Q2 2024 The 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 Second quarter 2024 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 website and contains information on forward looking statements and non-GAAP measures.
Audiocast is copyrighted material of the Goldman Sachs Group, Inc, and may not be duplicated reproduced or rebroadcast without consent.
This call is being recorded today July 15th 2024, I will now turn the call over to the two chairman and Chief Executive Officer, David Solomon and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Sullivan you may begin your conference.
Thank you operator, and good morning, everyone. Thank you all for joining us.
I want to begin by addressing the horrible act of violence that occurred over the weekend. The attempted assassination of former President Trump.
We are grateful that he is safe.
They also want to extend my sincere condolences to the families of those were tragically killed severely injured.
It's a sad moment for our country.
No place in our politics for violent.
I urge people to come together.
Treat one another with respect stability.
Especially when we disagree.
Not afford division and distrust to get the better of us.
I truly hope this is a moment that will spur a reflection and action that celebrate celebrate what unites us as citizens and as a society.
Turning to our performance.
Our second quarter results were solid we delivered strong year on year growth in both global banking and markets and asset wealth management.
I am pleased with our performance, we produced a 10.9% ROE for the second quarter and the 12, 8% ROE for the first half of the year.
We continue to harness our one Goldman Sachs operating approach to execute on our strategy to serve our clients and dynamic environment.
Global banking and markets, we maintained our long standing number one rank in announced and completed M&A and ranked number two in equity underwriting.
Our investment banking backlog is up significantly this quarter.
From what we're seeing we are in the early innings of a capital markets and M&A recovery.
While certain transaction volumes are still well below their 10 year averages, we remain very well positioned to benefit from a continued resurgence in activity.
We saw solid year over year revenue growth across both FIC and equities is our global broad and deep franchise remained active in supporting clients risk intermediation and financing needs.
We continue to be focused on maximizing our wallet share and we have improved our standing to be in the top three with 118 of our top 150 clients.
And that's at wealth management, we're growing more durable management and other fees in private banking and lending revenues, which together were a record $3 $2 billion for this quarter.
Our assets under supervision had a record of $2 nine trillion and total wealth management client assets rose to roughly 1.5 trillion.
We delivered a 23% margin for the first half of the year and are making progress on improving our return profile with AWS.
In alternatives, we raised $36 billion year to date.
We completed a number of notable fund closings during the quarter, including $20 billion of total capital for private credit strategies, and approximately $10 billion across real estate investing strategies.
Given the stronger than anticipated fund raising in the first half of the year as well as our current pipeline, we expect to exceed $50 billion in alternatives fund raising this year.
This is a testament to our investment performance track record and intense focus on client experience we.
We are excited about the additional growth opportunities for our asset management platform.
Let me turn to the operating environment, which remains top of mind for clients.
On the one hand, theres a high level of geopolitical instability.
Across the globe could have significant implications for board policy and inflation has proven to be stickier than many had anticipated.
On the other hand, the environment in the U S remains relatively constructive.
Markets continue to forecast a soft landing.
As we expected economic Brooks trajectory improves and equity markets remain near all time highs.
I am, particularly encouraged by the ongoing advancements in artificial intelligence.
Recently, our board of Directors spent a week in Silicon Valley, where we spoke with the Ceos of many of the leading institutions at the cutting edge of technology and AI.
We all have to get a sense of optimism about the application of AI tools, and accelerating innovation and technology more broadly.
Proliferation of AI in the corporate World will bring with it significant demand related infrastructure and financing needs.
Should fuel activity across our broad franchise.
Before I turn it over to Dennis I want to cover a couple of additional topics that are top of mind for me.
First our recent stress test results.
Year over year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity.
Which the federal reserve had recognized in our last three tests.
Given this discrepancy we are engaging with our regulators to better understand its determinations.
Despite the increase in requirements, we remain very well positioned to serve our clients and we will continue to be nimble with our capital.
In the second quarter, we repurchased $3 $5 billion of shares which illustrates our ability to dynamically manage our resources and Opportunistically return capital to shareholders.
The increase in our repurchase activity, our common equity tier one ratio ended the quarter at 14, 8% under the standardized approach 90 basis points above our new regulatory minimum and above a ratio in the first quarter.
We also announced a 9% increase in our quarterly dividend, which underscores our confidence in the durability of our franchise.
Since the beginning of 2019, we have more than tripled our quarterly dividend to its current level $3 a share.
I'd also like to reflect on the significant milestone we hit in the second quarter.
Our 25th anniversary as a public company.
We have persevered through a number of significant global events, including through the dotcom bubble NASDAQ crash September 11th a financial crisis and the pandemic.
When I look back at how we overcame these challenges immediately think of our culture. One that has evolved no doubt, but always stay true to our core values I know that the preservation of our culture is paramount to serving our clients with excellence, maintaining our leading market position growing our businesses and continuing to attract and retain the most talented people.
In closing I am very confident about the state of our client franchise.
We are delivering on our strategy by leaning into our core strength and effectively serving clients in what remains a complicated operating environment.
Now, let me turn it over to Dennis to cover our financial results in more detail.
Thank you David and good morning.
Let's start with our results on page one of the presentation.
Dennis: In the second quarter, we generated net revenues of $12 7 billion and net earnings of $3 billion.
Nolting in earnings per share of $8.62 in.
Dennis: ROE of 10, 9% and then R O T E a 11, 6%.
Now turning to performance by segment starting on page four.
Global banking and markets produced revenues of $8 $2 billion in the second quarter up 14% versus last year.
Advisory revenues of 688 million were up 7% versus the prior year period.
Equity underwriting revenues rose, 25% year over year to 423 million.
Equity capital markets have continued to reopen.
No volumes remain well below longer term averages.
Debt underwriting revenues rose, 39% to $622 million amid strong leveraged finance activity.
We are seeing a material increase in client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity.
Our backlog rose significantly quarter on quarter, driven by both advisory and debt underwriting.
Net revenues were $3 $2 billion in the quarter up 17% year over year.
Intermediation results rose on better performance in rates and currencies.
Financing revenues were $850 million, a near record and up 37% year over year.
Equities net revenues were $3 $2 billion in the quarter up 7% year on year as higher intermediation results were helped by better performance in derivatives.
Equities financing revenues of $1 4 billion.
Down modestly from our record performance last year, but up 5% sequentially.
Taken together financing revenues were a record $2 $2 billion for the second quarter and a record $4 $4 billion for the first half of the year.
Our strategic priority to grow financing across both FIC and equities continues to yield results as these activities increase the durability of our revenue base.
I'm moving to asset <unk> wealth management on page five.
Revenues of $3.9 billion were up 27% year over year.
As David mentioned are more durable management and other fees and private banking and lending revenues reached a new record this quarter of $3 $2 billion management and other fees increased 3% sequentially to a record two and a half billion dollars largely driven by higher average assets under supervision.
Private banking and lending revenues rose, 4% sequentially to $707 million.
Our Premier Ultra high net worth wealth management franchise is roughly one in the half trillion and client assets.
This business has been a key contributor to our success and increasing more durable revenues and provides us with a strong source of demand for our suite of alternative products. A great example of the power of this unique platform.
We expect continued momentum in this business as we also deepened our lending penetration with clients and grow our advisor footprint.
Our pretax margin for the first half was 23% demonstrating substantial improvement versus last year and approaching our mid twenties medium term target.
Now moving to page six.
Total assets under supervision ended the quarter at a record of $2 nine trillion dollars.
Supported by $31 billion of long term net inflows largely from R. O C. I O business, representing our 26th consecutive quarter of long term fee based inflows.
Turning to page seven on alternatives.
Alternative a U S totaled $314 billion at the end of the second quarter, driving 548 million in management and other fees.
<unk> third party fundraising was 22 billion for the quarter and 36 billion for the first half of the year.
In the second quarter, we further reduced our historical principal investment portfolio by $2 $2 billion.
$12.6 billion.
On page nine firm wide net interest income was $2 $2 billion in the quarter up sequentially from an increase in higher yielding assets and a shift towards noninterest bearing liabilities.
Our total loan portfolio at quarter end was $184 billion flat versus the prior quarter.
For the second quarter, our provision for credit losses was $282 million, primarily driven by net charge offs in our credit card portfolio and partially offset by a release of roughly $115 million related to our wholesale portfolio.
Turning to expenses on page 10.
Total quarterly operating expenses were $8 $5 billion, our year to date compensation ratio net of provisions is 33, 5%.
Quarterly non compensation expenses were $4 3 billion and included approximately $100 million of Cie impairments.
Our effective tax rate for the first half of 2024 was 21, 6%.
For the full year, we continue to expect the tax rate of approximately 22%.
Next capital on Slide 11.
In the quarter, we returned $4 $4 billion to shareholders, including common stock dividends of $929 million and common stock repurchases of three and a half billion dollars.
Given our higher than expected FCB requirement, we plan to moderate buybacks versus the levels of the second quarter, we will dynamically deploy capital to support our client franchise, while targeting a prudent buffer above our new requirement.
Our board also approved a 9% increase in our quarterly dividend to $3 per share beginning in the third quarter.
A reflection of our priority to pay our shareholders, a sustainable growing dividend and our confidence in the increasing durability of our franchise.
In conclusion, we generated solid returns for the first half of 2024, which reflects the strength of our interconnected businesses and the ongoing execution of our strategy.
We made strong progress in growing our more durable revenue streams.
Including record first half revenues across FIC and equities financing.
Management, and other fees and private banking in London.
We remain confident in our ability to drive strong returns for shareholders, while continuing to support our clients.
With that well now open up the line for questions.
Thank you please standby as we assemble the Q&A roster.
Okay.
We will take our first question from Glenn Schorr with Evercore.
Hi, there thanks very much.
So I liked your forward leaning comments on the Ibs C pipeline and I and I think I heard you say the demand for committed acquisition financing is high.
Does that infer anything about us being any closer to an inflection point.
In private equity related M&A sponsor related M&A and then how much of that event. Thank you have as being maybe the big the only big Bank that has a full on private credit platform.
That for me, obviously, DCM platform and lending platform. Thank you.
Sure Good morning, Glen and thanks for the question.
Yeah.
There were forward leaning out our comments, because we definitely see momentum pick up but I just again want to highlight something that is definitely in my part of the script and I think Dennis amplified, which we're still despite the pickup we're still operating at levels that are still significantly below.
10 year averages and so for example, I think we've got kind of another 20% to go to get to 10 year averages on M&A one of the reasons that M&A activity one of the reasons that the only reason, but one of the reasons why M&A activity is running below those averages because sponsor activity is just starting to accelerate and so I you know I.
Think especially.
Especially given the environment that we're in that Youre going to see over the next few quarters into 2025 kind of a reacceleration of that sponsor activity, we're seeing it in our dialogue with sponsors and obviously, it's been way way below the overall M&A activity is kind of another 10, 20% to get to.
210 year averages, but the sponsor has been running below that and we're starting to see that increase now as that increases I. Just think the firms are incredibly well positioned given the breadth of both our leading position we've been top kind of one to three and what I'll call leveraged finance activity from a week.
Table perspective, and with the sponsor community, but we combine it with a very very powerful direct lending private credit platform and so I just think we're in a very very interesting position.
The size and the scope.
The companies that are out there that have to be refinanced recapitalized sold changed has the sponsors continue to look to distribute proceeds.
Due to their limited partners I think bodes well over the course of the next three to five years different environments, but the general trend will be more activity than we've seen the last two two and a half years.
I appreciate that maybe one quickie follow up on <unk>.
And in the prepared remarks.
Critical prepared remarks that real estate gains helped drive the equity investment gains in the quarter can you talk about how material. It wasn't what drove real estate gains during the quarter. Thanks.
Sure Glenn It's Dennis I think you know the important to take away from the year over year performance in the equity investment line is that in the prior year period, we actually had significant markdowns as we were sort of an early mover in addressing some of the commercial real estate risk across our balance sheet and the results.
That reflected in this most recent quarter do not have the same degree of markdowns as in the prior periods. So that is I think a large explain of the delta.
Thank you we'll take our next question from Ebrahim <unk> with Bank of America.
Hey, good morning.
Just wanted to spend some time on capital.
Post the SCB increase one maybe just from a business standpoint.
If you could update us whether the capital requirement changes anything in terms of how the film has been leaning into the financing business do you need to modulate the appetite there or.
Business as usual to one how does it impact the business and second Dennis your comments around buybacks moderating should we think more like one two levels of buybacks going forward. Thanks.
Sure Ebrahim. So a couple of comments I guess first important to observe that the level of capital that we're operating with a at the moment is reasonably consistent where we've been over the last several years. So we feel that at that level of capital and with the cushion that we have heading into the third quarter, which at.
90 basis points is that the wider end of our historical operating range. We have lots of capacity both to continue to deploy into the client franchise and with what we're seeing across the client franchise with backlog up significantly there could be attractive opportunities for us to deploy into the client franchise, whether that's new acquisition.
Financing is David was referencing or ongoing support of our clients across the financing businesses. We have the capacity to do that as well as to continue to invest and return of capital to shareholders. Given the $3 5 billion number in the second quarter. We thought it was advisable to indicate we would be moderating our repurchases, but we still do have capital.
<unk> ability and based on what we see developed from the client franchise, we will make that assessment will manage our capital to an appropriate buffer, but we're still certainly in a position to continue to return capital to shareholders.
Got it so assume no change in terms of how you're thinking about the financing business and just.
Separately in terms of sponsor led activity related all year for things to pick up is it is it a troubling sign that the sponsors are not able to monetize assets does it speak to it.
Inflated valuations of the accounting these assets just would love any context, there David if you could thank you.
Sure I mean I appreciate that I don't think it's I don't think it's troubling.
I wouldn't use the word troubling, but I do think that.
There are places where sponsors hold assets and their ability to monetize them at the value that they currently hold them.
That leads them to wait longer and keep the optionality to have that value compound at the same point, there's pressure from Lps to continue to turnover funds, especially longer dated funds and as they take that optionality to weight. The pressure just built in so I think we're starting to see a bit of an unlock.
And more of a forward perspective to start to move forward, except the valuation parameters.
And and move forward right I just think this is natural cycle and you're going to see a pickup in that activity for sure I'm, just not smart enough to tell you exactly which quarter and how quickly, but we are going to go back to more normalized levels.
Thank you. Thank you well go next to that.
<unk> <unk> with Morgan Stanley.
Hi, good morning.
Good morning, guys can you hear me okay.
Okay, sorry, I wasn't here.
Alright.
Oh.
Thanks, very much I did just wanted to lean in on one question regarding how you're managing the expense line as we're going through this environment because.
I mean, we've had this very nice pick up in in revenues and comp ratio is going up a little bit but I'm. Just wondering is this a signaling to hold for the rest of this year or is this just a one off given.
You know some of the puts and takes you mentioned on.
On deal activity earlier on the call.
Sure Betsy So if you look at year to date change in our revenues net of provision that.
That is tracking ahead of the year to date change in our compensation and benefit expense. We are sort of following the same protocol that we that we always do which is making our best estimate for what we expect to pay for it on a full year basis and doing that in a manner that reflects the performance of the firm.
As well as the overall competitive market for talent. So based on what we see we think this is the appropriate place to accrue compensation.
But we'll obviously monitor that closely as the balance of the year evolves.
Okay, and as we anticipate a continued pick up here and M&A given everything that you mentioned earlier.
<unk>.
I would think that that positive operating leverage that should be coming your way would you agree with that or right something wrong. There. Thanks.
So we are certainly hopeful that the business will continue to perform and that we will.
Grow our revenues in line with what the current expectation is based on backlog.
And we would love to generate incremental operating leverage if we perform.
In line with our expectations.
Alright, thank you.
We'll take our next question from Brennan Hawken with UBS.
Hi, good morning, Thanks for taking my questions.
You flagged Dennis the record financing revenue, which clearly shows momentum behind the business.
And.
It would be my assumption.
That given rates had been more stable for quite some time now seems to reflect balanced growth. So one I want to confirm that that's fair and could you help us understand how we should we think about rate sensitivity.
Speaker Change: It seems as though maybe a few rate cuts might be on the horizon.
Sure. Thank you Brendan so we.
We have been on a journey for several quarters and years in terms of committing ourselves to the growth of the more durable revenue streams within global banking and markets, we have our human capital and underwrite underwriting infrastructure setup in place we have relationships with a large suite of clients that are frequent users of these products the <unk>.
<unk> is very diversified bye bye.
By sub asset class and its a business that we are looking to grow on a disciplined basis, we've had an opportunity to deploy capital in a manner that is generating attractive risk adjusted returns that's something that we're going to remain mindful of but.
But we believe given the breadth of that franchise that we should be able to continue to support the secular growth that our clients are witnessing even as various rate environments should moderate.
Okay.
And then next question is really sort of a.
A follow on from from Betsy's line of questioning.
Year to date, you've got a 64% efficiency ratio.
When we take a step back and think about your targets and aspirations for that metric.
And in environment consider an environment that seems to be improving steadily.
How should we be thinking about margins on incremental revenue.
Could you could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio.
Sure. So thank you for that question and thank you for observing the improvement that we're seeing obviously our year to date efficiency ratio at 63, 8% is nearly 10 points better on a year over year basis still not at our target of 60%, but we are we are making progress.
As we continue to grow our revenues, we should be able to deliver better and better efficiency, but ultimately the type of revenues that we grow and the extent to which they attract variable or volume based expenses is a contributing factor.
But we do have visibility for example, as we continue to move out of some of our Cie exposures that we should be able to reduce some of the operating expenses associated with that and we do have a very granular process internally looking at each of our expense categories.
Granular basis, and trying to make structural improvements to drive efficiencies overtime, while we at the same time look to drive topline revenues.
Thank you and we'll go next to Mike Mayo with Wells Fargo Securities.
Yeah.
Hi, I'm just trying to reconcile all the positive comments with returns that are still you know quite below your target I mean, you highlight.
Revenue growth in global banking markets in wealth and asset management, you have record financing for equities and pick combine your number one in M&A record management fees and record assets under supervision. Your efficiency has gone from 74% to 64% increase your dividend by 9%. The second of all your confidence your CET one ratio.
90 basis points above even the higher.
Ted requirements. So everything you start David you start off the call, saying results are solid, but then you look at the returns and you say, 11% Roe.
In the second quarter, that's not quite the 15% where you want it to be so.
Where's the disconnect from what you're generating in terms of returns and where you'd like today. Thanks.
Yeah, Yeah. Thanks, Mike I. Appreciate the question look we're on a journey and you know.
The way I the way I look at it our returns for the first half of the year of 12, 8%.
There are I think there are couple of things you know give gets in that one for sure. We are still we still have a little bit of drag from the enterprise platforms, which we're working through and so that will come out and I you know at some point as we work through that over the next 12 to 24 months, we'll continue to make progress on that for the returns in the first half of the year.
<unk> would be a little higher ex that and then on top of that as we've said repeatedly on the call and if given a bunch of information we're still operating meaningfully below 10 year averages in terms of investment banking activity.
And I.
I think that'll come back I, obviously can't predict but if you look at the returns of the firm we have materially uplifted the returns of the firm and we're going to continue to focus on that now the next step.
So the puzzle is our continued progress in AWS. So.
And you can see the performance over the course of the last few years of global banking and markets, but we've said the AWS ROE is not where it needs to be you heard our comments about the fact that we've got the margin up to 23%, but the ROE is still around 10%. We think we can continue to grow the business as we've said high single digits. We can continue to improve the margin.
And ultimately bring up that AWS ROE and then you look across the firm and you have a stronger return profile. So I think we're making good progress we didn't say and have not sat or represented that we would be there at this point in time, but we're moving in a direction more work to do for sure.
But we feel good about the progress.
And I assume part of your expectation is a sort of multiplier effect when mergers really kick in.
Can you just describe what that multiplier effect could potentially look like based on past cycles.
Yeah, I wouldn't what I, what I would say is one of the things that should be a tailwind for further momentum in our business as a return to average levels I'm not sitting here, saying, we're going to go back to periods of time, where we went well above 10 year averages, but theres. Obviously, if we did get back to that period and there will be some point in the future where where we went above.
Average two notches below average.
We have a tailwind for that but as a general matter.
When there are more M&A transactions, whether with financial sponsors are big corporates. There is more financing attached to that people need to raise capital to finance those transactions they need to reposition balance sheets, they need to manage risks to restructure transactions and so there's a multiplier effect as those activities in Greece, we don't put out.
Multiplier on it but our whole ecosystem gets more active as transaction volumes increase on the M&A side.
And then lastly for your returns are.
The denominator is a big factor so how does that work with the fed I know you cant say too much and reasonable people can disagree, but your whole point is that you've derisked.
But the balance sheet and the company and then here we have the fed saying that maybe you haven't done. So so how does this process work from here what we hear results about the SCB ahead or is this something that's just behind closed doors.
Look as a general matter, what I'd say, Mike as a general matter. We're supporters of stress testing. We believe it's an important component of the fed's mandate to really ensure the safety and soundness of the banking system. However.
However, we have maintained for some time that there are elements of this process that may be distracting from these goals of safety and soundness a.
Stress test process as you just highlighted is a paid lacks transparency.
Tributes to excess volatility of the stress capital buffer requirements, which obviously makes prudent capital management difficult for us and all of our peers. We don't believe that the results reflect the significant changes we've made in our business, they're not in line with our own calculations. Despite the fact that the scenarios are consistent year over year.
Now despite all that we've got the capital flexibility to serve our clients will continue to work with that capital flexibility and will also continue to engage.
This process to ensure that over time, we can drive the level of capital that we have to hold in our business mix down, but obviously, we have more work to do given this result.
Alright, thank you.
We'll take our next question from Steven <unk> with Wolfe Research.
Hi, good morning.
Steven Joseph Chubak: So wanted to start off on the other question just okay.
I'll start with a question on the consumer platform fees. They were down only modestly despite the absence of the Green Sky contribution just wanted to better understand what drove the resiliency and consumer revenues, whether the quarterly run rate of $600 million is a reasonable jumping off point as we look out to next quarter.
So Steve. Thank you for the question I mean on a sequential basis, they're down but that's because we have the we have the absence of the green Sky contribution.
There actually is growth across the across the card portfolio.
I think the you've seen that the level of growth has slowed as we have sort of implemented several rounds of underwriting adjustments to the card originations and so our expectation is that on the forward.
You know the period over period growth should be more muted.
Understood and maybe just one more clarifying question I know theres been a lot asked about the STB.
Really just wanted to better understand that in essence, you noted that youre running with 90 bps of cushion, which is actually above normal just how you're handicapping the additional uncertainty related to Basel III end game.
There's certainly been some favorable momentum per the press reports and even some public comments from regulators, but just wanted to better understand given the uncertainty around both the STB and Basel III game, where you're comfortable running on the CET one basis over the near to medium term.
Sure Thanks, and I appreciate that question.
I think obviously, there's been a lot of a lot of change there's been some changes in expectations I think in highlighting that we are operating at the wider end of our range. It is the signal flexibility and certainly embedded in that is is to address some of the uncertainty, which does remain with respect to Basel III and game both the quants.
And timing of its resolution.
It sounds from some of the Paulos latest comments that that may not be something that comes into a fact until perhaps into 2025.
But we are sort of maintaining a level of cushion that think is appropriate.
Light of what we know and what we don't know about the future opportunity set for Goldman Sachs, but that buffer is designed to support clients return capital to shareholders, while maintaining a prudent buffer with some of the lingering uncertainty with respect to future regulatory input.
Speaker Change: Helpful color, Thanks for taking my questions.
Thank you. We'll go next we will go next to Devin Ryan with citizens J M P.
Yeah.
Great Good morning, David and Dennis a couple of questions on AWS progress. So the first one is on the <unk> business specifically in your tracking obviously well out of the fund raising targets relative to when you set the $1 billion medium term target for annual incentive fees and now with over five.
500 billion and I'll tell you I mean, and obviously growing that would seem pretty conservative so.
I appreciate there's a lot of work to do to generate the returns ahead here, but how should we think about the underlying assumptions for incentive fees in a more normal harvesting environment, just given the mix shift and the growth that you're seeing in AUM there.
So Devin I think it's a good question and I think we share your your expectation that that's going to be a more meaningful contributor on the forward we laid it out as one of the building blocks at our Investor day, the contribution coming through that line. Since then has been not as high as we.
We have modeled from an internal medium to longer term perspective, we do give good disclosure that the balance of unrealized incentive fees at the end of the last quarter were $3 $8 billion. So you can make various assumptions as to what the timing of the recognition of those fees are they can obviously.
You know bounce around from time to time.
It is a granular vehicle by vehicle buildup.
You know given given the current outlook and status of those of those funds that our best expectation of what level of fees could be coming through that line over the next over the next several years. So I think it is an important incremental contributor and should be you know should help the return profile of asset and wealth management on the forward.
All of that with the success that we're having with ongoing all its fund raising and that will help to feed future investments in funds, which in turn will generate some backlog of potential incentive fees above and beyond what's already in the.
The unrealized disclosures.
Yeah, Okay. Thanks Dennis.
Speaker Change: Follow up this is also kind of connected but.
At a recent conference you highlighted the margin profile of all the standalone businesses and asset and wealth management public.
Public peers, so kind of as a comparison and highlighted at 35% plus for all its in some of the public firms. We now are obviously well above that so I appreciate youre rubbing the AWS segment as one segment.
If all it does accelerate and.
We're looking at 60% of all say you isn't even fee, earning yet what does that mean for segment margins relative to kind of that mid 20% target because you're already at 23%. Thus far in 2004. So I'm just trying to think about the incremental margins coming from the acceleration in growth, particularly from the old segment as well.
So that's a good question Devin I mean, it it should be a significant unlock for us because despite the the breadth and the longevity with which we've been running our alts businesses.
There is significant opportunity for us to actually improve the margin profile of the <unk> activities in particular relative to the overall AWS margin, particularly as we develop incremental scale by strategy and so in addition to just overall growth in the segment, which should unlock margin.
<unk> actually within our portfolio of activities. The alts business again, despite its current scale presents a big opportunity for incremental margin contribution.
Great. Thank you.
We will go next to Dan Fannon with Jefferies.
Hi, Thanks, Good morning in terms of your on balance sheet investments you continued to make progress in reducing that this quarter can you talk about the outlook for this year or any line of sight in terms of exits that we can think about.
Sure. Thank you, obviously, an ongoing commitment of ours to move down those on balance sheet exposures also part of the equity and capital story and returns and in the segment.
At $2 2 billion for the quarter that was a decent a decent reduction we obviously have a target out there to sell down the vast majority of that balance which is now at $12 6 billion by the end of next year.
Our expectation is that we will continue to chip away at it across both the third and the fourth quarter of this year and then on into 2000 and twenty-five Theres really no change on our commitment to sell down.
The vast majority of that by the end of next year.
Understood and as a follow up just within asset and wealth, particularly on the <unk> side the fundraising target raise for the full year given the success you've had the private credit fund closing here in the first half was big can you talk to some of the other strategies that have the potential to scale as you mentioned earlier.
Or maybe are a little bit smaller that have really large loan or increasing momentum as you think about second half, but also as we even into next year.
Sure. So you know obviously taken a step back you were talking about the targets that we set once upon a time. It was 150 billion and we moved it to $2 25. It's now at 287 billion with 36 billion raised through the first half and us expecting to surpass 50 billion that means we should be north of 300 billion.
By the end of this year and I think one of the things that we find attractive about our platform is that we have opportunities to scale across multiple asset classes within alternatives equity credit real estate infrastructure. We had notable fundraisings in private credit and real estate this quarter.
But you can see contribution from other strategies like equity on the forward and a number of different strategies, both by asset class and by region. So we think we have a diversified opportunity set to continue to scale the alts platform.
Thank you we'll go next to Matt O'connor with Deutsche Bank.
Good morning.
I was wondering if you could just elaborate a bit on the competitive landscape specifically in banking and markets I know, it's always competitive.
But some of the really big bank.
Peers are leaning in.
Who havent been you know a few years ago and always regional banks that I cover are also realizing that they need broader capital market capabilities. So yeah you're.
You're obviously an industry leader in a lot of the areas across banking and markets and I'm, just wondering how you're seeing kind of a competition and posture.
At this point.
Sure Matt I appreciate the question I just say.
Banking and you know the markets business the trading business, they've always been competitive businesses. I think are integrated <unk> approach is a very very competitive offering I mean, we can have a debate, but it's it's it's I think one of the top two offerings.
You know out there depending on how you look at it what you look at theirs.
Always going to be competition, there are always going to be people that come in and make investments in niche areas.
But broadly speaking we've had leading M&A share for 25 years.
We have leading share and capital raising.
For an equivalent period of time we've.
We've continued to invest in our debt franchises over the last more than a decade and I, our trading businesses, our ability to intermediate risk.
I think I've been second to none are viewed as second to none for a long long time and so the combination of our focus on serving our clients, making sure we're giving them the right resources, both human capital and financial capital to accomplish what they need to accomplish the fact that we have global scale positions us very well, we will always be competitors, but I like where our franchise sits.
And I don't see any reason why we shouldn't be able to continue to invest in its strength of it and continue to have an operating as a as a leader in what has always been and will continue to be.
Very competitive business.
Okay.
Speaker Change: Great and then just separately.
I hate to ask you about.
Activity levels and stuff like that since the debate three or four weeks to go but maybe I'll frame it.
From your experience in professional election periods like this where there's more uncertainty than normal how do both institutional and corporate clients react or they kind of say well, let's wait and see the RM side.
It was just noise because we've been going through it for some time here, but what are your thoughts on that.
Thank you.
There are always exogenous factors that affect our corporate activity and.
And institutional client activity.
You know I don't have a crystal ball, so I can't see what the next 100 days, leading up to our election will bring.
Speaker Change: But I think we're well positioned to serve our clients regardless of the environment and clients are very active at the moment and I think they're probably going to continue to be active.
Thank you.
We will take our next question from Gerard Cassidy with RBC.
Speaker Change: Thank you good morning, David Good morning, Dennis.
David You you said in your opening comments.
You took the board out to Silicon Valley, and you were impressed with the artificial intelligence.
What we could expect in the future and the opportunities for.
Goldman to be able to finance some of the infrastructure needs that may come of that can you share with us the artificial intelligence that you guys are implementing within Goldman and how it's making you more productive generating maybe greater revenues or even making it more efficient.
Sure I mean.
At a high level Gerard.
We as you know most most companies around the world are focused on how you can create use cases that increase your productivity and if you think about our business as you know a professional service firm in a people business, where you have lots of very very highly productive people trading tools that allow them to focus.
Their productivity on things that advance their ability to serve clients or interacted market is a very very powerful tool.
We you know if you walk in you think across the scale of our business. I think you can think of lots of places where the capacity to use these tools to take worked it's always been done on a more manual basis and a lot of very smart people to do that work to focus their attention on clients quite obvious you can look at it in an area like the equity research area as every quarter.
Now you're all analysts on the phone there's lots of ways that these tools to leverage your capacity to spend more time with clients do you think about our investment banking business and the ability in our investment banking business.
What I'll call the factory of the business prepare information thoughtful information for clients their evolution. There. When you look at the datasets, we have across the firm and our ability to get data and information to clients. So that they can make better decisions around the way they position a market. That's another obvious use case for engineering stack and we have close to 11.
Engineers inside the firm the ability to increase their coding productivity is meaningful. So those are a handful there are others. We have a broad group of people that are very focused on this but again I'd step back while this will increase our productivity. The thing that we're most excited about is all businesses are looking at these things and are looking.
Waves that it adapts and changes their business and that will create more activity and a tailwind broadly for our business as people need to make investment well need financing they'll need to scale and so we're excited about that broad opportunity.
Yeah.
Good and then as a follow up Dennis you talked about credit and it was impressive that you didnt have any charge offs in the wholesale book can you give us some color on what youre seeing there and it seems like there must be some improvement.
Obviously, you didn't have any charge offs in the wholesale book.
Sure. Thanks, Gerard as you observe your charge off rate for us in the wholesales approximately zero percent what.
What we did see in this quarter was release and we've been able to improve some of our models and be able as a consequence to release some of the provisions in the wholesale segment and so while that was a contributing benefit to sort of call. It the net PCL of the corridor with consumer charge offs offset by that wholesale release.
That's not necessarily something that we would expect to repeat each quarter in the future.
Although we manage our credit and our wholesale risk very very diligently and consistently it is more likely the case that we will have some degree of impairments given our size and scale and representation in the business.
But where we're pleased that the overall credit performance in terms of charge offs is about zero percent.
Thank you.
We'll go next to Saul Martinez with HSBC.
Hi, good morning, Thanks for taking my question.
On just a follow up on capital I mean, it certainly is encouraging that your CET one ratio rose 20 bps. It in a quarter, where you bought back $3 $5 billion of stock in and you did have I think a $16 billion reduction in our WAM your presentation talks about credit <unk>.
This quarter I guess can you just give a little bit more color on what drove that reduction and I guess more importantly is there continued room for our WD optimization from here to help manage your capital levels.
Sure. Thanks, I appreciate that question.
Capital optimization RWD optimization is something that we've been committed to for a very long period of time.
On the quarter, there were reductions both in credit and market risk <unk>.
Drivers included less derivative exposure reduced equity investment exposure out in some places lower levels of volatility.
We try to get the right balance between deploying on behalf of client activity as well as being efficient and rotating out of less productive activities or following through on our strategic plan to narrow our focus and reduce balance sheet exposure. So.
That is something that was contributed to quarter over quarter benefit. Despite the buyback activity, we executed and it's something we will remain very focused on just given the multiplicity of binding constraints that we operate under.
Okay. Thank you that's helpful and then maybe a follow up on on on.
On financing fixed financing up 37% equities.
The equity financing now something close to 45% of all of your equity sales and trading revenues.
Speaker Change: How much more room is there.
Or how should we think about sort of the size of the opportunity set.
To continue to grow from here, how much more spaces there.
Use pointing at senior.
You know as a mechanism to help deepen penetration with your.
Trump institutional clients.
It's a good question so I think on the.
The financing side as I as I indicated we do think that we are helping clients participate in the overall level of growth that they're seeing in their businesses and we think based on what we see currently that we can calibrate the extent of our growth.
This largely on how we assess the risk return opportunity set across across the crime portfolio. So we're being disciplined with respect to our growth while trying also to support clients and their growth and drive a more durable.
Characteristic across the GBM business in equities, the activity and the balances et cetera, obviously have benefited from equity market inflation over the course of the year, but it's also an activity that we remain committed to in terms of supporting clients and clients look to us on a holistic basis really across both.
And equities.
To ensure that across all of the activities that we're doing with us that we're finding some balance between helping them through financing activities, helping them with intermediation, helping them with human capital. So both of those activities are part of more interconnected activities with clients.
And something that we remain very focused on and think we can continue to grow.
Okay, great. Thank you.
At this time there are no additional questions in queue, ladies and gentlemen. This concludes the Goldman Sachs second quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.
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