Q1 2023 Goldman Sachs Group Inc Earnings Call
Good morning, My name is Katie and I will be your conference facilitator today I would like to welcome everyone to the Goldman Sachs first quarter 2023 earnings conference call. This call is being recorded today April 18th 2023. Thank you Miss how you make it may begin your conference.
Good morning. This is carried Holly I'm head of Investor Relations and Chief strategy Officer 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 no information on forward looking statements and non-GAAP measures appear on the earnings release and presentation.
This audiocast is copyrighted material of the Goldman Sachs Group, Inc, and may not be duplicated reproduced or rebroadcast without our consent I'm joined today by our chairman and Chief Executive Officer, David Solomon and our Chief Financial Officer, Dennis Cooke, Let me pass the call to David.
Thanks, Gary and good morning, everyone. Thank you for joining us in the first quarter, we delivered solid performance in a challenging environment. We produced net revenues of $12 $2 billion and generated earnings per share of $8.79 and an ROE of 11, 6% and then R. O G of 12, 6%.
The first quarter was certainly volatile, particularly for the banking sector. After a fairly benign operating environment at the start of the year in March we witness the collapse of two regional banks in the United States.
Dress quickly spread to a number of institutions across the financial sector, where we saw ratings downgrades and steep valuation declines in very short order.
Stresses we're not limited to the U S. As we saw with regulators help range the combination of Switzerland, two largest financial institutions.
It's important to appreciate the size of the disruption some of the market moves during the period were staggering, particularly in interest rate to give you a sense of the magnitude there have been just four days in the past 25 years that I've seen to your yields move by 50 basis points or more intraday.
One was in September 2008, and three of them occurred in mid March This year Monday March 13th was the biggest one day move in U S Treasury to your yields and <unk>.
Over 35 years.
As we sit here today it appears that the worst of the volatility is behind us prompt action by regulators was vital in bolstering confidence in stabilizing market sentiment.
For the first quarter acted as another real life stress test and they demonstrated the resilience of the country's largest financial institutions.
<unk> has been a source of strength for the financial system.
He joined the consortium with 10 other large institutions are making a $30 billion of uninsured term deposit and to first Republic bank to send a strong vote of confidence in and commitment to the U S banking sector.
As for Goldman Sachs, a longstanding deeply rooted risk management culture helped us navigate this unusual environment.
Hundred 50, or 154 year history, we have lived and managed through many periods of disruption.
And it's a rigorous processes and planning for Taylor scenarios before the stress.
It will us to react quickly and effectively when they do occur while it's impossible to predict the exact form of market stress will take and we won't always execute perfectly our risk management culture strong liquidity and robust capital position have allowed us to navigate a complex environment. While also continuing to actively support our clients.
Given this backdrop it was clear our clients needed help managing the risks and turn to us for our expertise and execution capabilities.
Both FIC and equities had a strong quarter as we help clients with their intermediation and financing needs.
Underwriting activity, however remained extremely muted and below recent averages as capital markets were further delayed from reopening in a meaningful way given the market disruption.
All in global banking and markets delivered industry, leading returns of $16 60, 16, 6% in line with our through the cycle targets, even while advisory and capital markets activity remained muted.
Franchise continues to show impressive resilience in a variety of market environments, given our broad and diversified set of businesses.
Management fees across asset wealth management grew sequentially, but segment returns were in the mid single digits as our on balance sheet investments remains susceptible to volatility in asset prices.
It is a strategic priority to continue to reduce these positions and while we have made progress there is still work to do.
And platform solutions, we saw a positive underlying trends this quarter with revenues greater than provisions and we remain focused on driving this business towards profitability. We also continue to explore strategic alternatives within our consumer platform businesses.
In the first quarter, we sold a portion of our Marcus loan portfolio and transferred the remainder to held for sale. While this activity is now reflected in our AWS segment is it is an example of our narrowing our focus in the consumer space Dennis will take you through the financial impact of that momentarily.
Additionally, we are now initiating a process to explore the sale of Green Sky. We believe green Sky is a good business and is performing well with first quarter originations and our core home improvement loans up over 25% year over year at a weighted FICO on total originations of over 780.
Given our current strategic priorities. However, we may not be the best long term holder of this business. We will update you on our progress if and when there are material developments.
As I close I'd like to say a few words about the forward outlook. The recent events in the banking sector alluring growth expectations and there is a higher risk of our credit contraction given the environment is limiting banks appetite to extend credit.
This is an acceleration of a trend in the situation we're watching closely.
This isn't consumers continue to adjust the higher interest rates, while the forward trajectory is still unclear. We continue to be cautious about the economic outlook and we are operating the firm such that we are well prepared in the event that the environment weakens further overall.
Overall, I feel very confident about the state of our client franchise and long term opportunity set for Goldman Sachs as the events of the past quarter have illustrated we are operating from a position of strength and we have the people in place around the world to continue serving the broad range of clients needs with excellence and while much has transpired since we held our investor day at the end of <unk>.
Curious, we remain focused on our strategy to strengthen our leading global banking and markets franchise and grow our asset wealth management business and we are committed to delivering for clients and shareholders.
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 one of the presentation.
In the first quarter, we generated net revenues of $12 2 billion and net earnings of $3 2 billion, resulting in earnings per share of $8 79.
Turning to performance by segment starting on page three.
Global banking and markets produced revenues of $8 4 billion in the first quarter, which generated an industry, leading ROE for the segment of 16, 6%.
Advisory revenues of $818 million were down 27% amid lower industry completions.
Underwriting revenues continued to be below recent averages and were lower year over year.
Despite the difficult backdrop, we were number one in the league tables for completed M&A in high yield debt underwriting.
We also ranked second for equity and equity related underwriting.
Backlog fell quarter on quarter, primarily in advisory, but we remain cautiously optimistic on the outlook for the second half of the year and 2020 for particularly for strategic M&A.
We also expect investors will need more certainty before financing markets reopened broadly, but we have seen an increase in underwriting dialogues in the first two weeks of the second quarter.
Net revenues were $3 9 billion in the quarter down 17% as one of our strongest sets of results and rates was more than offset by significantly lower currencies and commodities revenues, which were very strong in the first quarter of 2022.
In fixed financing revenues rose slightly year over year.
Equities net revenues were $3 billion in the quarter down 7% year on year a decline in intermediation revenues was partially offset by record financing revenues of $1 3 billion with a sequential increase driven by higher activity and increased balances coupled with improved customer spreads.
Moving to asset <unk> wealth management on page five.
Revenues of $3 $2 billion rose, 24% year over year, given improved results in equity and debt investments and as management and other fees increased 12% year over year to a record $2 3 billion.
So underlying trends in the business remains strong private banking and lending revenues of $354 million fell year over year, driven by the partial sale of our Marcus unsecured loan portfolio as well as a transfer of the remaining portfolio to held for sale in line with our strategic decision to narrow our consumer ambitions.
The associated revenue reduction of $470 million was largely offset by a reserve release of $440 million. Additionally, we benefited from NII and incremental reserve releases associated with pay downs all in the Marcus loan portfolio was profitable for the quarter.
Net revenues for equity investments were $119 million driven by $229 million in revenues related to <unk> and $85 million of gains related to our $2 billion public portfolio.
Partially offset by a $195 million of net losses on our $12 billion private equity portfolio, primarily within real estate.
This quarter, we experienced approximately $355 million of impairments on our CRE portfolio, which are reflected in operating expenses.
Debt investments revenues were $408 million driven by net interest income of $363 million.
Moving on to page six total firm wide assets under supervision ended the quarter at a record two seven trillion.
Driven by $68 billion of market appreciation as well as $8 billion of long term net inflows, representing our 20 <unk> consecutive quarter of long term fee based inflows.
We also saw meaningful strength in liquidity products with 49 billion of net inflows from new and existing clients amid the industry wide flows into money market funds.
Turning to page seven on alternatives.
Alternative assets under supervision totaled 268 billion at the end of the first quarter driving $494 million in management and other fees for the quarter.
Gross third party fundraising was $14 billion.
Relatively solid given the current environment and bringing total third party fundraising since our 2020 investor day to $193 billion, while we expect the pace of fund raising to slow for the rest of 2023, we continue to feel good about the path forward and remain confident in achieving our 2024 target.
Of $225 billion.
On balance sheet alternative investments totaled approximately $57 billion of which 27 billion was related to our historical principal investment portfolio. Despite the challenging environment. We reduced these on balance sheet historical investments by $2 3 billion in the quarter. We are committed to our strategy to reduce balance sheet density, including reducing historical principle.
Investment portfolio to less than $15 billion by 2020 for year end.
I'll now turn to platform solutions on page eight.
Revenues of $564 million more than doubled year over year, driven by growth in loan balances and consumer platforms.
This week, we announced the launch of our savings account for Apple card users. We are excited to deepen our partnership with Apple through this additional offering and introduce another source of deposit funding for the firm.
In transaction banking deposit balances ended the quarter slightly higher versus year end, while revenues of 74 million were modestly lower quarter over quarter amid higher deposit costs as.
As we spoke about at our Investor Day in February we're focused on further scaling this business with new clients and deepening our relationships with existing clients as we aspire to become their primary service provider. In this regard we continued to see positive momentum on the platform as our client count grew by approximately 20% in the first quarter.
On page nine firm wide net interest income of $1 $8 billion in the first quarter was down 14% relative to the fourth quarter driven by increased funding costs supporting trading activities within global banking and markets are.
Our total loan portfolio at quarter end was 178 billion essentially unchanged versus the fourth quarter.
Provision for credit losses reflected a net benefit of $171 million, including the previously mentioned reserve release associated with the Marcus unsecured lending portfolio and model updates, which were only partially offset by roughly $245 million and consumer net charge offs.
Spending a moment on our commercial real estate lending portfolio as of quarter end. We had 29 billion of funded CRE loans. This portfolio is diversified by property type and includes $10 million of exposure in the form of conservatively structured warehouse lending.
With typical ltvs of approximately 50%.
Turning to expenses on page 10, total quarterly operating expenses were $8 4 billion.
Our compensation ratio for the quarter net of provisions was 33%.
Quarterly non compensation expenses were $4 3 billion essentially unchanged versus the fourth quarter, but up versus last year. The majority of the year over year increase was driven by the aforementioned Cie impairments as well as expenses related to N and IP.
Our effective tax rate for the quarter was 19% for the full year, we expect the tax rate between 21% and 22%.
Turning to capital on Slide 11, our common equity tier one ratio was 14, 8% at the end of the first quarter under the standardized approach a 100 basis points above our current requirement and at the top end of our management buffer.
In the quarter, we returned $3 $4 billion to shareholders, including common stock repurchases of over $2 5 billion and common stock.
Stock dividends of roughly $870 million, while we expect to continue to focus on sustained a sustainably growing our dividend we would note that repurchases in any given quarter will vary.
So we find our stock price attractive at current levels in light of the current environment, we expect to moderate our repurchase levels in the second quarter relative to the first quarter.
In conclusion, our first quarter results were solid in the context of a volatile environment, our robust financial position allowed us to focus on serving our clients and helping them navigate this period of market disruption across our leading businesses and global banking and markets and asset and wealth management, we remain well positioned to continue to support our clients and execute on our.
Strategic priorities with that we'll now open up the line for questions.
Thank you, ladies and gentlemen, we will now take a moment to compile the Q&A roster.
Okay.
We'll take our first question from Glenn Schorr with Evercore.
Hi, there.
I'm just curious you mentioned being optimistic about M&A in the back half, particularly on the strategic side I'm curious.
What and how Youre, what youre seeing that gives you that confidence that obviously it must be conversations and then what about the sponsor community.
Yes, Thanks, Glenn and I appreciate the question and Youre right.
It has to do with dialogues and.
And things that we can say I would say as we came into the new year Theres no questions dialogues it picked up.
There's no question I always talk about this one when when we talk about it broadly confidence affects the ability for people to move forward and be active in the M&A market and certainly what's gone on over the course of the last four weeks.
It has.
As slowed down some of the dialogues that but when you think about big strategic activity I think most big companies continue to operate from a position where they're trying to make sure. They have the scale and the strength competitively to advance their strategies and so those strategic dialogues are quite active and if you actually look over the course of the last week or.
Two there have been a handful of deals that have been announced that highlight that we're seeing more dialogues like that so we're hopeful that more of that will come to fruition I just think thats a steady part of the diet the companies need to continue to execute on to improve the strategic position now with respect to financial sponsors were still going through a reset year I'm encouraged by the fab.
In the quarter, we saw one or two deals where we're kind of the bid offer between the value that a financial sponsor could achieve and the financing price came to US came to meet there was a good data point and a sell down of the legacy deal in the market, but I would say the financial sponsor activity is still muted and theres more ups.
Side as the reset on both value and financing cost continues I think we're going to get there I would expect more in the second half of the year unless it was a really strong.
A much more pronounced economic disruption.
Because it just takes time for people to reset we've now kind of gone through five quarters of reset and so generally speaking historically you kind of see these things turn on after four to six quarters and so I would just expect more of a base level of activity from what's been very very muted.
I appreciate that and building on that your comment about.
Companies wanted to build on this strategic position.
Maybe we could talk a little bit about.
Your transaction banking platform because it is still growing I'm just curious on the March events.
We saw it did it did it cause any rethinking or maybe encouragement in terms of the direction of what youre doing with with transaction banking and taking on those deposits and did you notice any was there any notable behavior of how those deposits.
Acted during the March crisis. Thanks.
Yes, Glenn it's David Thanks for the question I would say that our conviction around the transaction banking business remains very very strong I think what we were able to observe in the first quarter I highlighted in my script and it's something that we're focused on strategically as we grew the client count by about 20% in the quarter, which is similar.
To all of last year.
And we're very very focused on continuing to improve our position with our clients offer them more and more services and grow this business steadily over the long term to create value I think in terms of how the deposits themselves performed over the course of the quarter.
We're in line with our expectations and as we indicated.
Ended.
On a quarter over quarter basis up just about $1 billion 1 billion.
Okay.
Thank you we'll take our next question from Ebrahim <unk> with Bank of America.
Hey, good morning.
I guess two questions one.
David you referred to the us hyper volatility in the rates market, but would appreciate if you can address just fixed income trading what happened there this quarter.
There was some lag performance versus peers and to the extent you can just give us a flavor of what happened in your expectations around how things evolve from your our clients' macro funds holding up in face of this volatility.
Yes. So I appreciate the question I mean, it's been interesting.
Im just wondering just watching what I'd highlight is I think we had a very solid quarter and check and we have nearly $4 billion quarter and just to put that in perspective.
I think I think that's top decile quarter for that I think we've had I think it was the eighth best quarter on record and I think we've had 96 quarters.
So it was a solid performance and just the headline number of $4 billion. The way we look at it that's a very solid first quarter. It was certainly a quarter there with volatility.
Client activity throughout the quarter and I think we were well positioned to serve our clients and served our clients well as some of some of the noise that that I see just in the early morning.
<unk> released our FIC business was down versus the first quarter of last year by 17%, but in the first quarter of last year, we had significant outperformance if I remember correctly, our FIC revenues in the first quarter of last year were up year over year, 21% when the competitor average was kind of flat or down.
And you can go look at that from.
From a base perspective, we had much more significant outperformance in the first quarter of 2022, because of our commodities business and the breadth of our commodities business. So if you remember back in the first quarter of 2022 the war with Ukraine started it was more volatility in commodities and clients were very active in commodities and so it was an outsized quarter.
And commodities in the first quarter of 2022, but overall I think FIC performance in the quarter was strong we were there to serve our clients.
And by any standards that was a good quarter I think given the environment that we're operating in I would expect activity to continue to be active with our clients. It's certainly an uncertain period of time and Theres a lot of movement and positioning and so we're finding our clients active at the moment.
Got it thanks for that and then just separately I guess, a big focus post Investor day was picking up based on asset sales how does the environment over the last month influenced that equity markets, obviously held up pretty well X the financials.
Give us a sense of just asset sale piece of that how youre thinking about that and any change today versus investor day, and how does that translate into pace of buybacks, maybe in the back half of the year.
Yes. So we we we commented in the script.
About the fact that we made more progress on the disposition of our historical principal investments and we highlighted that we reduce them from just under 30 billion just over $27 billion.
During the quarter Dennis also highlighted in his script that we feel on track to get to the $15 billion target number.
We laid out.
Over the course of the next 24 months we.
We feel good about that progress and we're going to continue to move to reduce that to zero over time. There are a lot of physicians that there is no question with our market headwinds some of that might go a little bit slower, but we're on pace with what we're trying to do and are committed to it and obviously see we see a big change in that business as we grow management fees.
And we take the legacy investments out the volatility in that business, we believe will change meaningfully.
We'll take our next question from Christian Ballou with Autonomous research.
Good morning, David and Dennis just to follow up on the question on the market's business.
March did feel like a very tough months for some of your institutional clients, particularly so hedge fund closures, we're hearing of deleveraging.
So how does that inform your view of the outlook for the trading businesses and your market share.
Particularly given.
Goldman's exposure to.
So the hedge fund community.
R R.
So I appreciate that question, we're obviously very focused on share and our share gains.
We do participate with with the hedge fund community.
When you look at our big competitors, they participate very actively with the hedge fund community too.
We also are very significant with the broad institutional community as I said just in the in the previous question. Our clients are active at the moment because there's a lot going on we're very focused on our market share as we said in our Investor day, we laid out more metrics in more of a focus on continuing to look at where we can advance our position with the top 100.
<unk> clients that we deal with in our markets business, we continue to be optimistic about our share position, our overall ability to serve our clients and we do think in this environment clients will continue to be active.
Great. Thank you.
And then maybe a question on capital return.
Just clarify why you are slowing buybacks.
Capital ratios very healthy to your point that the stock is attractive at this level. So not sure that I get it and then any comments on your appetite for strategic acquisitions here.
Theres been a lot of stress in the wealth management space, which is a space I know you guys are interested in so curious if youll conserving capital.
Let's go on the offense.
Sure Christian it's Dennis Thank you for the question around capital.
And obviously in this case appreciating the starting point in Q1, where we significantly increased the amount of buyback activity. In Q1, we remain very committed to return of capital to shareholders committed to sustainably growing our dividend committing to the overall capital return profile, but we're also.
Absorbing opportunities to deploy into the franchise on behalf of clients.
And there are elements of uncertainty in the overall macroeconomic environment and so our expectations is that buyback activity will be moderated, but we'll monitor that over the course over the course of the quarter. As you say, we do like the stock price and remain committed to return of capital to shareholders.
We'll take our next question from Steven <unk> with Wolfe Research.
Hey, good morning.
So I wanted to start off with a question on platform solutions.
Business saw a step up in expense I just wanted to understand how we should be thinking about the trajectory for expenses in the segment and similarly for provision going forward. Just following this quarter significant reserve release, we know you had accrued reserves pretty conservatively for that segment, but the top line momentum is good we're just be helpful to get some.
Dave on how we should think about both the expense as well as the credit trajectory from here.
Sure. Thanks.
In terms of the overall trajectory for the segment I think we have to step back our number one focus is driving towards profitability.
Also mentioned that we look to continue to improve the efficiency ratio.
That's certainly over the course of a period of time, maybe not every given quarter, but we remain committed to what we to what we outlined as you say we've seen.
Good top line.
Performance of the business and on.
And the reserve release was a function of owning.
Our point of sale business for some period of time been able to observe has taken more data.
And Greens, guys actually performing better than we had modeled and so that was a contributor.
To the to the reserve release in the segment as we think about it on a go forward basis is obviously going to be a function of origination activities across the platform.
We now have a reserve level roughly 13% in the consumer space. So that can give you a sense of how to how to model provisions based on forward origination activity.
That's great Dennis and just for my follow up on expense and maybe more of a <unk> tack modeling question on the expenses were a bit higher than expectations, but I recall you you noted at Investor day, the need to absorb some severance charges. You also had some pretty outsized.
Impairments related to Cie portfolio was hoping you could maybe help us quantify the level of one timers in the expense base. This quarter, just as we think about benchmarking versus some of your longer term efficiency targets.
Thank you. Thank you very much so let me let me take that in pieces in terms of.
On the compensation expense.
Charges associated with severance and some of the actions that we took in the first quarter are included within our overall comp accrual, which is a 30% 33% of our revenues net of provisions that's embedded inside of that number in terms of.
The change in non compensation expenses.
They were flat on a quarter over quarter basis, but did include as you know.
$355 million of Cie impairments and so we thought it was important to call that out.
And that also explains a bunch of the year over year Delta between Q1 22 in Q1, 'twenty three that together with.
A full quarter impact of that in an IP helps explain the delta.
And that line for the first quarter of this year.
We will take our next question from Betsy <unk> with Morgan Stanley .
Hey, good morning.
Good morning.
So just a couple quick questions here one on the consumer repositioning that you talked about today with the Marcus loan sales and with your comments around Green Sky would you say that as those are done and dusted that would be it for the consumer repositioning.
I think Betsy what we've what we said clearly as we're narrowing the focus.
We continue to be focused on our deposit platform and our credit card platform I do think there are opportunities for us to do other interesting things strategically and how we think about operating it.
But we're going to continue to examine all the things that we can do to make that as successful as possible as I. Just highlighted we don't think we're necessarily the best owner of Green Sky. So we're taking action on that and that will continue to move forward to bring the consumer platform now the card platforms to profitability.
And so there's some nice capital release that comes from that how should we anticipate you're going to be utilizing that as we look forward here.
So as we as we see the capital release from some of those activities just gives us incremental flexibility with respect to how we ultimately deploy that either back into the franchise <unk>.
Returning that capital back to shareholders.
Thank you we'll take our next question from Mike Mayo with Wells Fargo.
Hi, just a little bit more on the consumer repositioning strategy how much in the Marcus loans I think there were $4 5 billion at year end did you sell and what do you intend to do with the rest.
So we sold about $1 billion of the Marcus loans.
And the balance has been moved to held for sale and so we'll be looking at moving down that position over time.
And so the marks that you took on these loans.
On what.
How much of those marks were in the $4 5 billion was on a subset or the entire portfolio.
So we marked the entire we sold a portion of the portfolio and then we mark the balance to market and Youll see that reflected in the in the $470 million number moving through net revenues.
And our reserve release was $440 million, if you think about the portfolio overall for the quarter.
We generated incremental NII and we had other net paydowns over the whole quarter, we generated revenues north of $150 million and was profitable for the quarter as we move forward into 2000 and to the second quarter, we will continue to generate.
We will continue to generate net interest income on that portfolio.
And move down the balance of those exposures.
We'll take our next question from Brennan Hawken with UBS.
Hi, good morning, Thanks for taking my questions I'd like to follow up first on the question question that Glenn asked about about the transactional banking.
In the past in conversations I believe that you've indicated that a lot of the competitors or the regional banks. There. So I want to confirm that that's the case and then given some of the stress that we've seen and concerns around some of those providers.
How are you adjusting your strategy.
In order to continue to build on the momentum that you seem to have shown here in the first quarter and if we see that continued stress would you pursue inorganic.
Venues to add scale or capabilities.
Yes, so I appreciate the question Brandon.
The.
We think in transaction banking, we have a very good platform at a very good product and the feedback that we're getting from clients about the product offering how it work what it allows corporate treasurers and Cfos to do is very positive.
It's obviously.
Active for us to take deposits, but we want deposits that are stickier than a year because people are operating on our platform and so we're working hard to make sure as we're adding clients, we're bringing the value that.
That it catches the technology to what Theyre doing in a way that grows that platform. We are seeing positive results. But this takes time. These are long cycle decisions, they're not day to day decisions with short term trades.
As Dennis highlighted we had good momentum in terms of customer account, where people added themselves through our platform and so we're going to continue to focus on that I do think given the size and the strength of Goldman Sachs as a G SIB and the way we're positioned we're well positioned to compete with our clients for this business coupled with the fact that we have an excellent.
<unk> offering so we are going to stay focused on that we expect the business to grow over time.
Great. Thanks for that color I appreciate it.
And then for my follow up you just announced this morning, the new deposit arrangement with Apple.
And the yield on that is pretty close to Marcus a little above.
Should we think about the economics of that.
That.
Apple relationship and the deposits specifically and then how do you manage potential risk for cannibalization with your own markets offering. Thanks.
So thank you for the question so obviously.
This is this is something that we launched yesterday as it gives us another deposit channel.
It's the opportunity for somebody that's credit card holder to put a deposit on we've obviously looked very closely at the overlap between who holds.
Credit cards, and who will hold who hasnt Marcus deposit and that overlap is small, but we'll obviously watch closely to see whether or not there's any cannibalization, but this is a way for us to try to open up another deposit channel and it is always good for us to broaden our deposit base.
So.
This is small at the moment and we'll watch it carefully but I think it's an interesting opportunity for the firm.
We'll take our next question from Devin Ryan with JMP Securities.
Okay.
Okay, Great Good morning, David Dennis.
I'll just touch on the equity financing strength in the quarter I know you kind of highlighted.
Spreads in customer activity, but also appreciate you know this is an area of focus for the firm bigger picture. So just love to think about kind of where we're jumping off of into the second quarter and whether the first quarter benefited from the March stress in that maybe you do some credit things that happened during the quarter or if this is actually <unk>.
<unk> kind of jumping off point.
Maybe a better outlook for that business through the rest of the year.
Sure I appreciate that question I'll give you some context to help you understand sort of the sequential activity in the direction. So.
Our overall balances were a lot lower into the end of last year based on <unk>.
Overall market levels and also as we reduced our footprint and so as we came into the first quarter, we were able to re expand capacity clients engage with US we saw an increase in balances increase in client activities increase in customer spreads.
We've had in place for some time a strategy to identify new types of clients that could come onto the platform and engage with us and so I would say that we're working full speed ahead on that and continue to be very very focused on this as one of the key.
Okay. Thanks Dennis.
A bigger picture follow up year or so.
It feels like Goldman generally takes market share during periods of stress and so we just went through a pretty extreme period of stress in the system that maybe we're getting on the other side of it but perhaps not in so with credit Suisse now.
The <unk> acquisition and capital likely becoming tighter in the banking system more broadly are there new areas.
The opportunity for Goldman to take market share or just in terms of where youre going to lean in with your balance sheet as you've done in the past you how should we think about maybe a couple of the top areas, where you feel like you can maybe incrementally take market share just as a result of what happened over the last month or so.
Alright.
I think our core banking and markets franchise is incredibly incredibly.
Incredibly well well positioned.
You can see the performance this quarter I, certainly wouldn't call. It a top quartile for investment banking traditional capital markets Ipos M&A activity, but with a 16, 7% ROE and our banking and market segment I think it's performing well we have the breadth the footprint the global franchise I think to continue to strengthen our share and as.
I commented a little bit earlier, we continue to be focused on looking at our performance on the top 100 now expanded the top 150 clients and making sure that we're moving up in capturing share and serving them well I do think given some of the things that have gone on there are other opportunities I think one of the interesting opportunities is the private wealth opportunity over.
In Europe .
We see lots of customers that had had.
Accounts at both large Swiss institution with a consolidation, we're certainly seeing opportunities in our private wealth business as people want to diversify the private wealth relationships, we have and so that's an area for sure that we're focused on.
So we continue to work across both global banking and markets and also asset and wealth management for opportunities that we can strengthen our position and we think both franchises are very well positioned.
We'll go next to Dan Fannon with Jefferies.
Thanks, Good morning wanted to follow up on the third Party fund raising you had another great quarter, but certainly highlighted that could slow this year and I guess, that's not surprising given the environment, but could you talk and kind of longer term.
If you think about maybe a rebound as the economic conditions pick up and also the cycling of your vintages of funds in terms of what could be coming online. This year that might result in continued strength or some pockets of slowness as you kind of go through that cycle.
So thanks, a lot for the question. Obviously this remains a big area of strategic strategic focus for us with $14 billion raised in the first quarter and now up to $193 billion, we feel very good about that.
<unk> indicated that the pace could slow over the balance of the year, but.
But we do have about 20 offerings in market on diversified.
Basis across asset classes, where we're actively looking to raise to raise funds I think it's really.
The breadth and the diversity of our franchise, that's going to enable us to continue to raise raise those types of assets different strategies will play towards different types of environments and having the breadth of offering I think is proving proven to be beneficial. So even though we indicated that it may slow later in this year strong conviction that will be on pace.
For the for the total amount that we had indicated just given what we see across our platform and I'd just say Dan.
One of the things that happens in this business as you scale and you'll have the breadth that we have in this business. We set a target for 2024, but there is a longer term goal and target and theres lots of room for us to grow and continue to expand our footprint position given the offerings that we have across the broad alternatives spectrum, the global nature of our platform and so.
This is still these are long dated these are long dated fund raising long cycle stuff, but there's a lot of runway for us once we get past the 2024 target too.
Thanks, and then just a follow up Dennis on the expense side, the $1 billion of savings from.
From realization of both.
Programs that you highlighted at Investor day, what was realized in the first quarter or maybe just remind us of the pacing of some of those savings as we think about the remainder of this year.
So.
Today, we outlined that over the course of the year, we would have run rate payroll expense of about $600 million.
And non comp efficiency about $400 million and we'd see about half of that reflected in this year and the balance thereafter, I'd say we're on target.
For those for those initiatives and those efficiencies and we continue to look at it and we continue to see other opportunities to incrementally drive efficiency across across our platform. One area. We are focused on for quite some time.
The overall level of professional fees will continue to grind that down and if you look at some of the sequential components of our overall non compensation expense, you'll see we're making good progress against most of the line items.
We will take our next question from Gerard Cassidy with RBC.
Good morning, David Good morning, Dennis.
Good morning, David.
In your comments about your principal investments. So you mentioned, obviously market conditions will impact how quickly you get to your targeted goal of 15 billion by the end of 'twenty four.
In those market conditions is it more of the IPO in ECM markets that have a bigger headwind for you in this area or is it just general market levels and the activity we're seeing.
Well I appreciate the question Gerard I think all these things contribute.
Financing availability contributes on certain assets.
<unk> market can contribute on certain assets and just general valuations contributed on certain assets here I want to put the comments in perspective, because I think that appropriately we want to make sure people understand obviously that when there is a lot of volatility or there are tough market.
It slowed us down, but we laid out at our Investor day, a plan to move over the coming few years.
Close to zero on the historical principal investments, we continue to have a target to get to $15 billion by the end of 2024, we're confident that we're going to execute on that target. So I think the way to think about this as we laid out a multiyear plan to reduce this down to close to zero and we're moving along on that target.
I wouldn't take the comments that any quarter to quarter basis.
Things can slow down I wouldn't overstate that but I want people to be aware that if the market or the environment turns more difficult that could potentially slow us down, but we're very focused on this and we're going to continue to work to execute on a quarter to quarter basis.
Very good and I know you guys touched on the share repurchases.
Slowing it down a bit here in the second quarter, you are very well capitalized.
If market conditions or I shouldn't ask I guess, how important is it that the.
The financial markets need to stabilize for you guys to maybe get more aggressive in the second half of the year and buying back the stock.
Thanks for the question look I think I think it just gets back to how we think about our overall capital allocation framework and we're looking at opportunities to deploy against our client franchise, where there could be opportunities for incremental deployment given some of the disruption that we're seeing in markets. We want to want to remain mindful of that want to remain committed to return of capital to <unk>.
Shareholders.
And so we're looking to strike the right balance.
While being mindful of the overall operating environment I'd also I also just want to highlight when we spoke at Investor Day, We said clearly that we are focused on accelerating buybacks.
That is still in place.
A quarter may vary.
But that is still in place and so I just want that also kept in perspective too.
Okay.
We'll take our next question from Jim Mitchell with Seaport Global.
Hey, good morning.
Thank you hinted at improved dialogue levels in underwriting to start the quarter.
So can you just give a little more color on what youre seeing in the market and maybe how you see the ECM and DCM environ.
Environment evolving assuming we don't have another major step back in the macro.
Yes.
I think there had been some green shoots there were certainly some green shoots in February .
Levels are still muted there are obviously a number of things out there that we'd like to get done and we're seeing some indications of some significant transactions starting to prepare to get to move forward given market seem to have settled down a little debt.
But I still think we're at a below trend level as I said earlier in the conversation.
History history tells you that there is plenty of capital raising that needs to get done generally speaking people have to use the capital markets to execute on our strategies.
When you have these slowdowns of these windows close they typically you get that rebalance after four to six quarters, we're kind of five quarters in and so my expectation. Our hope is we will see improvements from what had been very muted levels, but at this point.
We had a very volatile March and I'd say things are still slow, but we are starting to see some more green shoots again, and we will just have to watch and see how things unfold in the quarter and enter the back half of the year.
Okay. That's helpful. And then maybe just on <unk> financing I know that's been a focus of growth as well outside of equity saw a pretty strong improvement in spreads and volume, but it doesn't look like we saw that in sick or anything.
Think about it on the fixed side on the financing space and how that how does how do you see that going forward.
Sure, it's still very very committed to the <unk> financing business, which as we indicated was up slightly year over year. There continued to be good opportunities to deploy on behalf of clients I think a lot of the market share progress in client engagement progress that we've made over the last couple of years sets us up as one of the Goto calls for the provision.
Of financing across the fixed base, so that combined with the equity financing remain real priorities for our global banking and markets business, we feel good about it.
We'll take our next question from Jeremy <unk> with BNP Paribas.
Thank you good morning could I get you to talk a bit more about the credit Suisse opportunity in wealth management, you mentioned Europe , but could you also talk a bit about Asia and Latin America are those regions, where you as a firm have sufficient strength in wealth management to take more share from the Swiss banks as they disrupted or is that a bit more marginal for ya.
On the second part of the question I.
I think when you look at Latin America, it's more marginal for us.
But but there is we really do have a global footprint and there are opportunities for us, especially.
So many very wealthy individuals deal in dollars around the world.
We also have very very strong Latin American presence that comes into our presence in Florida.
Obviously, we're a private wealth business is focused on Latin America. So there is opportunity there we continue to have a broad private wealth footprint in Asia, we haven't been as focused on growth and investment in Asia as we have been in Europe over the course of the last couple of years and we did launch a private wealth joint venture over over and.
Asia over the course of the last couple of months with ICP C, which I think is a small and slow opportunity, but it is an opportunity for us I think the interesting thing is whenever there is consolidation as we look at very wealthy individuals that are on their private wealth platform. They tend to have multiple providers. So whenever there is consolidation there are opportunities to talk to people as people.
Then rethink their footprint on the diversification of our footprint and so our private wealth teams are very focused on that.
And the way we serve those clients.
It's very helpful. Thank you.
Yeah.
Thank you we'll take our next question from Andrew Lim with Society Generale.
Hi, good morning.
So my first question is about your focus on credit cards on the consumer side.
Perhaps you can talk.
More specifically about what you see as your competitive advantages are.
And how you think about sizing up credit cards and disappointed with the cycle.
Perhaps arguably quite late and some would argue.
Credit card growth since the reflection of individuals' not being able to manage the expenses and the high inflationary environment.
Sure. Thanks. Thanks, So as you know we have our card platform business, we've been building that over the next over the last several years we have.
A partnership with General Motors in partnership with Apple.
And we've been steadily investing in those relationships and building our balances as you indicate given the overall environment.
The total balances actually were down sequentially, just given given seasonality and given some of our credit underwriting standards and origination volumes.
This is a business that we continue to invest in.
And I believe it's an.
And overall piece of the firm that is diversifying.
Great. Okay, I've got a second question more.
We will probably be about.
The questions that we saw in March and how you think about how it's evolved and maybe.
The repo situation as.
As well so if you think about the Seb situation.
They decided to sell a lot of their assets below market value.
And in the process of crystallizing amongst others.
Does losses.
I guess in retrospect, it would have been a lot easier for them to repay those assets was deferred.
And apologize to market losses, and I'm just wondering if you could share your thoughts as to maybe why that didn't happen. It would have been and obviously to avoid a lot of the other classes of confidence of the budge from that situation.
I don't I don't I don't I don't really have I don't have a comment on that Andrew.
There are a variety of factors of the actions that they took.
Ultimately there was a bank run at FCB.
And that led to the situation, we are but I don't I'm not going to go back and re count.
Decisions that that management and upward made around that.
Thank you we will take a follow up from Mike Mayo with Wells Fargo.
Hi.
First of all I'm in specific and then general the Goldman specific as you know why now on the consumer repositioning Green Sky Taylor, Marc as loans and then the more general question.
To what degree did Silicon valley impact the capital markets and the advisory appetite out there. Thanks.
Yeah. Thanks, Mike So first.
Why now it's actually not why now its like its why over the last 12 months is as you know we made a strategic decision.
<unk> wants to go at this point to really narrow our consumer focus and we've been executing on it and.
And it's not narrowing that focus and making those decisions and executing on are not things that can be done instantaneously. So we've gone through a very very thoughtful process and we're moving forward in the execution of that.
Again I think these things also I would just highlight there is small in the overall scope of Goldman Sachs.
Marcus loan portfolio with profitable with small wasn't strategic.
Green Sky sort of highlighted today, we think it's good business good platform and actually as we watch it perform it's performing well, but given the way we've narrowed our focus not strategic for us and so we're simply executing on the decisions that we laid out and we will continue to execute on them to do the things that we think are right.
Over time to deliver for our shareholders.
On the second question.
<unk>, which is just what happened in March how does it affect capital markets and M&A I think it has effect.
It was a it was a highly as I highlighted in my comment was kind of an unusual a few week period with really really outsized volatility.
As you and I've discussed before whenever you have that kind of volatility it flows down capital markets activity. So I thought we were starting to get a little bit more capital markets activity at the end of February .
I noticed now equity markets seem to be behaving well debt markets are behaving reasonably well I can't say that there won't be some other event that create stress. They certainly are other things on the horizon that you could see to create could create volatility like the negotiation around the debt ceiling just to point to an example.
But I do think when you have that kind of volatility it slows down or it has people push out things that they were thinking about bringing it to the capital markets. So yes, I do think I'd add to that.
And then you can look at the performance in our investment banking lines in the quarter. It was certainly a pretty muted quarter for investment banking activity for us and for the market as a whole.
We will take a follow up from Ebrahim <unk> with bank of America.
Thank you just one quick question, Dennis maybe around the apples savings deposit how do you intend to use the funds that come in I. Appreciate early days in terms of the level of includes that.
They get on that product, but is that money just going to sit in cash earning fed funds.
Just trying to figure out what the NII revenue impact could be tied to those deposits.
Sure. Thanks, Thanks Ebrahim so.
Across the firm we have multiple multiple funding channels multiple sources that we tap in RBA you activities. We have multiple deposit channels that we also actively worked with each and every day, we view this as one incremental and diversifying.
Sourced deposits enabled us to deepen our relationship with Apple tap into their ecosystem and the clients that we serve together with our card cardholders and want to sort of take advantage of the ease of moving into.
Deposit account and we will take those take those deposits along with all the other deposits in our portfolio.
And deploy it into the client franchise.
That will conclude our question and answer session I would like to turn it back over to our speakers for any additional or closing remarks.
Yes. Thank you all for calling we appreciate the time and interest in the firm and if you have any additional questions certainly feel free to call me at the rest of the Investor Relations team otherwise, we look forward to speaking with you soon thank you.
Ladies and gentlemen, this concludes the Goldman Sachs first quarter 2023 earnings Conference call. Thank you for your participation you may now disconnect.
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