Q1 2022 Goldman Sachs Group Inc Earnings Call
Yeah.
Okay.
Good morning, My name is Erica and I will be your conference facilitator today I would like to welcome everyone to the Goldman Sachs first quarter 2022 earnings Conference call. This call is being recorded today April 14th 2022. Thank you Ms. Elliot you may begin your conference.
Good morning. This is Karen <unk> head of Investor Relations at Goldman Sachs. Welcome to our first quarter earnings Conference call. Today, We will reference our earnings presentation, which can be found on the Investor Relations page of our website at www Dot Dot com.
Information on forward looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of the Goldman Sachs Group, Inc, and may not be duplicated reproduced or rebroadcast without our consent I am joined by our Chairman and Chief Executive Officer, David Solomon and our Chief Financial Officer, Dennis Colin Let me.
Pass the call to David.
Thanks, Kerry and good morning, everyone. Thank you all for joining US. This morning. There's no question. The first quarter was extremely volatile Russia invaded Ukraine inflation rose across the globe and we saw an accelerating trend towards de globalization.
In recent decades, we have grown used to low inflation low interest rates and the free flow of people and goods across national borders I believe we are entering a period that won't be that that won't be the case and the consequences for financial markets will be meaningful.
Although much remains uncertain I'm proud to Goldman Sachs effectively supported its clients in this type of environment.
This is a testament to the progress we've made to center our strategy around clients at a time.
Great volatility with clear our clients needed help managing the risk and they turn to us for our expertise and navigate this changing landscape.
The recent turbulence does nothing to change our firm's client oriented strategy in fact, it makes it all the more imperative.
We are building a more resilient diversified franchise that can generate solid returns even in more uncertain markets.
In February I laid out our revised medium term return targets and I'm very proud that even with the headwinds we faced our results. This quarter meet those objectives. We are also well positioned to achieve the targets, we laid out for our growth initiatives across asset management wealth management transaction banking and consumer.
Some areas, we have accelerated our progress of the acquisition.
<unk> Green Sky, which closed in late March and then IP, which closed earlier this week I am thrilled to be welcoming these great businesses to Goldman Sachs.
For the quarter, we produced net revenues of $12 $9 billion generated earnings per share of $10, 76%.
ROE of 15% and an <unk> of 15, 8%.
As I noted the evolving market backdrop had a significant effect on client activity.
This meant that some parts of our firm faced significant headwinds like equity capital markets, where issuance volumes were lackluster for the quarter on the other hand global markets had a strong quarter as this environment allowed us to support clients in a risk intermediation and financing needs.
And in line with our strategy several of our growth areas continued to reflect durability. Despite the difficult environment. For example, we saw solid management and other fees across asset management wealth management as well as revenue growth in our consumer business.
But theres no question that the most significant event of the first quarter was the invasion of Ukraine.
As I've said before we condemn the invasion of the strongest possible terms.
Let's go out to the creative people.
This active aggression demands a response that Goldman Sachs is committed to doing it as a color earlier.
Early on we took action to ensure the wellbeing of our people and to begin winding down our firm's operations in Russia.
Process is ongoing.
Let me also say a few words on our direct financial exposure to Russia, our positions will relatively limited, but we've been focused on closing the mt, reducing our exposure the overall direct financial impact from Russia, and Ukraine related instruments on our first quarter revenues with a net loss of approximately $300 million.
Our risk mitigation efforts would not have been possible without the close collaboration of our people around the globe on both the business and the control side of our firm.
Our risk management culture is a true differentiator for us and we continue to navigate as we continue to navigate this volatile environment.
More broadly the Russian invasion is further complicated the geopolitical landscape and created an additional level of uncertainty that I expect will Outlast award itself.
It is encouraging to see new found unity among western democracies the trend towards the globalization is clearly gaining momentum.
Consequently move that shift are likely to be significant and long lasting and I believe it will take some time to fully appreciate all the second and third order ramifications.
Beyond geopolitics on keeping a close eye on several other trends while U S. Unemployment levels are low and wages are increasing inflation is the highest it's been in decades, we're seeing new stress on supply chain for commodity prices U S household are facing rising gas prices as well as higher prices for food and housing.
<unk> seen an increased risk of stagflation and mixed signals on consumer confidence.
These cross currents will certainly create ongoing complexity in the economic outlook, but whatever the future holds I believe Goldman Sachs is well positioned we continue to make progress on our growth strategy and our commitments to clients strong our commitment to clients is stronger than ever.
I'll now turn it over to Dennis to cover our financial results for the quarter in more detail.
Thank you David good morning.
Let's start with our results on page two of the presentation in the first quarter, we generated net revenues of $12 9 billion and net earnings of $3 9 billion.
Resulting in earnings per share of $10 76.
As David noted firm wide performance was strong with an ROE of 15% and our TCE of 15, 8% notwithstanding an operating environment that was significantly less favorable than the prior year.
Turning to performance by segment starting on page three.
Banking generated revenues of $2 4 billion.
Financial Advisory revenues were $1 1 billion.
As our M&A franchise continued its outstanding performance and client dialogue remains significantly elevated in the quarter. We closed over 115 deals for approximately $385 billion of deal volume and maintained our number one league table position with nearly $360 billion in announced transactions.
This was roughly $155 billion ahead of our next closest competitor the largest quarterly lead in our history as a public firm.
In equity underwriting net revenues were $261 million down significantly versus a record performance in the first quarter of 2021 on the lower industry issuance volumes that David mentioned.
Despite this we continue to rank number one year to date in equity and equity related offerings with volume market share of 8%.
Debt underwriting net revenues were 743 million, 16% lower versus the prior year driven by lower results in leveraged finance and asset backed activity.
While transactions have slowed from the elevated pace of last year and deals have been pushed out given the uncertain backdrop, our investment banking backlog remains robust.
Client engagement is strong catalyzed by secular trends like digital disruption and transformation across industries and future activity will likely be bolstered by high levels of investable capital from financial sponsors.
Moving to global markets on page four.
Segment net revenues were $7 9 billion in the quarter up 4% year on year, we saw exceptional strength in both our fixed and equities businesses.
On page five you can see revenues across deck were $4 7 billion in the first quarter, 21% higher than the strong results in the first quarter of 2021.
Thick intermediation produced net revenues of $4 billion.
This was driven by particular strength in our macro products with elevated activity across rates currencies and commodities. These.
These macro businesses within FIC, which generally represent the preponderance of thick intermediation revenues benefit from a portfolio effect, our diversified and global footprint combined with our risk intermediation and execution capabilities is a key differentiator.
Thick financing generated record revenues of $685 million, which were up 23% sequentially and 55% year on year with particular strength in mortgages.
Total equities revenues were $3 1 billion.
Equities intermediation revenues fell 16% year over year, driven by lower activity in both cash and derivatives due to fewer market, making opportunities compared to a very strong backdrop at the start of 2021.
Equity financing produced net revenues of $988 million.
The lower on a year on year basis. These results were 21% higher sequentially.
While average prime balances declined slightly from record levels at year end opportunities to provide client liquidity increased which drove stronger quarterly performance.
Moving to asset management on page six.
First quarter revenues were $546 million materially lower than the first quarter of last year due to market headwinds and equity investments and lending and debt investments.
Management and other fees totaled $772 million up 4% sequentially.
Net revenues for equity investments were negative $360 million across both our public and private portfolios, we experienced substantial losses tied to Russia related positions all of which have been written down to zero.
More broadly we experienced additional headwinds due to the overall market environment.
All in we experienced roughly $620 million of net losses in our public portfolio.
Offset by approximately $255 million and net gains across our private portfolio largely due to event driven items, including asset sales and financing rounds.
We harvested $1 billion of on balance sheet equity investments in the first quarter, we remain fully committed to reducing this portfolio over time and have line of sight on another $1 billion of incremental private asset sales corresponding to approximately $750 million of capital reduction.
Turning to page nine.
Consumer and wealth management produced revenues of $2 1 billion in the first quarter up 7% sequentially and 21% year over year.
In wealth management quarterly management and other fees were $1 3 billion down.
Down 2% versus the fourth quarter of 2021 on seasonality and counseling fees, but up 17% year over year.
Private banking and lending net revenues of $339 million were up 28% year on year, driven by higher lending and deposit balances.
Consumer banking revenues were $483 million in the first quarter up 28% sequentially and 30% year over year, we continued to grow credit card loans and deposit balances.
Next on page 10.
Across these two segments total firm wide S ended the quarter at $2 four trillion.
With a quarterly decline primarily driven by net market depreciation of 94 billion, partially offset by 24 billion of long term net inflows.
Combined firm wide management and other fees for the first quarter rose, 15% year over year to $2 billion, driven by higher average U S versus last year.
On page 11, we address net interest income and our lending portfolio across all segments.
Total firm wide NII was $1 $8 billion for the first quarter higher versus a year ago, reflecting higher loan balances and lower funding costs. Our total loan portfolio at quarter end was 166 billion up 8 billion versus year end 2021, primarily due to growth in commercial real estate and credit cards.
For the first quarter, our provision for credit losses was $561 million up from $344 million in the fourth quarter.
Provisions in the quarter were primarily due to the growth in our lending portfolio as well as broader macroeconomic factors, including slowing growth outlook.
As we continue to expand our consumer business and grow our lending activities, we are cognizant that macro headwinds and inflationary pressures.
Could potentially weigh on payment rates and thus portfolio performance, while we have not seen any meaningful signs of deterioration in credit metrics, we're being vigilant and we'll continue to monitor performance and macro conditions to assess risk mitigation measures and calibrate our underwriting where needed.
Turning to expenses on page 12.
Our total quarterly operating expenses were $7 7 billion down.
Down 18% year over year. This drove an efficiency ratio for the quarter of 59, 7%.
Our compensation ratio for the quarter net of provisions was 33%.
Quarterly non compensation expenses were $3 6 billion.
7% higher year over year, driven by our continued investments, particularly in technology that will further enhance our infrastructure and support our strategic growth initiatives.
Turning to capital on Slide 13.
Our common equity tier one ratio was 14, 4% at the end of the first quarter under the standardized approach.
In the quarter, we returned $1 $2 billion to shareholders, including common stock repurchases of $500 million and common stock dividends of roughly $700 million.
As it relates to the second quarter, we deployed capital to support the closing of the EDA and IP transaction and we will remain nimble in response to both ongoing opportunities to support clients and the current operating environment.
In conclusion, our strong first quarter results reflect the durability and resilience of our client franchise across almost any environment. Despite the macroeconomic uncertainty and geopolitical complexity. We remain focused on executing on our strategic plan to diversify our business mix and drive competitive returns for shareholders and we are.
Significant confidence in our forward momentum as an organization.
With that we'll now open the line for questions.
Ladies and gentlemen, we will now take a moment to compile the Q&A roster.
Okay.
Your first question comes from the line of Glenn Schorr with Evercore.
Hi, Thanks very much.
So I appreciate it.
Billion harvesting out of the balance sheet P/e and the other 1 billion coming up so it's a partial answer to the question, but in the backdrop that we've seen with.
Slowing M&A and almost no ipos.
My original question was going to be can you still get to that SCB of 5%. That's so important to give us all confidence about putting up that 15% to 17% return over time.
How do you view that forward look of the March towards 5%.
So Glenn it's Dennis Thank you. Thank you for the question.
Obviously, our results in the quarter.
In terms of our Ot or 15, 8% and ROE was.
<unk>, 15%.
Our medium term targets that you referenced.
To be achieved by 2024, so we're really pleased with the performance in this quarter.
As it relates to the SCB for Allstate continues to be making the choices that we can with respect to investing in our business mix, creating more durable and predictable revenue streams.
And then also continuing to migrate down our on balance sheet equity position. So I think our commitment to the strategy remains intact.
We have obviously submitted our CCAR submission and we await response from the Federal reserve.
We will continue to focus on driving those aspects of our business that we can all of which we hope will contribute to a.
That is lower and reflects our business mix.
Okay I appreciate that work and so far a good first quarter.
Maybe a little follow up on the sponsor side.
Both as you as someone that is planning to raise a lot of third party money as an alternative manager and also U S.
The largest 100% of that sponsor community.
Can you give a little insight towards.
Just what's going on do you expect is the capital raising environment disrupted you harvested 1 billion, but can you still have a decent harvesting backdrop amidst the disrupted banking.
Backdrop, thanks, so much.
Sure Glenn it's David I'll jump in here.
I would say that there are a variety of.
Secular tailwind that is still driving lots of institutional capital on a global basis towards broad alternative platforms.
Despite the volatility that exists in markets.
Those trends continue to be in place.
And I think Youll continue to see secular growth in the amount of capital.
<unk> capital that's allocated to two alternative platforms.
Some time.
In the context of that I think we and others, who have big broad multi product global platforms are well positioned.
So while the pace of fund raising.
It might ebb and flow a little bit from peaks I think the general secular trend is still in place and this volatility.
I don't think in the short run will affect that with respect to monetization and values.
There is no question that we've gone through a period of time, where the macro backdrop, certainly created an acceleration of that.
There were a variety of factors that I think were more short term that amplify that and I think we've commented in the past about the fact that we did not think those levels of activity where sustainable however, even in an environment like this when you have a broad diversified portfolio of assets and there is certainly lots of areas, where there's real growth in the economy.
And the economy is still growing very well the opportunity to see monetization to see transactions. I think continues just probably not at the same pace or velocity as we saw in 2000 22021.
Your next question comes from the line of Christian <unk> with autonomous.
Good morning. So overall, you have 60% was pretty impressive in the quarter given it was a pretty challenging backdrop.
Are you now in a place where do you think given the diversity of the business model.
At Goldman.
Always earn cost of capital.
On a quarterly basis.
Well I mean.
I always as always is.
Definitive word we'd never say always anything because they certainly could be environments that we do not foresee.
That debt.
Could produce.
The distribution of outcomes very skewed outcome in one direction or the other.
I do think that this leadership team over the last almost four years has made significant investments in our business and that has allowed us to grow our business and that has allowed us to better plan and our business.
Given some of the investments and planning process, we've made that hopefully over time.
We will give the market more confidence.
And the durability of these returns.
I think we're well positioned in February we laid out these medium term targets, we do not lay out targets lightly so I would never comment on what could happen in any given quarter Christian but I think we have a a larger or durable business I think we're going to continue to add to that durability as we move forward and we're very committed to.
<unk> on that strategy.
Okay. Thanks.
Im sick, just maybe more broadly intermediation businesses.
How do you think about the potential going forward.
As the fed sort of shrinking its balance sheet and reuse rates trying to figure out.
True for meaningfully good volatility greater demand for risk intermediation services.
Any sort of funding cost headwinds there will be a core.
So.
I would comment from a macro perspective.
Couple of things with respect to that.
And I'm not smart enough to know what good volatility or bad volatility is we're more focused on serving our clients and ensuring that we have the highest market share available.
With those clients as they position their portfolios as they transact intermediation is a big business I think it's always going to be a big business that doesn't mean that it can't ebb and flow from quarter to quarter.
But I think that one way to frame that is that the size of the available intermediation activity. That's out there for firms like ourselves to play a big role of this is bigger today than it was five years ago going back pre pandemic and in addition, based on investments we've made both in the <unk>.
Centricity and the approach, we're taking and in technology. Our market shares are are larger and we think those market share gains are durable I'd also highlight that we've been in we've been very clear with you on this building our financing capability for those clients and one of the things about that business now as a larger proportion of it is financing revenue.
<unk>.
And that financing revenue is more durable.
So I feel good about the way the business is positioned I won't speculate on what every quarter will look like going forward.
But certainly I think we're better positioned in this business today than we were five years ago.
And I think Thats reflected for example in a quarter like this and the results of our client activity were able to accomplish.
Your next question comes from the line of Steven <unk> with Wolfe Research.
Hey, good morning.
So wanted to start off with a question on capital management, you guys were clear positive outliers in the quarter. Many of your peers reported pretty significant drawdowns in CET one admittedly.
Maybe I was a bit surprised to see the improvement in your ratios just given a lot of the sources of <unk> inflation that had been cited on some of the other calls have really highlighted market risk <unk> inflation and I was hoping you can just give some perspective on how much of an impact did you see from higher market risk <unk> in the quarter, where you could see some relief.
On the road and just given the accretion in capital you saw in the quarter, whether there's any appetite to accelerate buybacks, especially into a declining share price.
Sure Stephen Thanks, Thank you for the question.
As it relates to our.
Build a capital over the course of the quarter.
That was that was deliberate.
We knew that at the beginning of the second quarter that we would have to pay for the EDA and IP acquisition.
So we had we've grown our capital over the course of the first quarter. We also were very disciplined on <unk> growth. Our growth was <unk> 5 billion on a quarter over quarter basis. So we were able to deliver the types of results that David just made reference to across our big businesses, while maintaining our discipline with respect to <unk>.
<unk> growth and so that also contributed to the improvement now as it relates to our outlook, we've been reasonably clear that our first priority in terms of driving long term results for shareholders and supporting clients is to deploy capital into accretive client opportunities.
Once again, you would see in the first quarter with the global markets segment, ROE north of 25% and firm wide ROE at 15%, there certainly were attractive client deployment opportunities and we prioritize that.
Main focused on sustainably growing a dividend and then obviously to the extent the opportunities to support clients, where the market environment shifts obviously, we'd look to return that capital back to shareholders I would say from where I sit right now looking at the second quarter my expectation on buyback so that would be reasonably consistent with the first quarter, but.
We do expect to remain nimble and <unk>.
Sent that the opportunity set with clients is less attractive and you make reference to the then prevailing share price Thats, obviously something that we'll consider.
That's great color diamonds, and just for my follow up on the investment banking business. As you noted the backlogs are stable year on year, certainly a good outcome given the macro uncertainty, but I was hoping you could just provide a little bit more granularity on the individual investment banking businesses and more specifically.
How do you expect them to perform over the next call. It six months to 12 months and how much of the slowdown that we've seen at least in the first quarter would you attribute to growing macro risks and waning CEO confidence that could drive a more prolonged slowdown versus maybe something that's more temporary due to the elevated market volatility.
So.
So I'll.
I'll start.
Steve.
And.
Just just say that that activity level.
It's still quite high and engagement from our banking clients is still quite high.
No question that equity beta.
Kind of turned off for the quarter and so one of the things that happened was a bunch of equity issuance that was supposed to happen in the quarter got pushed out.
That definitely is a market volatility is back and my guess is as the market volatility settles down during the course of the year to the degree that it does.
That will bring some of that issuance.
Back into the marketplace.
We've seen when you look over the course of the last 20 years plenty of periods of time, where there are quarters, where you have very very low equity issuance. It's been very rare that that continues for a year or a longer period. It doesn't mean that that couldn't happen, but certainly that would be expected given the history that businesses need capital they need to make it.
<unk> at a time as prices reset of values reset people need some time to absorb those changes versus their expectations, but ultimately at the end of the day they understand the reality and they move forward I don't see.
A significant change and kind of strategic dialogue.
Would say if the world.
Got materially worse or materially more volatile given some of the geopolitical stuff that was going on that certainly would have the potential to slow down some of the strategic activity and dialogue.
But for the moment that activity level and certainly the engagement remains quite quite good quite robust, but we watch it very very very very closely I would note and I think it's important to just recognize and we said this at the year end at year end of the year end call that the activity levels that we saw.
2021 in the banking business nobody expected those to be normalized levels. So I would certainly describe a little bit of what we're seeing as a normalization and I think first quarter overall activity. There is some normalization of that although I think equity is.
Well below what I would call a normalized trend.
Your next question comes from the line of Betsy <unk> with Morgan Stanley .
Hi, good morning.
Good morning.
I know, we've talked a lot about the investment banking side of the business, maybe we could turn to the loan growth areas that youre focused on and just want to understand what youre expecting there from some of the recent acquisitions like Green Sky some of the new relationships that you've got.
I know, it's been a couple of years already but Apple card is growing nicely from the GM relationship how should we think about the capital call that that piece of the business will have and what kind of growth rate you expect to get.
This year.
Sure.
Hi, Betsy that thank you very much for the question.
We've been very focused on growing these businesses and whether it be.
Loan growth across the consumer platform.
Or installment loan business with the card businesses are now with the acquisition of Green sky or whether it be across private wealth channels or even across our fixed financing businesses. We have a strategic objective to continue to grow.
Businesses in.
In the credit sensitive fashion.
And in terms of thinking about.
The impact and how to think about that through the P&L.
Youll see that in the first quarter, we did raise our provisions for credit losses, they were at $5 61 versus $3 44 and.
Primary driver of that was our growth in loan activity.
And that's something that we expect across the businesses as we grow them, we expect as we.
Grow the portfolio Green Sky that will also continue to.
Provision so that remains remains focus for the firm we're looking at across multiple channels.
Trying to keep in mind sort of underwriting credit quality as we do so.
Thats kind of a follow up I had because we've got the forward curve looking for something like nine rate hikes. This year few more in next year and so theres a triangulation between.
And rate hikes and credit quality and how are you thinking about that when you talk about the provision increase you've done maybe unpack that a little bit as to how much of that was coming from loan volume increased expected versus.
What you are anticipating for credit quality changes given that backdrop I just mentioned.
Sure Fair enough and that's a question we're very very focused on.
In terms of looking at the portfolio and its performance we have not yet seen a change in the overall credit quality of our portfolios. We remain very mindful of that given some of the headwinds that are on the forward.
But if you look at metrics like our charge offs in the first quarter, there were $154 million net charge off rate of 0.4% unchanged quarter over quarter.
And as we think about growing these particular businesses.
Underwriting standards and the credit box remain top of mind as we as we continue to grow and to the extent we see indications.
Significantly slowing rates in terms of payments or the percentage of people, making their minimum.
They are minimum.
Payments that are indications of future credits.
Credit deterioration that will be that will be a signal for us and we can obviously take.
Risk mitigating actions in the forward as a result.
Your next question comes from the line of Mike Mayo with Wells Fargo.
Hi, if you could just.
David and team, maybe just summarize where you think we are in terms of normalizing you said equity underwriting would be below normal and maybe trading is way above and I know nobody has a crystal ball and it's tough.
But one of your competitor banks talked about volatility remaining elevated and I don't know just how should we think about the normalization of the legacy capital market businesses here and also how much did commodities contribute to this quarter was a record or close to a record.
So.
So Mike.
I don't.
<unk>.
And I know I just used it myself I use the term normalization, we're talking about the equity capital markets business. It's very easy for me to look at equity capital markets revenues for the quarter and say, that's not a normalized run rate level for that business.
I would also tell you that the equity capital markets revenues in the first quarter of 2021 was not a normal a normal level for the business.
When you talk about the broad corporate investment banking business in the capital markets activity across both investment banking and end markets again.
I'd amplify I don't have a crystal ball I can't tell you exactly where it's going to settle out but I think these are good businesses, where we have a high degree of confidence.
That through market cycles, we can produce very nice returns in these businesses. We think it is a very powerful.
Ecosystem, combining these two businesses together with our global scale and footprint that we have and we.
We expect them to continue to be big contributors to accretive returns to allow us to meet our targets broadly commodities was not a record.
There is no question that when you look at the fit macro business when it was really great performance.
Well diversified across rates commodities and currencies I mean, the macro businesses certainly outperformed.
But.
But thats, what I'd say to that point. So again I'd go back I think these businesses are in terms of available wallet for people like ourselves to compete and they are fundamentally bigger than they were five years ago because of market cap growth around the world.
And that creates a good opportunity for us. In addition, we've continued to invest in things in those businesses, which we think strengthened our competitive position, but it's hard for me to give you a predicted normal revenue number it's just not that kind of business.
Let me follow up in a different way than in terms of your market share improvement with your capital markets businesses with corporates I know that's part of the kind of like one firm.
Directive.
Can you do you have any metrics around that progress.
How youre doing with corporates.
Sure I mean, we.
Ill point out something that I think is an anecdotal metric, but I think it's interesting.
We have 100 when you look at the M&A League table, which is something obviously, we dominate we have $155 billion for the quarter. That's the largest one quarter lead we've ever had in our history in the M&A League table. So that's the metric that is reflective of clients coming to us we're tracking our mark.
Sure, it's quite closely across investment banking and also across global markets.
And we see market share gains.
Across both over the course of the last couple of years, and we will continue to track them and make investments, where we think we can strengthen them to make sure. They are very durable.
Your next question comes from the line of Brennan Hawken with UBS.
Good morning, Thanks for taking my question.
Okay. That's you asked about this broadly.
You know maybe more narrow with green Sky now closed.
How should we think about those loans from my understanding.
They're loans were securitized right. So basically is the idea that they will mature off and as green Sky underwrite New loans, then those loans would be on goldman's balance sheet and so we're just sort of naturally migrate as the portfolio matures and as reissued.
And should we think about it just getting to that roughly $10 billion level.
Green Sky had been running how should we think about that.
So in terms of our strategy.
We would expect over time that is green sky continues to originate.
Would take those loans onto our balance sheet, we certainly would retain the flexibility to securitize some of that risk ourselves.
They have.
Previously, but the goal over time is to ramp up those balances onto our balance sheet I think they had origination volumes of approximately 1 billion and a half in the first quarter.
So we're stepping into them.
On that level of activity and our ambition is to continue to grow the origination with them.
Great. Thank you for that.
And then <unk>.
Where are we as far as deposits and deposit costs.
What are the expectations for deposit beta in Marcus for this rate hiking cycle last cycle was a little unusual.
As a growing a newer platform more established now.
Happy markets customer myself I have been watching the my my yield and it Hasnt really moved much which is not that surprising because we're just getting started but how should we be thinking about that on a go forward.
Fair enough you're right to observe that we have not increased our market savings rate.
In terms of how we're thinking about the deposit betas across the channels I mean that really you really need a through the cycle experience.
We have a certain expectation for these businesses that will prove out through the cycle.
The cycle will be different than previously previous cycles obviously.
I would say at the very very beginning part of the cycle. The experience is outperforming our expectations, but I think that's because we recognize that the maturity of our portfolio and our time in the business is less than some of our biggest competitors, but we remain really focused on managing that continue to drive deposit growth and support the other origination activities across our lending platform.
<unk>.
Your next question comes from the line of Devin Ryan with JMP Securities.
Great Good morning, David and Dennis maybe I'll just stick on the same theme here on consumer love to talk about just the consumer product roadmap.
What we could expect from here I'm sure you don't want to kind of give away your entire hand here, but just kind of what to think about it as a natural extension coming back and then obviously with the Apple news and kind of where they're going how that effects.
Buy now pay later and any other kind of parts of the strategy in terms of timing.
Okay. Great. Thanks. Thank you for the for the question. So in terms of our aspirations to build the leading global digital consumer bank.
What are the pieces to the puzzle are in place at this point a lot of those investments have been made and.
And we feel really good about the progress across the various lending and deposit platforms that we've invested in and built out I mean to give you a sense our active customers in the consumer space are north of $13 million now and that number in the fourth quarter was less than $10 million.
So we continue to see attractive active customer acquisition, both organically and Inorganically, which is an important piece of the strategy.
I think perhaps next up on the on the product roadmap will be the launch of checking.
Already piloting that internally and we expect to launch that more broadly to our clients later this year.
And that'll be I think that'll be an important piece of the product roadmap for us the only thing I would add to that Devin as I just highlight back in the February update we put out a $4 billion revenue target I just wanted to tie that target to what Dennis said when he said most of the investment was made most of the investment to drive that.
Revenue target is in the.
In the glass.
And so.
And so that's something I want to amplify and then just finally, because you referenced that.
Our partnership with Apple is.
Is very very strong.
While there has been a bloomberg.
Article about what Apple is doing.
Apple we have not commented on the direction of that partnership and we spend a lot of time.
I would just say, we're very very comfortable with the opportunity set in front of us with that partnership.
Yes.
Okay terrific. Thanks for all that color quick follow up just on.
The operating leverage in the model and maybe just starting on the comp ratio.
No. It's very early in the year. So it's hard to give much of a prediction, but comp ratio net of provision was 100 basis points lower than the first quarter of last year, even with I would say kind of an unfavorable mix. So is there anything we should read into that just around kind of how to think about the full year or just overall leverage on.
Comp relative to.
<unk> is based on the current backdrop.
As we've said as we've said always we're pay for performance culture.
This is this is our best estimate as to the right comp ratio based on the performance and the mix in the.
In the first quarter.
You have data points from our behavior set on this over a long period of time.
And we obviously the one thing I'd just highlight is our focus on our efficiency ratio and that's something we want to think more about comp and non comp in driving this efficiency ratio. So that also affects our decision, making as we move forward.
Your next question comes from the line of Dan Fannon with Jefferies.
Thanks. Good morning, a question just on asset management with ENN deal now closed do you see yourselves.
<unk> provider with that property now and then within that maybe highlight or remind us what the opportunity. You said is with that business in terms of incremental growth now.
Now that it's closed.
Sure and I appreciate the question, Dan I mean, I would say that we are a scale provider.
For that acquisition for that acquisition, certainly strengthens our position in Europe . It opens up some interesting distribution channel and accelerate some of our capabilities around ESG oriented products. So it was a good step forward to extend that growth I believe.
Barry will correct me, if I'm wrong with the fifth largest active asset manager in the world at the moment.
Fifth largest active asset manager in the world, we see opportunity based on our footprint, our global position our client mix, our strong position in alternatives to continue to grow that business, both organically and potentially inorganically as we did with <unk> and so we're going to continue to strengthen our position there.
But we see a lot of upside across the business platform and continue to be excited about our capabilities in alternatives and our ability to expand that opportunity for the firm.
That's helpful I guess just.
Similar context with wells in terms of the outlook for growth. That's also an area where there has been a fair amount of consolidation within the industry do you see yourself as a potential participant in that and maybe kind of the acceleration of hiring or some of the initiatives you put in place. How are you thinking about kind of the growth of the wealth business.
This point.
You can see through our earnings the growth of our wealth business year over year, we continue to be focused on that opportunity.
Highlight.
That that's a process that takes time, you add wealth advisers U S footprint.
Slower growth, it's a slower process if you do it.
If you do it organically, but we see it as a very big opportunity I think we have an aspirational brand in the wealth space.
We've been the last couple of years versus the United Capital acquisition and also through our <unk> channel, we're meaningfully expanding our distribution of wealth products through corporation that we've been focused on really broadening that footprint I think we're off to a good start there, but I think theres a lot of organic opportunity that still exists I think our ACO channel Goldman Sachs acre was a very very unique.
That form to work through corporations I do see a trend in this competitive environment for corporations are more focused on helping our employees with wealth with wealth management services.
Your next question comes from the line of Gerard Cassidy with RBC.
Good morning.
David you made an interesting comment about when you were asked about the pipelines that it takes a little while for the potential issues to realize that they need this reset maybe their expectations in your experience how long does it take assuming markets don't come Roaring back and then say these things below.
They were maybe six months or 12 months ago, how long does it take for that reset to finally say, okay. Yes, we still need to raise the capital even though it's at lower levels than we originally would have liked.
Yes.
I think Gerard it's a hard question to answer very specifically at some of it depends on what kind of pressure.
Business.
Those decisions is under but I think if you want me to make a very generic generalization. These are not things it doesn't take a year for people's mindset around the reality of markets to reset of its more something that happens real time over months or quarters.
Very good and then as a follow up to another comment you made you talked about how.
The global capital markets today versus five years ago.
Our much larger, which obviously we have seen.
How much of an impact do you think the quantitative easing by the global Central banks, because I think now it's over 30 trillion dollars of those balance sheets that are outstanding we all know the U S. The fed is at nine trillion up from Fortunately the Sterne independent that Mick.
We go into Q T. The U S at least they're going to bring those balances down what kind of effect.
Yes.
Any color on what you think may happen versus what happened over the past five years when those balances blew out.
Well, there's no question that.
And I've tried to say it in different ways and there is no science to this.
And no one knows obviously, where the macro environment goes as we go forward, but when you look at the volumes and the levels of 2000 22021, we've said repeatedly that those volumes were at levels that were not sustainable and are a reflection of some of that monetary and fiscal policy that doesn't mean.
When you can track the monetary and fiscal policy that those that these businesses go away track proportionately.
I think these are big businesses, there's a lot of capital raising advisory work and intermediation and financing that will continue to go on but Theres no question its not going to operate at the levels that we saw in 2021.
Hey, good morning.
Maybe talk about the bank a little bit.
Appreciate some of the color around the loan book and its rate sensitivity, but the bank balance sheets, almost three to four times the size of the loan book. So can we can you give us some sense of how we should think about asset sensitivity in a rising rate environment.
The bank and if there is we'd like to think that there is some material upside there given the size of the bank.
Sure. Thanks, Thank you for the question.
And to help help through that like I think there's a couple of things that we expect over the balance of the year and beyond as we move through.
This rate cycle.
On the one hand, we do expect to continue to originate.
Balances.
And as it relates to our own balance sheet sensitivity that is modestly asset sensitive. So when you take that feature combined with increased quantum of interest earning assets given the given the forward curve, we think that'll be a benefit to.
To the firm.
The other thing that I should mention which is separate but probably also important just to be clear on and that is in the past. We had made reference to the impact of a rising rate environment on our money market business and.
And the impact that fee waivers had and the roll off of fee waivers may have on the forward I would just point out that in the first quarter, we had fee waivers of about $80 million.
Versus in the fourth quarter was about $150 million and on the forward and we expect those to be negligible. So that to obviously only a onetime benefit with the first hike, but that should provide some tailwind to our results as well.
I'd also just finalized.
I'm sorry, Jim.
I'd also just highlight that we continue to grow deposits and deposits are important for funding. So our bank is many activities across the firm it obviously.
We're growing our lending businesses, but this strategy also affects our market businesses positively too.
No absolutely I, just I'm trying to think through ex the markets NII, which obviously tends to be liability sensitive, but if you just think about the bank. The loan book you disclosed I think within the bank something like $800 million to $900 million from a 100 basis point move is at least fair to say that the bank in total with NII benefit.
A 100 basis point move would be better or worse, just trying to get through the other parts of the balance sheet and how that NII can react and what that.
Gross could look like if there's a way to frame that.
Yes look I think I think I would just refocus you on my comments previously overall NII sensitivity.
Is is modestly asset sensitive I think just given the relative size, even though we've grown it substantially given the relative size relative to.
Some of our larger competitors and I think that proxy that I offer you on behalf of the firm is a good is a good way of thinking about it.
Your next question comes from the line of Andrew Lim with Society Generale.
Hi, good morning, Thanks for taking my questions.
First of all can we talk about you mentioned the efficiency ratio.
Loss, it seems to be more volatile than usual.
On the first three quarters erratic at quite a low level.
Then in the full quarter. It seems like you had some unabsorbed cost true up for compensation, but also for non comp.
Was wondering if we should expect the same thing again for this year. The first three quarters running on the lower level and then the fourth quarter being higher than what would you guide to really full.
The full year as a whole.
Okay. Thanks, Thanks, very much for the question Andrew.
I think as David indicated from an overall framing perspective on firm wide operating expenses, we have put out this efficiency target of approximately 60% and that is that as a target and the lens through which we look at the combined set of expenses compensation and non compensation.
The compensation.
Level that we set for the first quarter, obviously, our best estimate right now based on what we pay for the full year, but I could not predict for you at this point, what our full year compensation ratio will be that will be a function of our our performance the competitive landscape and our attention to the overall efficiency.
C level efficiency ratio on the non comp side.
We're making decisions and taking steps to manage non comp growth, where we can make the types of investments that we think are important strategic investments for the long term strength and growth of the firm like Eric in areas, such as technology and trying to manage other non compensation expenses that are less that are less strategic.
Great. Thanks, and then just switching pike.
Question, you seem to be a leader in the <unk>.
Blockchain space, it's been a few years coming now for banks to try and get some protocol to ground, but maybe this year.
We might see something that they want to see more material. So I was just wondering if you could talk a bit more.
About sort of what we can.
Could expect maybe this year in terms of your product pipeline and what could be commercialized in the.
And blockchain space.
Well at a high level, Andrew what I would say is.
Were certainly engaged with our clients.
Around their interest in the space.
But in terms of our product offering and what we can do a really following a regulatory lead at the moment the regulatory lead for big regulated banks is very restrictive and very very small I don't have great insight to how that will or will not change during the course of 2022.
But we're engaged in dialogue with our clients and certainly when you think about blockchain more broadly.
How it supports the infrastructure payment systems and other activities in the financial markets were extremely engaged and invested in thinking about how Goldman Sachs participates in that.
And how that will affect different business channels of business opportunities.
That's to me a little bit separate from crypto currency client's interest in cryptocurrency.
At this time there are no further questions. Please continue with any closing remarks great.
Great. Thanks, Eric since there are no more questions, we'd like to thank everyone for joining the call and if you do have questions that come up throughout the day. Please don't hesitate to reach out to me or others on the Investor Relations team.
Thank you very much.
Ladies and gentlemen, this does conclude the Goldman Sachs first quarter 2022 earnings Conference call. Thank you for your participation you may now disconnect.
Okay.
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Yes.
Yes.