth and the migration kind of up the ladder as it were for any given corporate client.
Very helpful. I'll leave it there thank you sure.
Your next question comes from the line of Ebrahim <unk> with Bank of America.
Good morning.
Good morning, Good morning, I guess I just wanted to follow up on.
Look around.
Mid teens ROE target, you've talked David and low.
What about debt have any durability and reducing the capital and density both of which should eventually be accretive to the ROE profile, but when you look at how the market values. The stock today I think there's some skepticism around where the <unk> could be David downturn in the cycle and just talk to US if you could and you all of you where do you think.
The Forum is overrunning vs under earning from and alloy standpoint, and what's the net net outcome of those scale.
But I think I think broadly speaking, we're performing very well across a very very diverse platform of businesses.
Certainly.
I can't I can't predict the future.
It could be and environment.
And that comes and the future where economic activity slows.
And where some parts of our business flow.
Low vis vis the levels of activity, we're seeing today on the other hand at times of stress or in times of decreasing and economic activity. There are also parts of our business that performed quite well and have some counter cyclicality. So I think we have a big add scale business. We are at scale and a number of our businesses and a leader I think those businesses will continue through the.
Cycle to produce very very good returns I think we're building other businesses and as Stephen highlighted are going to be scaling some of them are different kinds of businesses, but they offer opportunity for more consistent model.
More consistent returns that you can more easily model and people will view as more durable.
And I believe that our business activities are durable through the cycle and our job is to continue to perform and continue to prove it and.
So I believe if we continue to do that over time, the discount that exists between the way our earnings are valued and the way others that our peers are valued should narrow, but we're going to be continued we're going to continue to focus on serving our clients growing these businesses expanding the platforms and my belief is the market will follow up to <unk>.
Some extent.
If you reflect on David's comments ROE is nothing but numerator over denominator and so we're controlling both revenue intake and expense and the context of the numerator and equally working hard to do what we can of our own volition to reduce down the denominator in the context of SCB.
But the reality is we sit where we sit we're changing kind of the dynamic of the business profile all to yield a higher ROE, which will translate as David suggested and to the potential for a much better look at the valuation of the firm overall.
And.
I'd, just add broadly and the kind of environment.
And that obviously affects our returns certainly when you look historically, it's affected other of our peer institutions returns to our differences and our business, but I don't think there is different as they are amplified from time to time.
Yes.
Got it and just as a follow up on the consumer.
<unk> can you achieve significant ski and over the next few years without doing something inorganic or do you think you can build out and without having to do any meaningful M&A and still create a sizable business and a reasonable timeframe.
And we absolutely think that we can build on that scale business.
Over the course of the next 3 to 5 years without doing something on organic and if.
If we saw something that we thought could accelerate that or enhance that we'd certainly consider it.
But we have a detailed plan that gives us what we think is a scalable which is and at scale significant business over the next 5 years and we're going to continue to invest and continue to execute against it and as we've said a number of times those investments and that drive to do that is not affecting our either mid or slightly longer term return targets and thresholds that.
We continue to drive towards.
Your next question comes from the line of Matt O'connor with Deutsche Bank.
Good morning good.
Good morning.
So there's been an acceleration of the electronic vacation effect. There was a good article I think over the weekend on the specifically within credit and I was wondering if you could talk a bit about this and.
I know you've invested a lot on the technology side on both sides of trading, but how does this kind of.
Shape up for you in terms of thinking about your share going forward, assuming just try and continuous.
So and the context of our credit business and sick. This has been and area of considerable investment from a technology point of view because.
We needed to and wanted to migrate from what was kind of high touch low touch and pick up.
High volume low lower margin business, and so portfolio trading algo is the introduction of them the development of of of digital platforms, where asset managers insurance companies can come and execute on those platforms using mark Kaye.
Been a very very significant and somewhat.
Elevated prospect for us in terms of overall performance, it's also enabling us to develop new products and credit like Custer.
Customize baskets and Trs strategy is it's all in the context of where a client of the firm can come either through marquee or otherwise and through an API used data and tools that the firm is providing in order to execute and that is that is a growing piece of the overall credit business and <unk> and <unk>.
And area, where we think that.
There is an enormous opportunity for us to continue to grow and so we're seeing monthly users around mark Kaye accelerate API interaction accelerate all in the context of kind of the under the underlying premise to your question.
And then just following up on <unk> I know, it's always annoying when you get asked about near term trends, but we've seen some unusual activity and rates.
And the last months with the move down on especially on a longer on.
We've seen some correction and certain areas of commodities.
This caused us clients to reposition change views and driving more activity.
Or are most clients view thinking specifically on rates I guess that it's more temporary and not doing a lot of repositioning with the move we've had.
Well I think.
Volume and taken Earth has been reasonably volatile, meaning we've seen around certain rate cross currents and the overall debate around inflation permanent or transitory is expressing itself in increased client activity and Earth and then moments of of.
Muted activity. So <unk> has been in both places over the last over the last.
Over the last several months.
And the commodities business I would say that.
We have broadly expanded our business to take account of.
Greater product dispersion in commodities to play to a greater interest of expression in view by client. So for example.
Our business used to be and commodities almost 50% oil and now oil is more like 20% and we see greater product dispersion across gas power metals and eggs I think thats good for our business and it reflects our reaction to as I say and expression by clients and <unk>.
Customers of greater interest across a wider sort of span of product sets within commodities itself.
Your next question comes from the line of Gerard Cassidy with RBC.
Thank you and good morning, David Good morning, Stephen Good morning, Good morning.
Stephen you touched on and you're opening prepared remarks about you are positioned well for loan growth accelerating going forward can you give us some additional color on where you see this loan growth materializing, possibly over the next 6 to 12 months yeah. So.
Let me talk a little bit about where we've seen loan growth now because I think it's reflective of the forward. So as I mentioned in my remarks, we're seeing.
Loan growth in our.
PWM client channel, where we extended about $4 billion of incremental lending and the quarter. It's a great feeder in the context of our engagement with clients.
And kind of a broader fee pool, that's created by virtue of meeting the borrowings and.
This is all very well credit placed and the context of the client set that's borrowing we've seen more lending and the context of our investment banking business much of that relating to transactional activity again, it bleeds out to a larger fee pool and the context of where we are.
In global markets, we've seen ourselves.
And I mentioned this in mortgages around warehouse financing. So this is very liquid lending that I think takes on the proper credit profile in terms of what's there so the positioning and I'm speaking about is both.
Broader view about macro risk about individual idiosyncratic risk and the sleeve and which we're lending and perhaps more importantly, the returns that the firm takes in and the context of lending into any 1 of those particular client segments.
Very good and then.
As a follow up question, you've all seen and we've all seen that reverse repo market has grown dramatically since the first of the year and in fact on the last 3 to 4 months the fit and in fact raise the rate that they pay on those reverse repos by up to 5 basis points can you guys share with us your insights and what the.
<unk> are of what's going on and the plumbing. If you will of the financial system here and the states with quantitative easing.
<unk> repos, and how that might be affecting or impacting favorably youre trading businesses.
Well look anytime there is.
No.
Kind of a differentiated view on rates or the markets broadly as David mentioned that tends to bleed to a positive outcome for our business more broadly and global markets, meaning.
On to the extent that there's greater volatility greater activity at wider bid offer spreads. It is a positive outcome and the overall performance of our business. It's hard for me to give you specific judgments on whats happening specifically as it relates to the transmission of what's going on and Trs relating to the revenue and the business itself.
But I would say that it it pretends a positive for our business and the context of overall client activity.
Your next question comes from the line of Jim Mitchell with Seaport Research.
Hey, Good morning, maybe just a question on capital management from here and how we should think about pace of buybacks et cetera, you guys have about 100 basis point cushion over year FCB I guess 40 basis points on the SLR can you maybe just refresh us on what your management buffers Tom.
Getting how to think about the dynamic.
Going forward between.
Just balance sheet growth loan growth versus what youre trying to do on the buyback side.
Sure. So first on FCB and SLR FCB is more binding to us and SLR, we don't view SLR as being a binding constraint much.
<unk> is we obviously watch it and maintain and adequate buffer around it but SCB is more binding than SLR.
As it relates to SCB, we have long said that we maintain a 50 to 100 basis point buffer management buffer above our minimum I see no reason to sort of change that view, we do view that buffer not simply as a defensive tool, but rather an offensive tool where it leaves us with considerable dry powder in the deployment of capital.
And when and if clients.
Look to petition is for it actually during the second quarter that was true we participated in AT&T and Medline and both of which were momentarily capital consumptive buffer and enabled us to do that and engage.
And just 1 obviously factual point, which is we're at 13.6 under SCB for this the third quarter. We go down to 13, 4 and the fourth quarter relative to the most recent CCAR outcome as it relates to share repurchase.
I would only say what I said before which is we've obviously taken the dividend up reflective of our view about the forward durability of the performance of the firm.
And we look to deploy capital and returns and if they continue to demonstrate mid 20% return on equity you will see us continue to deploy capital in that direction to the extent that debt falls off for whatever reason, we will take up our share repurchase.
In that regard, but you should assume us to be an active participant and share repurchase and any given quarter. This is really a question of when.
Whether it moves up or down and that's a function of the kind of return opportunities that we see.
So I mean, just so we have a good understanding and to think it's going to be pretty dynamic quarter to quarter in terms of what pace of buybacks and you see an opportunity you'll do it.
And vice versa.
Right yes.
Okay, great. Thanks.
Your next question comes from the line of Jeremy <unk> with Exane.
Thank you. Good morning, just 1 quick follow up please you talked about regulatory investigations around us you.
You said, it's too early to know the outcome.
Are you seeing other firms pulling back and prime or and equities more broadly as a consequence of the situation is that any part of the market share gains that you've been seeing.
Well hard to hard to tie point, a to point b, but you've obviously seen open expressions by other firms who are looking to reduce down there. They are prime business, we're going the other way, we want to grow that business, but as I say, we're growing that business with.
Every element of prudence as to pricing and term structure and the like but I suspect clients in motion around prime are coming to Goldman Sachs. As they are to others and we are looking to sort of grow that business more broadly.
Okay. Thank you sure.
At this time and there are no further questions. Please continue with any closing remarks.
Okay. Since there are no more questions I would 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 again in the coming weeks and months if additional questions arise in the meantime, please don't hesitate to reach out to carry and the Investor relations team and otherwise please stay safe and we look forward to speaking with you on our third quarter cash.
And in October.
Ladies and gentlemen, this concludes the Goldman Sachs second quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect.
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