Q4 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 fourth quarter 2023 earnings conference call on behalf of Goldman Sachs I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of the Goldman Sachs Web.
Site and contains information on forward looking statements and non-GAAP measures. This audiocast is copyrighted material of the Goldman Sachs Group, Inc, and may not be duplicated reproduced or rebroadcast without consent.
Speaker Change: This call is being recorded today January 16th 'twenty 'twenty four I will now turn the call over to Chairman and Chief Executive Officer, David Solomon and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Sullivan you may begin your conference.
David Michael Solomon: Thank you operator, and good morning, everyone and thank you for joining us.
David Michael Solomon: 23 was a dynamic year U S economy proved to be more resilient than expected. Despite a number of headwinds to growth, including a significant tightening of financial conditions of regional bank failure and escalation of geopolitical tensions.
David Michael Solomon: Against this backdrop this was a year of execution for Goldman Sachs.
In addition to narrowing our strategic focus we further strengthened our core businesses as.
David Michael Solomon: As we enter 2020 for the potential for rate cuts in the first half of this year has renewed optimism for a soft landing.
David Michael Solomon: We are already seeing signs of a potential resurgence in strategic activity, which is reflected in our backlog.
David Michael Solomon: I'm, starting today's presentation with a strategic update and Dallas, who will provide comments on our financial results.
Dallas: Beginning on page one.
Dallas: We aspire to be the world's most exceptional financial institution, United by our shared values client service partnership integrity and excellence and over the last 155 years, we've created one of the most aspirational brands and financial services.
Dallas: Goldman Sachs is the preeminent global investment bank and a leader across asset wealth management.
Dallas: We continued to simplify our strategy today is an opportunity to take stock of our progress as well as highlight avenues for further growth.
Dallas: Strategic objectives on this page underscore our relentless commitment to serve our clients with excellence and to further strengthen our client franchise.
Dallas: As we show on page two we have two world class interconnected franchises that are well positioned to achieve these strategic objectives.
Dallas: First global banking and markets, which includes our top rank investment bank with unparalleled merger franchise, a leading capital markets business.
Dallas: It also includes our number one equities franchise on top the top three franchise, we are uniquely positioned to serve our clients across geographies and products.
Dallas: And second our unified asset wealth management business, where we are a leading global active asset manager with a top five alternatives business out of Premier Ultra high net worth manager wealth management franchise.
Dallas: This is a scaled business with over $2 eight trillion in assets under supervision and where we see significant opportunity for further growth.
Across these two businesses are extraordinarily talented unmatched execution are bolstered by our one Goldman Sachs operating ethos.
Dallas: On page three we lay out our progress across a number of key priorities that we discussed at our most recent investor day in February 'twenty to 'twenty three.
Dallas: Global banking and markets, we've maintained and strengthened our leadership positions across investment banking.
Dallas: In FIC and equities, we have improved our standing with the top 150 clients <unk>.
Dallas: We generated record total financing revenues across these businesses in 2023.
Dallas: And they've demonstrated impressive growth over the last four years.
Dallas: Asset and wealth management was driven solid investment performance and consistent growth and a more durable revenue base of management and other fees and private banking and lending revenues.
Dallas: This past year, we reduced our historical principal investments by 13 billion and also surpassed our five year alternatives fundraising target.
Dallas: One year ahead of schedule.
Dallas: I will talk more about each of these businesses in a moment before I do I would like to speak about how we've narrowed our strategic focus.
Dallas: We made several important decisions and swiftly executed on.
Dallas: We exited the market lending businesses sold substantially all of our markets loan portfolio.
Dallas: We sold our personal financial management business.
Dallas: We announced the sale of Green Sky, which remains on track to close this quarter. We also sold the majority of our Green Sky loan portfolio, which settled in the fourth quarter.
We've also reached an agreement with general Motors regarding the process to transition their credit card program to another issuer.
Dallas: We remain committed to supporting the products and servicing customers, who the various transition agreements and our consumer activity.
Dallas: I firmly believe companies should innovate and seek out new opportunities for growth.
But it is also important to be nimble and make tough decisions when needed.
Dallas: Consumer ambitions that produced over $150 billion of deposits, which we expect to grow further from here.
Dallas: These deposits have materially improved the firm's funding profile.
Dallas: Now we are focusing our growth in other areas, where we have a proven right to win.
Dallas: We recognize that scale matters as it allows us allows the firm to operate more efficiently manage incremental regulatory and other costs, making unit economics more favorable.
Dallas: And we need to be measured and focused in our execution.
Dallas: Our narrowed strategy is now focused on our two core businesses, where we have a proven right to win with our leadership position scale and exceptional talent.
On page four in global banking and markets are leading and diversified franchise has produced average revenues of 32 billion over the last four years across a number of different market environments, demonstrating the diversity and relative durability of this business in the aggregate.
Dallas: And the last several years, we made a concerted effort to grow our wallet share in financing revenues, which are clearly raised the revenue floor for these businesses.
Dallas: We have also generated attractive returns with an average ROE fully allocated of over 16% over the last four years.
Dallas: Turning to page five key part of enhancing this durability has been executing on our strategic priorities.
Dallas: Our efforts to materially strengthen our client franchise evidenced by wallet share gains of roughly 350 basis points since 2019.
Dallas: We've maintained our league table rankings of number one in announced and completed M&A number one in equity and equity related underwriting number two on the high yield debt.
In FIC and equities were in the top three with 117 of our top 150 clients. These competitive positions are a reflection of our one Goldman Sachs approach our clients confidence in us.
Dallas: In addition, we have significantly increased more durable financing revenues.
Dallas: It can equity financing together have grown at a 15% CAGR since the twenty-nine since 2019 to a new record of nearly 8 billion.
Dallas: Turning to asset management on page six we continue to make progress on bolstering more durable revenue streams.
Management and other fees in private banking and lending revenue together have grown at a CAGR of 12% since 2019 we've.
We've also made swift progress in reducing our historical principal investments and are already approaching our pre tax margin target on an adjusted basis.
Dallas: Turning to page seven.
Dallas: Our solid investment performance across both traditional and alternative channels is driven inflows.
Dallas: Over 75% of our traditional funds performed in the top half of Morningstar funds.
Dallas: In alternatives over 90% of our funds are in the top half of Cambridge months.
Both over the last five years.
Dallas: Fourth quarter represents our 24th consecutive quarter of long term fee based net inflows across our platform.
Dallas: I want to reiterate that we have reached a milestone by raising over 250 billion in alternatives. It's 2019.
Dallas: Passing our 225 billion target a year early.
This fund raising success has been the result of our continued innovation and developing new strategy.
Dallas: As well as our ongoing focus on investment products, where we have deep expertise and longstanding track records.
Dallas: Fund raising has been broad based across geographies and asset classes with approximately 40% coming from our ultra high net worth relationships.
Dallas: Very proud of this achievement, we were preparing for our first Investor day, four years ago, I remember, how big a reach our initial target of 150 billion seats.
Dallas: Not only that target, but also our increased target of 225 billion. One year ahead of schedule demonstrates the power of our platform and the exceptional depth of talent we have in this business.
Dallas: Putting all this together on page eight you can see how much we've improved the durability of revenues across the firm.
On this slide baseline revenues as shown in gray, which represent the some of the trailing 10 year lows for each of the businesses that are considered more cyclical.
Dallas: Bizer underwriting an intermediation.
Dallas: We believe this is a very conservative measurement because it's unlikely that every one of these businesses would ever had a low point all at the same time.
Dallas: In fact in all of the years since we became a public company. It has never happened.
Dallas: In dark Blue you can see the more durable revenues from financing management other fees as well as private banking and lending which in aggregate have grown at 13% CAGR since 2019.
Taken together these two components make up over 70% revenues in 2023.
Dallas: On top of that we consistently generate upside across different market environments because of our diversified franchise.
Dallas: The increase in the consistent bank lot baseline and more durable revenue streams, coupled with the diversification of our scaled franchise, our ability to capture upside demonstrate the revenue generating power of our firm.
Dallas: Narrowing our strategic focus our leadership team spent a significant amount of time in 2023 realigning the firm's priorities with our strategic vision, our values and our strengths, which we highlighted on page nine you.
You've heard us talk about many of these elements before starting with our strategic objectives.
Dallas: First the hardest one Goldman Sachs to serve our clients with excellence.
To run World class differentiated durable businesses.
Dallas: Third to invest and operate at scale.
Dallas: As you can see on the page our execution focus areas for 2024 are aligned with these strategic objectives.
Dallas: Taking one example, investing in our people and culture.
Dallas: The exceptional quality of our people.
Dallas: By our unique culture of collaboration excellence is critical in solving our clients' most consequential problem.
Dallas: And it's imperative that we continue to invest in them.
Dallas: All of these objectives and execution focus areas will result in our desired outcomes.
To be a trusted advisor to our clients to be an employer of choice for our people and to.
Dallas: To generate mid teens returns through the cycle and strong total shareholder return.
Dallas: But everything we achieved in 2023, coupled with a clear and simplified strategy, we have a much stronger platform for 'twenty 'twenty four.
Dallas: I feel very confident about the future of Goldman Sachs, our ability to continue to serve our clients with excellence and that we will continue to deliver for shareholders.
Dallas: I'll now turn it over to Dennis to cover our financial results.
Jim Mitchell: Thank you David good morning.
Jim Mitchell: Let me start on page 10 of the presentation.
Jim Mitchell: In 2023, we generated net revenues of $46 3 billion net earnings of $8 5 billion and earnings per share of $22.87.
Jim Mitchell: As David highlighted we made significant progress this year and narrowing our strategic focus.
Jim Mitchell: We provide details on the financial impact related to these decisions as well as the impact of the FDIC special assessment fees on the slide.
Jim Mitchell: In aggregate these items reduced full year net earnings by $2 8 billion earnings per share by $8.04 and our ROE by two six percentage points.
Jim Mitchell: Turning to performance by business starting on page 12.
Jim Mitchell: Global banking and markets generated revenues of $30 billion for the year.
Jim Mitchell: Down 8% as higher equities revenues were more than offset by a decline in FIC revenues and investment banking fees versus last year.
Jim Mitchell: In the fourth quarter investment banking fees of $1 $7 billion fell 12% year over year, driven by a decline in advisory revenues versus a very strong quarter in 2022.
Jim Mitchell: For 2023, we maintained our number one league table position in announced and completed M&A as well as in equity and equity related underwriting and ranked second in high yield debt underwriting.
Jim Mitchell: Our backlog rose quarter on quarter, driven by a significant increase in advisory.
Jim Mitchell: As David mentioned, we are encouraged by the robust level of dialogues with our corporate client base and.
Jim Mitchell: And there were only two weeks into the new year there've been solid levels of capital markets activity in both the U S and Europe.
Jim Mitchell: Net revenues were $2 billion in the quarter down 24% from strong performance last year amid lower activity in rates and other macro products.
Jim Mitchell: In fixed financing revenues rose to a record $739 million.
Jim Mitchell: Equities net revenues were $2 $6 billion in the quarter up 26% year on year.
Jim Mitchell: The year over year increase in intermediation revenues was driven by better results in derivatives.
Jim Mitchell: Financing revenues of $1 $1 billion rose year over year with continued strength on higher average balances.
Jim Mitchell: Across FIC and equities financing revenues rose, 10% in 2023, consistent with our priority to grow client financing.
Jim Mitchell: Moving to asset <unk> wealth management on page 14.
Jim Mitchell: For 2023 revenues of $13 $9 billion rose, 4% year over year.
Jim Mitchell: As an increase in more durable revenues, including record management and other fees and record private banking and lending revenues offset a decline in equity investments revenues and incentive fees.
Jim Mitchell: Fourth quarter management, and other fees of $2 $4 billion were up 9% year over year.
Full year management and other fees were $9 5 billion.
Putting us on track to hit our $10 billion target in 2024, notwithstanding the sale of our PFM business.
Jim Mitchell: Equity investments produced net revenues of $838 million higher year over year, driven by modest gains in our public portfolio versus losses in the fourth quarter of last year.
Jim Mitchell: Results in this line item also included a gain of $349 million from the sale of PFM.
Jim Mitchell: Moving on to page 15.
Jim Mitchell: Total firm wide assets under supervision ended the quarter at a record $2 eight trillion.
Jim Mitchell: Driven by market appreciation as well as strong net inflows across fixed income and alternative assets and representing our 24th consecutive quarter of long term fee based net inflows.
Jim Mitchell: Turning to page 16 on alternatives.
Jim Mitchell: Alternative assets under supervision totaled $295 billion at the end of the fourth quarter driving $571 million in management and other fees for the quarter and $2 1 billion for the year, surpassing our $2 billion target for 2024.
Jim Mitchell: Gross third party fund raising was $32 billion for the quarter and 72 billion for the year.
Jim Mitchell: As David mentioned third party fundraising since our 2020 Investor day now stands at over $250 billion.
Jim Mitchell: On balance sheet alternative investments totaled approximately 46 billion of which roughly 16 billion is related to our historical principal investment portfolio.
Jim Mitchell: In the fourth quarter, we reduced this portfolio by over $4 billion.
Jim Mitchell: Including sales of 3 billion of Cae's across over 40 positions, bringing reductions for the year to $13 billion.
Jim Mitchell: We continue to focus on exiting this portfolio over the medium term. So we don't expect portfolio reductions in 2020 for it to be at the same pace as in 2023.
Jim Mitchell: I'll now turn the platform solutions on page 17.
Full year revenues were $2 4 billion up 58% versus 2022.
Jim Mitchell: Net revenues of $577 million were up 12% year over year on higher consumer platform results amid growth in average credit card balances.
Jim Mitchell: As David mentioned, we reached an agreement with general Motors regarding our process to transition their credit card program to another issuer the impact of which was to move the loans to held for sale and released the associated loan loss reserves of approximately $160 million.
Jim Mitchell: We have no additional updates regarding our credit card partnerships at this time.
Jim Mitchell: On page 18 firm wide net interest income of $1 $3 billion in the fourth quarter was down 13% relative to the third quarter, reflecting an increase in funding cost supporting trading activities.
Jim Mitchell: Our total loan portfolio at quarter end was $183 billion modestly higher versus the third quarter, reflecting an increase in other collateralized lending, which includes the pools of signature bank's capital call facilities. We wanted auction in October.
Jim Mitchell: Our provision for credit losses was $577 million.
Jim Mitchell: In relation to our consumer portfolio provisions were driven by net charge offs and seasonal balance growth, partially offset by the G. M Reserve release I mentioned.
Jim Mitchell: For our wholesale portfolio provisions were driven by impairments that were generally in line with the last two quarters.
Jim Mitchell: With roughly half related to CRE.
Jim Mitchell: Let's turn to expenses on page 20.
Jim Mitchell: Total operating expenses for the year were $34 5 billion.
Jim Mitchell: Excluding severance related costs of $310 million compensation expense was flat year over year.
Jim Mitchell: Amid solid core performance and as the market for talent remains competitive.
Jim Mitchell: As of the fourth quarter, we achieved our goal of 600 million in run rate payroll efficiencies, which allowed us to continue investing in our talent.
Jim Mitchell: Quarterly non compensation expenses were $4 9 billion and included CIA impairments of $262 million.
Jim Mitchell: The year over year increase in non comp expenses was driven by the FDIC special assessment fee of $529 million.
Jim Mitchell: Our effective tax rate for 2023 was 27% for.
Jim Mitchell: For 2024, we expect a tax rate of 22% to 23%.
Jim Mitchell: Turning to capital on Slide 21, our common equity tier one ratio was 14, 5% at the end of the fourth quarter under the standardized approach.
Jim Mitchell: 50 basis points above our current capital requirement of 13%.
Jim Mitchell: In the fourth quarter, we returned $1 9 billion to shareholders, including common stock repurchases of $1 billion at an average price of $311.
Jim Mitchell: And common stock dividends of $922 million.
While we expect to remain nimble with respect to capital return given the ongoing uncertainty around the Basel III proposed rule, our capital management philosophy is unchanged, we prioritize supporting client deployment opportunities sustainably growing our dividend and returning excess to shareholders in the form of buybacks, particularly when valuation levels are attractive.
Jim Mitchell: In conclusion, we made solid progress on narrowing our strategic focus in 2023 with our execution driving a much stronger platform for 2020 for our best in class core businesses are well positioned to execute on our strategic objectives. We will continue to harness one Goldman Sachs to serve our clients with excellence run World class.
Jim Mitchell: Differentiated and durable businesses and invest to operate our businesses at scale. Additionally.
Additionally, the execution focus areas. We've identified for 2024 will help us drive the outcomes of delivering for clients our people and our shareholders with that we'll now open up the line for questions.
Speaker Change: Thank you, ladies and gentlemen, we will take a moment to compile the Q&A roster.
Speaker Change: Well go first to Glenn Schorr with Evercore.
Hi, Thanks very much.
Glenn Schorr: So wanted to get a.
Glenn Schorr: Mark to market, you, you've been rightfully cautious, but optimistic on green shoots becoming reality in investment banking.
Glenn Schorr: Definitely saw some momentum in the fourth quarter. So curious.
Glenn Schorr: And you mentioned that the pipeline is up quarter on quarter. So maybe just differentiate between what you're seeing on the corporate side for sponsor side.
Glenn Schorr: And just get the mark to market on how you're feeling.
Speaker Change: Sure sure Glenn I mean, just sort of a base level.
Glenn Schorr: Yeah, I'm pretty optimistic given the way we've got the firm positioned and Theres No question that these capital markets and M&A activity levels.
Glenn Schorr: It had been depressed as I've said before I don't think that continues you know year on year on year, and we really started to see in the second half of this year real improvement as Dennis highlighted.
Glenn Schorr: The M&A backlog, so really strong replenishment and improvement in the fourth quarter and I just highlight I know, there's the obvious but I think it's worth stating we put up a $1 billion of M&A revenue. If if the backlog is growing that means we got to replace the 1 billion that we put up plus that have growth. So that's a very very strong.
Glenn Schorr: Management I would just say the level of strategic dialogue.
Glenn Schorr: Has definitely increased and we're seeing it across our platform.
Glenn Schorr: I'm encouraged by capital markets activity I'm, not going to say, it's running back to you know 10 year averages right away, but it has materially improved I do think youre going to see some more meaningful ipos in 2024, and we are just across debt and equity issuance seen more activity more engagement.
Glenn Schorr: At the end of the day people had done a lot of funding that takes them out for a period of time, but they've got to start thinking about their capital structures and accept the reality of the market and we're seeing that come through.
Glenn Schorr: So when I look broadly.
Glenn Schorr: It feels better.
Glenn Schorr: A lot going on in the world and so I think one of our jobs is to always be a risk manager and worry.
Glenn Schorr: 98% of the time about the 2% of things that can go that can go wrong.
Glenn Schorr: We're going to continue to take a cautious a cautious view and.
Glenn Schorr: In terms of the overall operations of the firm, but I do think the farmers incredibly well leverage this pickup in it feels better is the way I'd frame it.
Speaker Change: Alright, cool, maybe just a follow up on that node.
Speaker Change: Reducing the on balance sheet investments as you mentioned is an important part of the ROE improvement for us in wealth and for Goldman overall, so with that said the markets are higher of pipelines better.
Speaker Change: How come the balance sheet reduction of on balance sheet investments might be slower. This year. When the intent I think is to get rid of all of it at the right price.
Speaker Change: Yeah, I I you know first of all I think we've made a lot of progress last year and so if you look at what we what we accomplished I think what we accomplished last year was pretty meaningful, especially given the environment.
Speaker Change: One of the things that happened is we pulled some stuff forward that we didn't expect to monetize in 'twenty in 2023 into 2023 and so.
Speaker Change: Be clear our focus is to get that to zero as quickly as possible if you're operating inside this firm in your operating in that business you feel enormous focus on reducing that as quickly as possible, but we want to make sure that we manage expectations appropriately we set out a clear target.
Over the next over the next three years to get to zero.
Speaker Change: My guess is we've got a good shot up we executed doing that quicker than that.
Speaker Change: Fair enough alright, thanks, David.
Speaker Change: Yes.
Speaker Change: Thank you we'll go next to Ebrahim <unk> with Bank of America.
Ebrahim: Hey, good morning.
Ebrahim: Just wanted to spend some time on Oh.
Ebrahim: On the Fig business, so if I'm looking at the right numbers. It feels like six revenues are now back to pre Covid levels. If you go back to <unk> 19, maybe if you can unpack it just looking at slide 13, it seemed like most products.
Ebrahim: Light week.
Ebrahim: Give us some perspective around that bought into the intermediation piece of FIC.
Ebrahim: Does that feel like we are close to trough and unlike season that seasonal seasonality, we should see some improvement in FIC from area. If you can just provide some perspective there.
Speaker Change: Sure I mean at a high level.
Speaker Change: What I would what I would say this quarter intermediation activity was quiet and particularly in the back half of the quarter kind of late November and December.
Speaker Change: Science were quiet.
Speaker Change: If you look at the whole year I don't think it's there I don't have the numbers in front of me, but I don't think it's the.
Speaker Change: It's fair to say the whole year is back to 19 levels.
Speaker Change: Overall, the overall activity levels were up and down during the year, we have a big diversified business.
Speaker Change: When our clients are active we execute on it we continue to grow the financing revenues, which make it which make it overall more durable.
Speaker Change: But it was a quiet quarter, particularly the back half in terms of intermediation I don't expect it to continue at that pace I think Dennis his comments in the opening we're seeing more activity in the first few weeks of the year, but we'll watch it and as you know that activity, particularly in that segment can move up and down based on what's going on in the macro environment.
Speaker Change: Got it and maybe just sticking to fake or maybe both FIC and equity on the financing side. If you don't mind reminding us of the opportunity to grow financing over the next year or with the medium term. Thank you.
Speaker Change: So thanks Ebrahim. So we've been clear over the last several years that we see opportunities to grow both FIC and equity financing and it's a virtuous activity for us it dovetails well with our focus on clients and our focus on market share we have a lot.
Speaker Change: Expertise in this space and we see a lot of demand from clients for us to deploy both into FIC and equities are we now have leading equities franchise overall, our equity financing business is in a leadership position and at scale. It has grown significantly and we continue to see opportunities to.
Speaker Change: Increase the activities that we do with our existing clients and bring new clients on the platform. So we look out into 2024 and 2025 we.
Speaker Change: We continue to be very focused I think there's good opportunities across both thick and equity financing in GBM.
Speaker Change: Thank you.
Speaker Change: We'll go next to Brennan Hawken with UBS.
Brennan Hawken: Mr. Hoffman. Please go ahead your line is open.
Brennan Hawken: Alright.
Jim Mitchell: Sorry about that thanks for taking my questions. This morning. So I was curious about the the impact that we should be thinking about around the potential exit from the Apple relationship.
Jim Mitchell: I know, it's an ongoing thing, but maybe is there anything that you could provide that might help us think about how that impact could flow through.
Speaker Change: Dennis Dennis said in his comments, we got no other updates on the credit card partnerships other than what he stated we continue to work with Apple on our partnership with them to serve our customers and to continue to reduce the drag from the partnership and we continue to make good progress on the drag in 2024 will be.
Speaker Change: Really less.
Speaker Change: Okay.
Speaker Change: I appreciate that and then when you think about the deposit.
Speaker Change: Platform Marcus.
Speaker Change: That's been a pretty.
Speaker Change: Bright spot on the consumer front and definitely seems to have worked well what has been your views or how is the beta on that deposit base played out versus your expectations and do you have any plans to adjust.
Speaker Change: Your thoughts around you know earlier, you talked about wanting to be in the top decile of payouts for that product is that still the goal or has that adjusted <unk> as the platform has matured.
Speaker Change: Sure Brendan. Thank you for that question are our Marcus deposit platform has been a real strategic advantage to us in terms of overall firm wide funding. We did set out a strategy to set our pricing at the higher end of the pricing envelope to.
Speaker Change: <unk> sustain and grow our balances across that platform, we haven't adjusted our strategy at this point, we saw good growth across our various strategic deposit funding channels last year, not just markets overall deposits were up over $40 billion on the year and I would just say as we move into 2024.
Speaker Change: We continue to focus on driving growth across the strategic channels.
Speaker Change: And be thoughtful about our overall, our overall funding mix.
Thank you we'll go next to Mike Mayo with Wells Fargo Securities.
Speaker Change: Okay.
Mike Mayo: Hey, David you start off the call, saying that 2023 was the year of execution and that fear when you had in our area, 8% and we throw in some of the charges, it's 10% and that's not really executing at your 15% or so desired return. So can you give.
Let's say kind of waterfall chart and words on how you get from that core 10% ROE to 15% and if you can define medium term.
Sure.
Speaker Change: I appreciate the question, Mike and obviously, we're very focused on it.
You know it wasn't it wasn't in a environment for our core business in fact, I don't even think it will be environment and investment banking is operating at low levels.
Speaker Change: You know that has an impact overall.
I do think that it's important to look at our core business of banking and markets, which is a very significant portion of the firm and do note a fully allocated basis in this environment, which was not a.
Speaker Change: B plus M&A environment, given the investment banking activity and had a 12% ROE we continue to believe through the cycle, but that business as a mid teens business.
And so you know I don't think we're going to stay at the level of activities that we've been at and we have that business positioned very well and so you'll get some upside in returns they're in a better environment.
Speaker Change: And then secondarily on asset wealth management, we continue to reduce the balance sheet. The balance sheet has been a drag on returns, but I think we've been pretty clear that we can drive the asset wealth management with a smaller balance sheet to mid teens returns or better with a 25% margin. We're on that journey, we're making progress I think we'll make very good progress over the.
Speaker Change: Two years.
Speaker Change: And if you look at those two businesses.
Speaker Change: The vast vast majority of the firm and I think they can operate mid teens, we've significantly reduced the other drags we got a lot of it behind us in this year that doesn't mean, there won't be anything but the drag from platforms in 2024 will be materially reduced from what it's been and so I think we're making good progress in the medium.
Speaker Change: Term is over the next couple of years provided.
Speaker Change: It's a it's a provided.
Speaker Change: But it's a reasonable environment and so I think you'll see good progress.
On the overall positioning of the firm over the next three to five years.
Speaker Change: And then just to follow up that other drag you said would be a lot less in 'twenty 'twenty four from platform solutions.
Speaker Change: You dimension that a little bit and also as it relates to principal investments due to a higher stock market, how the disposition or not so much.
Speaker Change: They absolutely do I mean when markets improve they help the disposition. There's no. There's no question I also when you look at the last two years, we've had real headwinds in terms of.
Revenue against the balance sheet.
Speaker Change: You know that we could have more of that but on a much smaller balance sheet in 2024 with a better market you actually might have some benefit.
Speaker Change: The revenue performance, but we're focused on reducing that broadly.
Speaker Change: You see you have more transparency now the platforms as we continue to.
Speaker Change: Close on Green Sky move GM to held for sale and so you have more transparency on that we think the drag will be significantly reduced in 2024, when we're comfortable providing more specific color on that we will provide it.
Speaker Change: But small the overall context of Afirma the firm's performance yes.
Speaker Change: Okay. Thanks.
We'll go next to Devin Ryan with JMP <unk> with JMP Securities.
Thanks, So much David you've got us.
Devin Ryan: Question, just on kind of interplay between.
Devin Ryan: A recovery in investment banking versus trading intermediation, and I know, there's probably a lot of assumptions need to go in here, but if you think about kind of an environment with macro conditions, settling down which would likely support investment banking I'm, assuming some areas of trading could also slow down.
Devin Ryan: Maybe other areas could pick up as well so just love to maybe hear a little bit about kind of the puts and takes kind of what you've seen historically there easier.
Devin Ryan: And just really kind of the key question is whether you can grow investment banking revenues and trading ex financing.
Devin Ryan: <unk>.
Speaker Change: Yeah. So we're not at a high level Devin I appreciate the question.
Speaker Change: Think we can continue to grow our financing activity given the scale and the size of the market where market activity is growing and we will normalize investment banking activity and obviously over time, given our position and.
Speaker Change: And if you assume growth in the world growth and market capital World. We will continue as we have for the last 25 to 35 years grow our investment banking activity.
Speaker Change: When there is when there's real disruption in the world, we find that it can be a little bit counter cyclical in some way shape or form, but that's not the same as saying the normalization of investment banking activity. It means a slowdown in intermediation of market activity.
There's a lot going on in the world.
Speaker Change: Hi.
Trajectory of rates, there's a point of view on rates and inflation.
Speaker Change: But it's certainly not certain to me I think people are going to be active as they adjust to the environment. There is debates about how the fed continues on its quantitative tightening or doesn't continue on its quantitative tightening. It. So all of this I think will continue to play into people being active in market. So I do think just at a high level look this is a high level.
I think the environment in 2024, it feels like it will be better for our mix of businesses that it wasn't 2023.
Speaker Change: I'm not a good predictor and we're prepared to operate whatever environment, we have to operate it.
Speaker Change: Got it.
Understood and I appreciate that David maybe a quick follow up for Dennis.
Speaker Change: Commercial real estate clearly a big headwind in 2023 I appreciate all the disclosure.
Speaker Change: Their office.
Speaker Change: Balance sheet only billing dollars now so one when you think about just the environment.
Relative to current marks yeah, how do you feel about kind of the pain being behind the company.
Speaker Change: And just characterize the environment, where maybe you're there still could be material marks and then just more broadly kind of expectations for marks as you exit the historical CRE.
Speaker Change: On balance sheet principal investments thanks.
Speaker Change: Sure Devin Thank you.
Speaker Change: And as you know we've we have.
Speaker Change: New disclosure last couple of quarters on CRE in particular.
Speaker Change: The nature of the loans in that sector, and then as well as the on balance sheet, both CRE and office in particular.
Speaker Change: You can obviously see from those disclosures we've made substantial progress move.
Speaker Change: Moving down the positions over the course of 2023 gave disclosure on the.
Speaker Change: Number of Cie positions that we move down recently and we've made really significant progress we've disclosed on prior calls and at our office exposure from an impairment and marks perspective, we're sitting at roughly 50%. So we think that based on the visibility that we had and the activity that we had over the course of 2023 that that portfolio.
Speaker Change: And the broader portfolio for that matter sits at the right place as we move into 2024.
Speaker Change: You know there should be opportunities for further further dispositions and will remain.
Speaker Change: We focused on what the mix of that disposition activity as well.
Speaker Change: When David was reviewing our expectations with respect to H B I sell down on the forward. In addition to moving towards our medium term target. We're also mindful of what the long term franchise impact of those sell down activities are so just to give you a sense for why we may have cautioned on pace, we have some meaningful credit.
Speaker Change: Exposures, where we enjoy a position of incumbency and for the long term benefit of the franchise, we very much hope that will remain as a lender and a supporter of those clients to exit those positions in advance of a potential refinancing would be the surrender, our incumbency position and so we're being thoughtful so that we can continue to reduce our risk while continuing to grow the third.
Speaker Change: Party Fund management business, while supporting clients in the process.
Speaker Change: Great. Thanks, so much.
Speaker Change: Okay. Thank you we'll go next to Ryan Kenny with Morgan Stanley.
Devin Ryan: Hi, Good morning, Thanks for taking my question. So you highlighted in the prepared remarks Goldman surpassed your fundraising target in alternatives and so as we look forward can you give some more color on your strategy to grow particularly in private credit.
Devin Ryan: Update on how big you expect to get in private credit how it compliments, our DCM and wealth franchises and maybe any risks that we should be thinking about would be helpful. Thanks.
Speaker Change: Sure sure I appreciate the question, it's obviously something Ryan were very very focused on.
Devin Ryan: We we feel good about the fundraising progress we've made I think when you look forward in 2024, you could expect us to raise another $40 billion to $50 billion of alternatives. We're obviously very focused on private credit we do operate at scale in private credit we have over $110 billion of private credit, but I think the opportunity.
For us to continue to grow in scale in private credit, especially given the way our franchises position and the origination connection we have with our broad banking business gives us a unique platform and a unique competitive advantage. So we're going to continue to keep this focus.
It doesn't stop because we met our goal our goal was meant to frame the opportunity set three and a half years ago, but youll see us continue to raise money on a year to year basis, and we've got some big funds that we're going to be in the market with in 2024, and we will continue to build the partnerships with our client base and both myself, John Waldron and the broad team across our asset.
Devin Ryan: Management Division are spending a lot of time with the big capital Allocators, all over the world and continuing to invest in those relationships.
Devin Ryan: And then Basel and game comment letters are due today. So now that you and other G. Sibs at that time to Digest. The proposal could you give us an update on how Goldman My plan to adapt if the potential final rule comes through and how the proposal might impact your 15% to 17% through the cycle ROTC target.
Speaker Change: Sure well, obviously today Mark at the end of the comment period, and what I would say, it's certainly not the end of the process. In fact, I would say, it's the end of the beginning of the process.
And so we're moving into the next phase and continue to be highly engaged with regulators and the broad set of government stakeholders, given our significant concern with the proposed rules.
Speaker Change: Youll see comment letters from us from our peers, you'll also see many letters from end users, including pension funds.
Speaker Change: Sharp companies corporates, who are particularly concerned about how this rule.
Speaker Change: Could affect their access to capital and the ability to ensure and mitigate risks in their business.
And I think this is really rooted in the fact that the magnitude of these proposed changes would be felt.
Speaker Change: Beyond the banking industry and also I think disadvantages. The U S from a competitive perspective, so to be clear you know my view is the rule was not proposed appropriately and it should be withdrawn and re proposed.
Speaker Change: I don't think speculating on the impact of the rule as proposed I think there's a pretty significant view out there that the fed is listen carefully they are taking and the feedback I don't.
Anyone that's looking into the base case that this is going to move forward as proposed.
We're very flexible with our capital as I've said before.
Speaker Change: The rules put certain changes in place will also adjust businesses or pricing businesses and certain activity to adapt I think to speculate.
Speaker Change: As to how we'll talk about this once it's in place before we have any idea of what the world's going to look like it's premature, but we've got a lot of capital flexibility and we've proven over time, we can be particularly nimble. So we'll continue to focus.
Speaker Change: Great. Thank you.
Speaker Change: We'll go next to Dan Fannon with Jefferies.
Daniel Thomas Fannon: Hi, Thanks, Good morning, as you think about your efficiency targets, what's a reasonable level of growth for non comp expenses. Excluding obviously all the one timers this year and maybe what the areas of investment are priorities. When you think about 2024.
Speaker Change: Thanks, Dan So the efficiency ratio is something we are laser focused on we continue to orient the firm to drive towards our 60% target you mentioned the impact of selected items. If you take the impact over the course of 2023, you know the efficiency ratio would have been.
Speaker Change: More like 65%, that's at least not where we want it to be but significantly better.
And then the than the fully reported number we have a number of initiatives across the firm to get after our non compensation expense. We had a very structured process. We implemented once we put out some of the efficiency targets at the end of last year rigorously marking to market our business plan and our execution against that over the course of the year. There's a we have a ton of different categories.
We're in the process of reviewing each and every category of our non compensation expense benchmarking. It reviewing kpis thinking about our processes incentive structures governance things that we can do to continue to drive that expense as.
Speaker Change: As efficiently as possible, we do see an impact of inflation across these activities and it's for that reason that we need to implement the types of processes to mitigate those impacts and manage it as closely as possible I think as we look into 2024, if you take a look at the disclosure around selected items, we don't expect.
Speaker Change: Those types of activities to repeat it.
Speaker Change: We'll be very very.
Speaker Change: We remain very very focused on maintaining our overall non comp expense spend and the other component of the efficiency ratio is obviously compensation expense.
And you saw that over the course of this year, we maintained our pay for performance orientation with respect to how we size that and you should expect to see.
Speaker Change: I'm on the board and the 2024 that is obviously a performance based and variable component of our overall expense, but also a number of other items within our expense base that are variable our largest items will compensation as well as transaction expenses are variable. So we will have to see how the types of activities on hold into 2024, and what the mix of our activities are.
Speaker Change: To ultimately determine where we land on an aggregate expense based on an efficiency ratio.
Speaker Change: Great. Thank you and follow up on wealth management, you disclosed 40% of the alternative inflows in 2019 have come from the wealth channel.
Speaker Change: Just curious if that was consistent throughout that time period, and whether you view that level of.
Speaker Change: <unk> contribution as sustainable and also just the economics the Goldman Sachs. How it differs between that 40% of the wealth in the 60% externally how does that what's the difference in revenues.
But at a high level that comment is you know looks over the past four years, we've grown our asset management business asset and wealth management business and it highlights the alternative raising over that period. This initial period of investment what the mix has been between wealth.
Speaker Change: Institutional client base or other channels like third party wealth.
Speaker Change: Retail et cetera.
Speaker Change: When you look at our strategy Dan We if you go back 20 years, most of our fund raising for these activities came from our private wealth channel in the percentage of the money. We managed was much higher than 40% from private wealth. So as we continue to invest in broad institutional partnerships and the pension <unk>.
Speaker Change: The entity with sovereign wealth community areas, where historically, we had not raised a lot of alternative funding that percentage of wealth funding will probably decrease but I'm not going to speculate exactly where it'll go.
Speaker Change: At scale, the economics associated with all of these alternatives are extremely attractive.
Speaker Change: They are attractive in the private wealth channel and they are attractive and our institutional partnerships because I think you all know theyre not exactly identical.
Speaker Change: And people that allocate orange, our partnership with you and Alex you $10 billion definitely have a different economic proposition than somebody that's giving you a $50 million or $100 million and that's been consistent in the business for a long long time. So we're continuing to scale. The business, we have real margin targets. The business I think we've got lots of opportunities.
Speaker Change: And we're still in the early stages of using the platform of Goldman Sachs to cement and invest these broad distribution channels for the benefit of our scale asset wealth management platform and I'm confident we'll continue to make good progress.
Speaker Change: Great. Thank you.
Speaker Change: Thank you we'll go next to Matt O'connor with Deutsche Bank.
Matt O'connor: Good morning.
Matt O'connor: All the uncertainty on the capital rules.
Matt O'connor: First earlier purchase in the near term how do you think about cap allocation. We are obviously continuing to live until financing, which is capital intensive depending on how banking and his banking comes back that can consume capital.
Matt O'connor: And then just touch on interest in bolt on deals and then obviously.
Matt O'connor: <unk> was pretty solid in twenty-three. Thank you.
Speaker Change: I'll I'll start Dennis might add some comments.
We've always said that when theres activity to.
Speaker Change: To support our clients that's our primary focus on where we can allocate capital we've increased the amount of capital allocated to our franchise our client franchises over the course of the last five years and I think one of the reasons why our big broad global banking and markets franchise has performed on a relative basis in different environments. The way. It's performed is we've been very.
Speaker Change: Very focused on making sure we have the capital and the financial resources to serve our client base well.
Speaker Change: Where we see opportunities we will continue to deploy capital there that's in our broad capital planning program, we do generate a lot of capital from earnings.
Speaker Change: And to the degree that we don't see opportunities to deploy it with our clients. We will return it to shareholders with the ball, but we're taking a more conservative posture around that just given some of the some of the.
Speaker Change: Certainty around Basel, III and game, although again I think that's going to continue to evolve and I also think we have a long long track record of being very very nimble with our ability to deploy so we're going to continue to focus on making sure. We've got the right resources to serve our clients.
Speaker Change: As we generate capital we have confidence in our capital position, we will return capital to shareholders and we've been very focused as you've seen on growing the dividend that we plan to continue to do that.
And then just separately following up on the exit of legacy on balance sheet principal investment is.
Speaker Change: Is there an expense reduction opportunity of those without smoking somebody infrastructure goes away over time.
Speaker Change: There is a.
Speaker Change: There is a there's an operating leverage story, which is one of the reasons why the margin in our asset management business will continue to approve when you were running we were running a balance sheet business with lots and lots and lots of our balance sheet position. The number of people that you need to manage those positions and serve those positions.
Speaker Change: That business at scale differently than a traditional fund management business that you would see on someone else's alternative platform and so we're early in the journey I just get a simple example, we went out last year year, and a half ago and raised our first growth equity fund.
Speaker Change: We used to do that business on balance sheet, we have lots and lots of physicians and therefore.
Speaker Change: Very broad team to service that we've raised our first fund you need a smaller team to manage that fund, but when you go and you raised your second one you don't need to increase the scale of the team and so there's real operating leverage and that's part of our margin improvement story and asset and wealth management over time. So the answer is yes, I don't want to overstate this because it's not.
Speaker Change: It's not a massive part of the story, but it is a place we have some operating leverage and improvement as we continue to move from balance sheet into fun for them.
Speaker Change: Okay. Thank you for the color.
Speaker Change: Thank you we'll go next to Gerard Cassidy with RBC.
Gerard Cassidy: Good morning, David Good morning, Dennis.
Gerard Cassidy: David in your morning Indra.
Gerard Cassidy: In your prepared remarks, David you were talking about I think it was slide five or six but.
Gerard Cassidy: The success in growing.
The relationships with those top 100, and the equity clients and you identified that the sick and the equity financing contributed to the success and that's been a real hallmark for you guys over the last two or three years the growth in that business can you dig down force and share with US what is attributed to the successes at the capital you put into that.
Gerard Cassidy: As is the hiring of additional folks are people in the business and as well as competition is the competition been more challenged in some of your competitors are all credit Suisse of course is how long are around but if you could give us a little more color on what's driving the success.
Speaker Change: Sure Gerard at a high level I would point to a couple of things, but I'd start with the fact that that business is a scale business that we happen to be in the privileged position of being one of a handful of firms that really does operate those businesses at scale.
Speaker Change: And I think that's just important as a baseline, but I think there are a handful of things that we've done.
Speaker Change: Well first.
Speaker Change: <unk> ethos. If you go back historically, we operated these businesses much more in silos with much less coordination across broad broad client experience.
And clients would come into the farm in different places and get different experiences.
Speaker Change: And we spent a lot of time. This goes back to 2019 really thinking about how do these clients experienced the firm and we went out we talk to them, we listen to their feedback they really wanted to deal with the firm as a partner one partner I think we've made through one GFS and that ethos real progress in dealing with these very large clients in this business.
Speaker Change: And an integrated approach that improve their experience because it's improved their experience they feel more partner like with us and therefore, that's improved our wallet share.
Speaker Change: Generally we become a much bigger financer of their activities and when you finance their activities, you'll get rewarded in other ways through the through the ecosystem.
Speaker Change: Number three we've also tried to really take the same way, we have with investment banking clients.
Speaker Change: For a long view a very.
Speaker Change: A long term approach to transacting with them they need our help sometimes with things that aren't that economically.
Speaker Change: Attractive we want to be there. If you do that you do that consistently you wind up getting opportunities that are more attractive and so I think those three things combined with our scale platform have really helped us when we look at our wallet shares we continue to spend a lot of time, John and I spend a lot of time and Dennis too talking to these clients. In addition to the people running the business asking for there.
Speaker Change: Their feedback.
Speaker Change: And as we get that feedback, we'll continue to make adjustments to make sure. We can serve them with with real excellent and as you saw from the presentation that we put up one of the things that we're really focused on is how our <unk> operating ethos allows us to serve our clients with excellence and distinction, it's a big Big Canada, what we're trying to do.
Speaker Change: Very good and then I know you've talked about the pipelines and your comments about what we might be able to see and do you see them in other areas. This year.
Speaker Change: Can you also give us a little flavor on what parts of the since you're obviously, a global force what parts of the Globe are you seeing the best potential is that the Americas Europe or is it here.
Speaker Change: Well it at scale.
Speaker Change: The Americas is the biggest part of the activity level and just given the resilience of the U S economy, I think you've seen a material pickup they are proportionally that's broader than other places, but we are seeing.
Speaker Change: We are seeing more activity across Europe, particularly strategic dialogue I would say the one place where things are slower obviously is in Asia with respect to China and just given the nature of economic activity. There were things that position that still seems slower both about the M&A side and the capital market side.
Speaker Change: But those are those are comments that maybe at a high level driver.
Speaker Change: Thank you I appreciate the insights thank you.
We will take our next question from Steven <unk> with Wolfe Research.
Steven: Thanks, Good morning, David Good morning, Dennis.
Steven: So wanted to ask a couple of questions about comp leverage in operating margins and maybe just to start off Dennis you noted the adjusted efficiency ratio.
Steven: At 65% versus the reported figure in the mid seventies, when we try to adjust for various items at least in the public disclosure it looks like the core or adjusted efficiency somewhere in the upper <unk> and I was hoping you could maybe just help us reconcile some of the different items to get down to that.
Steven: 65% figure and whether that's the appropriate jumping off point that we should be thinking about as we look ahead to 'twenty four.
Steven: So I'd say I think the the 65% is a good jumping off point for 2024 and as the business evolves from there as I indicate.
Steven: A prior question, we have to ultimately be mindful of the mix of the business that comes into the firm certain of our activities attract different degrees of transaction based and other expenses as we prosecute those activities and so we will have to be mindful of what the ultimate business mix looks like we'll have to be mindful, obviously, what the ultimate scale and magnitude of the activities is.
Steven: As we roll forward in 2024, I think on the compensation side of the equation.
Steven: You noticed our disclosure that was roughly flat on a year over year basis, our revenues net of PCL on the year were up 1%.
Steven: Compensation roughly flat, we observed that we thought that the performance of our core businesses was solid and we had a year of significant execution activity and we want to make sure that we're in a position that we have the talent in place to deliver for clients as we look forward in the 24 with a bit more optimism for what types of activity we could see.
Steven: In terms of trying to get a handle on the selected items and the degree of of.
Steven: Repeat potential you know most of those are pretty discrete items associated with the exit of activities and the one off FDIC Special assessment, one area will continue to manage carefully as an <unk> as we continue to manage down the balance sheet as we've discussed.
Speaker Change: That's great and just for a follow up.
Speaker Change: Relating to the comments you just made Dennis on comp leverage specifically.
Speaker Change: It looks like the expectation is for revenues to grow about 4 billion. This year for the street. The comp dollars are expected to increase only about 600 million and you do have a good track record of different delivering incremental operating leverage our strong marginal margins, but I just wanted to get a sense, giving you were alluding to the fact that youre going to pay for talent.
Speaker Change: And youre going to compensate people appropriately that execute well on the platform. How we should be thinking about incremental comp leverage is an 85% comp margin a realistic expectation given where the revenue growth is ultimately going to come from.
Speaker Change: So Stephen I'll I'll make a comment David wants to make another one again as well we're very focused on driving operating leverage across the platform. We're also focused on driving scale across the platform.
Speaker Change: And Meanwhile, we're staying true to our mantra of pay per performance is what are people expect and it's one of the things that enables us to attract such exceptional talent and deliver excellence for our clients.
Speaker Change: The ultimate compensation payout relative to the results in 2024 really are going to come down to what the ultimate mix of those activities are and what we feel is the appropriate amount of compensation to reflect the performance of the team.
Speaker Change: Being mindful of talent retention service of clients as well as driving operating leverage and delivering results for shareholders.
Speaker Change: Alright Thats it for me thanks for taking my questions.
Speaker Change: Thank you. Thank you.
Speaker Change: We will go next to Mike Mayo with Wells Fargo Securities.
Mike Mayo: Hi, I was just wondering what you're going to do about the.
Mike Mayo: Our lead independent director, who I guess is no longer on your board bio.
Mike Mayo: I guess as.
Mike Mayo: Firm got purchased.
Mike Mayo: You need to get a new lead director is that someone from the board currently.
Mike Mayo: Outside Goldman Sachs, what type of person is the board looking for.
Speaker Change: So I appreciate the question Mike as you highlight at the end of last week.
Speaker Change: Biosolids business Blackrock buyers still is believed director.
Speaker Change: That deal won't close until.
Sometime in the third or fourth quarter.
Speaker Change: <unk> is the only director we have a governance process in place our board has met dominant the appropriate time, we will make announcements.
Speaker Change: As to the transition, but at this point other than the fact that because of the sale it will create a transition.
Speaker Change: I have nothing more to say other than buyers totally director.
Speaker Change: We will manage a transition in an orderly process and no surprises.
Speaker Change: Okay. So you would consider people outside of Goldman Sachs currently for that or.
Speaker Change: Well, we're always we're always adding we're always adding.
Speaker Change: People to our people to our board, Mike, but I'm not going to make comments, if I can make more comments about our governance process in how our board looks at this at the time.
Speaker Change: That the board takes action, we announced a clear transition I'll be happy to answer questions and talk about it.
Speaker Change: Alright, thank you.
Speaker Change: At this time there are no additional questions in queue, ladies and gentlemen. This concludes the Goldman Sachs fourth quarter 2023 earnings Conference call. Thank you for your participation you may now disconnect.
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