Q4 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 fourth quarter 'twenty 'twenty four earnings conference call on behalf of Goldman Sachs I will begin the call with the following disclaimer and the earnings presentation can be found on the Investor Relations page of the gold.
Saks website 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 15th 2025, 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.
Speaker Change: Thank you operator, and good morning, everyone. Thank you all for joining us.
Speaker Change: Before I start my prepared remarks, I'd like to take a moment to touch on the devastating fires that are spread across Los Angeles.
Speaker Change: Also with the People's L, a including our colleagues and clients, we join everyone else in thinking the break five firefighters and first responders working tirelessly to protect that community.
Speaker Change: Now, let me turn to our results I'm very pleased with our strong performance as we continue to serve our clients.
Speaker Change: Dynamic environment.
Speaker Change: The fourth quarter, we generated revenues of $13 9 billion earnings per share of $11.95.
Speaker Change: ROE of 14, 6% and then R O T a 15, 5%.
Speaker Change: For the full year, we increased our revenues by 16% to $53 $5 billion.
Speaker Change: We grew our EPS by 77% to $40.54.
Speaker Change: It improved our ROE by over 500 basis points to 12, 7% demonstrating strong operating leverage.
Speaker Change: Before we review our financials in detail I will start today's presentation with a strategic update.
Speaker Change: Beginning on page one we have a clear purpose at Goldman Sachs, we aspire to be the world's most exceptional financial institution, United by our shared values of client service partnership integrity and excellence.
Speaker Change: Values are the foundation of our strategy and enable us to deliver for our clients and our shareholders.
Speaker Change: As shown on page two our interconnected client franchises are at the core of our growth strategy, our global banking and markets business is distinguished by its scale profitability and leadership positions.
The banking, we once again ended the year as the number one M&A advisor and markets. We have the number one equities business and a leading franchise.
Speaker Change: These leadership positions have been built over decades of investment and they reflect the confidence and trust that our clients have in us.
Speaker Change: Our asset wealth management business is comprised of a leading global active asset manager.
Speaker Change: Top five alternatives franchise, and a premier Ultra high net worth wealth management business the.
Speaker Change: Our scaled business is over $3, one trillion in assets under supervision with global breadth and depth across products and solutions.
Speaker Change: Importantly, our one Goldman Sachs operating philosophy drives the interconnectedness between these two world class businesses, enabling us to seamlessly deliver a variety of unique solutions and execution capabilities to our clients.
Speaker Change: Turning to page three.
Speaker Change: Delivering excellence to our clients is only possible because of our greatest asset our people their exceptional focus and dedication supported by our culture of collaboration and excellence is critical in solving our clients' most consequential problems.
Speaker Change: Our people history and culture have made Goldman Sachs, an aspirational brand around the globe, which allows us to attract quality talent across the organization for my summer in turns all the way to our partners.
Speaker Change: We invest heavily in our people many of them have long careers at the firm exemplified by the fact that over 40% of our partners.
Speaker Change: <unk> is campus hires.
Speaker Change: But of course, not all of our people stay at Goldman Sachs for their entire careers.
Speaker Change: Many believe for opportunities.
Speaker Change: Other companies and investment firms and these firms in turn often become important clients of Goldman Sachs.
Speaker Change: Today more than 275 of our alumni are C suite roles at companies with either our market cap greater than $1 billion or assets under management of over $5 billion.
Speaker Change: And hundreds of other alumni ended up coming back to the firm as Boomerang hires, including roughly 25 partners and managing directors last year alone.
Speaker Change: Estimate to our enduring brand and culture.
Speaker Change: All in we have an exceptional client franchise supported by our best in class talent and culture, which enables us to drive our strategy forward and it is critical that we continue to invest in our people.
Speaker Change: Turning to page four.
Speaker Change: First Investor day in 2020, we laid out a comprehensive strategy to strengthen and grow the firm. We also laid out a number of targets that we can be held accountable for our progress.
Speaker Change: The data the evidence is clear we've met or exceeded almost all of these targets. We have grown our revenues from 37 billion to 54 billion nearly 50%, while improving the durability of those revenue streams.
Speaker Change: Global banking and markets, we've maintained our position as the leading M&A advisor and investment banking and improved our standing with the top 150 clients in FIC and equities over the past five years.
Speaker Change: At the same time, we've significantly increased our more durable FIC and equities financing revenues, which together have grown at a 15% CAGR to a new record of $9 $1 billion. This year.
Speaker Change: Wealth management, we've consistently grown our more durable management other fees in private banking and lending revenues, both of which were a record in 'twenty 'twenty four.
Speaker Change: Notably management the other piece of past 10 billion exceeding our 'twenty 'twenty four targets.
Speaker Change: In addition, alternative fundraising surpassed 70 billion. The success is a direct result of our continued innovation developing new strategies and our long standing track record of investment performance.
Speaker Change: Additionally, we further narrowed our strategic focus we closed on the sale of Green Sky entered into an agreement with general Motors to transition their credit card program and sold our portfolio of seller financing.
Speaker Change: Turning to page five global banking and markets are leading franchises produced average revenues of 33 billion at an average ROE of 16% over the last five years across a variety of market environments, demonstrating the diversity and strength of this business.
Speaker Change: Well no one has a crystal ball there are a number of catalysts that we believe will continue to drive activity.
Speaker Change: There hasn't been a meaningful shift in CEO confidence, particularly following the results of the U S. Election. Additionally, there was a significant backlog from sponsors and then overall increased appetite for dealmaking supported by an improving regulatory backdrop. The combination of these conditions should spur further activity in 2025.
Speaker Change: One large strategic opportunity, we're particularly focused on relates to finance it.
Speaker Change: <unk> operates the fulcrum one of the most important structural trends currently taking place in that.
Speaker Change: Emergence and growth of our private credit and other asset classes that can be privately deployed.
Our unique origination capabilities position us to both connect companies dependable capital and connect investors to assets that can produce superior returns.
Speaker Change: Earlier this week, we announced the formation of our capital solutions group, which will harness the power of one Goldman Sachs to provide our clients a comprehensive suite of our financing origination structuring and risk management offerings across both public and private markets.
Speaker Change: We're taking the current capabilities of our financing group, adding coverage of financial sponsors and alternative asset management firms to better innovate and accelerate the delivery of services to clients. We are also creating an alternatives origination group focused on sourcing to provide seamless coverage or private credit and private equity clients.
Speaker Change: We're excited about providing our clients with access to differentiated sourcing and investment capabilities, which will in turn help us accelerate growth across the franchise.
Speaker Change: Now, let me turn to asset wealth management on page six.
Speaker Change: Our assets under supervision reached another record, reflecting our 28th consecutive quarter of long term fee based net inflows in wealth management, our total client assets rose to 1.6 trillion.
Speaker Change: We also bolstered our durable revenue streams management and other fees private banking and lending revenues together have grown at a CAGR of 12% 2019, we continue to expect to drive high single digit annual growth in the coming years.
Speaker Change: Turning to page seven we meaningfully improved our AWS pretax margin in 'twenty 'twenty four achieving our medium term target.
Speaker Change: In our journey to further improve the return profile of the firm we are committed to driving this business towards mid teens returns, we see significant growth opportunities across wealth management alternatives and solutions.
Speaker Change: Wealth management, we're growing this business by increasing the number of advisors in the field and surrounding them with content specials.
Speaker Change: We are expanding our loan product offerings or elevating our overall client experience.
Speaker Change: Further investment in our digital capabilities and.
Speaker Change: In alternatives, we are scaling our flagship fund program and developing new strategies, we remain focused on penetrating the institutional client base and expanding our wealth Jim.
Speaker Change: Additionally, we are investing investing and tailored solutions for institutional third party wealth clients, who continue to see customization across S. Amaze direct indexing in Etfs and a structured form.
Speaker Change: On page eight we have to demonstrate the durability of the revenues across the firm.
It is not the first time, we've laid out this information, but it serves as a good reminder.
Speaker Change: Baseline revenues are shown in gray, which represents some of the trailing 10 year lows for each of the businesses that are considered to be more cyclical advisory underwriting and remediation.
Speaker Change: As I said last year. We believe this is a very conservative measurement because it's unlikely that every one of these businesses would ever hit a low point all at the same time the.
Speaker Change: The 25 years since we became a public company it hasnt happened once.
Speaker Change: The dark blue represents more durable revenues from financing management and other fees as well as private banking and lending, which grew 13% versus 2023 taken together. These two components made up approximately 70% of total revenues in 2024.
Speaker Change: In addition, given our diversified franchise, we've consistently demonstrated our ability to generate upside across different market environments, which further highlights the revenue generating power of our firm.
Speaker Change: Moving to page nine operating efficiency remains one of our key strategic objectives and while we have made progress. We believe there are significant opportunities to drive further efficiencies across our business. We've established a three year program as a part of our business planning process that will help us dynamically manage our expense base harness technology.
Speaker Change: And the automation and reinvest in our businesses.
Speaker Change: First we are optimizing our organizational footprint by expanding our presence in strategic locations and calibrating our pyramid structure.
Speaker Change: Second on spend management, we are optimizing transaction based expenses and looking to more efficiently manage our vendor and consultant relationships. We will also continue to reduce operating expenses associated with our consolidated investment entities as we further sell down those assets.
Speaker Change: Last week, we were leveraging AI solutions scale and transform our engineering capabilities simplify and modernize our technology stack drive productivity. These efficiencies will allow us to further invest for growth and improved client experience.
Speaker Change: Moving to page 10.
Speaker Change: We believe the path to a return targets straightforward.
Speaker Change: First we have demonstrated our ability to deliver mid teens returns on our leading global banking and markets franchise.
Speaker Change: Second, we're making strong progress against our plan to drive asset wealth management to mid teens and beyond.
Speaker Change: Lastly, we are driving platform solutions, the pretax breakeven in 2025.
Speaker Change: Taken together, we have a clear path to producing our target returns, which will further unlock shareholder value.
Speaker Change: Before turning it over to Dennis I want to spend a moment on regulation.
Dennis Coleman: Last month trade groups, representing the major U S banks, including Goldman Sachs filed suit against the Federal Reserve.
Dennis Coleman: We have long been concerned that the lack of transparency and the fed's current stress testing creates uncertainty and at times produces results, we cannot understand which can lead to higher industry wide borrowing costs reduced market liquidity and inefficient capital allocation.
Dennis Coleman: For the industry the bar to take this step was incredibly hot.
Dennis Coleman: While the fed has announced it was seeking to improve the stress test. The suit was filed to protect our rights. We believe it is our responsibility to continue to press for more transparent regulatory process in order to foster more efficient financial system that supports growth and competitiveness the U S economy.
Dennis Coleman: In closing I'm very confident about the trajectory of Goldman Sachs, we're incredibly well positioned to serve our clients and to continue to drive strong returns for shareholders as we execute with our relentless emphasis on client service partnership integrity and excellence.
Dennis Coleman: I will turn it over to Dennis to cover our financial results in more detail.
Dennis Coleman: Thank you David and good morning.
Dennis Coleman: Let's start with our results on page 11 of the presentation in the fourth quarter, we generated net revenues of $13 9 billion EPS of $11.95.
Or are we a 14, 6% and an R. O T. A 15, 5%, resulting in full year EPS of $40.54 and an ROE of 12, 7%.
Dennis Coleman: As David highlighted we made significant progress this year on executing our strategic priorities.
Dennis Coleman: The aggregate these select items had a de minimus impact on the perfect full year results.
Dennis Coleman: Turning to results by segment, starting on page 14, global banking and markets produced revenues of $35 billion for the year up 16% amid broad based strength versus last year.
Dennis Coleman: In the fourth quarter investment banking fees of $2 1 billion rose 24% year over year.
Dennis Coleman: Advisory revenues came in at $960 million in equity underwriting revenues increased substantially year over year to $499 million.
Dennis Coleman: Equity markets supported robust issuance activity.
Dennis Coleman: Debt underwriting revenues rose, 51% to 595 million a bit higher leveraged finance activity given the strengthening financing conditions post election.
Dennis Coleman: For 2024, we maintained our number one position in the league tables for announced and completed M&A.
Dennis Coleman: Third in equity underwriting and second in leveraged lending.
Dennis Coleman: <unk> strong accruals in the fourth quarter, our investment banking backlog rose sequentially and remains robust, particularly in advisory.
Dennis Coleman: The intensity of our client dialogues has been increasing and we're seeing renewed CEO confidence and desire for sponsors to transact.
While there remains some policy uncertainty there is an expectation that the regulatory burden will be reduced which should serve as a tailwind to risk assets and capital deployment.
Dennis Coleman: We are optimistic on the outlook for 2025 and expect a further pickup in M&A and IPO activity.
Dennis Coleman: Net revenues were $2 7 billion in the quarter up 35% year over year.
Dennis Coleman: Intermediation, we saw strength in currencies and mortgages.
Dennis Coleman: Record <unk> financing revenues rose, 34% versus last year, primarily on better results within mortgages and structured lending.
Dennis Coleman: Equities net revenues were $3 $5 billion in the quarter.
Dennis Coleman: What he's intermediation revenues were $2 billion up 30% year over year, primarily driven by strong performance in cash products.
Record equities financing revenues of one of the half billion rose, 36% versus the prior year amid higher average balances in prime and stronger performance in portfolio financing.
Dennis Coleman: Full year total equities net revenues were a record $13 $4 billion mid strong levels of client engagement and higher client balances.
Dennis Coleman: Across FIC and equities financing revenues rose, 17% in 2024 to a record $9 1 billion.
Dennis Coleman: Moving to asset wealth management on page 15.
Dennis Coleman: For 2024 revenues of $16 $1 billion rose, 16% year over year as our more durable revenues grew to new records.
Dennis Coleman: In the quarter management and other fees were a record $2 $8 billion up 8% sequentially and 15% year over year.
Dennis Coleman: Private banking and lending revenues rose, 11% year over year to $736 million.
Dennis Coleman: Incentive fees for the quarter were 174 million, bringing our full year incentive fees of $393 million.
Dennis Coleman: We expect to make further progress in 2025 towards our annual target of $1 billion.
Dennis Coleman: Equity and debt investment revenues totaled 993 million for the quarter, reflecting mark ups across our private and public portfolios and NII in our debt portfolio for the full year. These combined revenues totaled $2 $4 billion.
Dennis Coleman: Now moving to page 16 total assets under supervision ended the quarter at a record $3. One trillion dollars driven by $70 billion of liquidity products net inflows and 22 billion of long term fee based net inflows across asset classes.
Dennis Coleman: Turning to page 17 on alternatives alternative assets under supervision totaled $336 billion at the end of the fourth quarter driving $621 million in management and other fees.
Dennis Coleman: Third party fundraising was $20 billion in the fourth quarter and $72 billion for the year for.
Dennis Coleman: For 2025, we expect fundraising to be consistent with levels achieved in recent years.
Dennis Coleman: On page 19, our total loan portfolio at quarter end was $196 billion up year over year, reflecting an increase in other collateralized lending.
Dennis Coleman: Provision for credit losses was $351 million in the quarter, primarily driven by net charge offs in our credit card portfolio and balanced growth, partially offset by reserve releases in the wholesale portfolio.
Dennis Coleman: Let's turn to expenses on page 20, total operating expenses for the year were $33 $8 billion or 2020 for compensation ratio net of provisions was 32%.
Dennis Coleman: Quarterly non compensation expenses were $4 $5 billion down 8% year over year.
Dennis Coleman: As David mentioned, we're driving efficiencies across organizational structure spend management and automation efforts, which will enable us to further invest across the client franchise. These efforts are designed to enhance productivity and helped drive operating leverage as we work towards achieving our through the cycle targets.
Our effective tax rate for 2024 was 22, 4% for 2025, we expect a tax rate of approximately 20%.
Dennis Coleman: Next capital on Slide 21, our common equity tier one ratio was 15% at the end of the fourth quarter under the standardized approach 130 basis points above our current capital requirements of 13, 7% in.
In the fourth quarter, we returned approximately $3 billion to common shareholders, including common stock repurchases of $2 billion and dividends of $965 million.
Dennis Coleman: In conclusion, our strong performance. This year reflects the strength of our client franchise, our intense focus on execution and an improving operating environment. We continue to maintain our leadership positions across global banking and markets and are leaning into SAP yellow growth opportunities across asset wealth management as we enter 2025, we remain confident in our ability to deliver for clients.
Dennis Coleman: And drive strong returns for shareholders with that we'll now open up the line for questions.
Dennis Coleman: Thank you, ladies and gentlemen, we will now take a moment to compile the Q&A roster.
Dennis Coleman: Hmm.
Speaker Change: We'll go first to Ebrahim <unk> with Bank of America.
Speaker Change: Good morning.
Speaker Change: I guess, maybe just David following up on the comments you made around regulations.
Speaker Change: When you talk to investors I mean, we saw what happened with the SCB last year.
Speaker Change: Theres been a laser focus on being more punitive when capital markets post Dfc for many.
Justifiable reasons, but just talk to us when you think about the regulatory outlook and I. Appreciate significant uncertainty we are waiting for policymakers to kind of peak new seed.
Speaker Change: But how do you think that plays out and in particular in terms of the operating backdrop for your capital markets business and listen 19 business.
Speaker Change: Like how should we think about how could it be different over the next two to three years relative to the last five or even 10 years.
Well its hard I mean, it's it's it's hard for me to speculate.
Speaker Change: Given where we are and I. Appreciate the question. It's something obviously, we're spending a lot of time thinking about but I think there obviously when you when you talk about capital there obviously three avenues.
Speaker Change: First there is CCAR and you know you'd note you know the industry took an action because the industry doesn't think that the way CCAR operates in a lack of transparency.
As appropriate or candidly legal so that's why we took the action that we did the fed has accommodated that it plans to make changes and adjustment, but obviously.
Speaker Change: There are changes going on with the administration shifts changes going out of bed.
Speaker Change: It's hard for me to speculate how that walk forward other than to say that the industry believes as an industry. We believe strongly and we believe this for years. This is not working appropriately and assistant with more transparent and consistent capital that you can plan around it makes a more efficient and more productive.
Speaker Change: So we're hopeful that we'll make some progress with that.
Speaker Change: Obviously as Basel III and you know given the change in administration or change of leadership inside the fed our expectation would be that there'll be a different approach than what had been put forward, but again, we'll have to watch it will have to wait and then last you know Theres G SIB and the calibration of G. SIB G. SIB was always supposed to be calibrated.
Speaker Change: Growth in market cap.
Speaker Change: To me it hasn't been.
Speaker Change: So that's another avenue of dialogue.
Speaker Change: Unpredictable I don't want to predict I don't want to speculate but certainly it feels like we're in an environment, where there could be a constructive discussion about improving the transparency clarity and consistency around that and I think that would be very very good both for the system and capital markets problem.
Speaker Change: That's fair and then just a follow up on the slide five you mentioned the forward catalyst increased sponsor activity.
Speaker Change: We think for this we are seeing some signs of a pick up there you've talked about M&A being sort of sub 10 year averages you give us a sense of just how quickly I mean, we know the Doj FTC bad golf will be more conducive for dealmaking is how quickly could we see.
Speaker Change: More significant ramp up our own deals ipos is it.
Speaker Change: <unk> could we see that as early as the next couple of months.
Speaker Change: I think youre going to see it I think you're going to see it throughout 2025.
Speaker Change: You know I don't want to speculate where it will land versus 10 year averages, but it's certainly setting up to be much more constructive and robust in the data yet that we would have you know that allows us to articulate that is we can obviously track our backlog, but we can also track inquiries activity dialogues inside the firm and I think there's been a.
Speaker Change: Meaningful pick up in.
Speaker Change: In large cap M&A dialogue and inquiry, there's been a meaningful pickup in sponsor inquiry in dialogue and we continue to see strong positive backlog.
Dennis Coleman: Trends as as Dennis highlighted to you.
Speaker Change: We'll take our next question from Christian Ballou with Autonomous research.
Christian Ballou: Good morning, David and Dennis.
Christian Ballou: Maybe I'll just follow up we'd be taking question here, but if I'm reading the slides correctly most of 11 and 12.
Christian Ballou: Which help bridge you are are we gap up to 15%.
Christian Ballou: Are you assuming sort of roughly 9 billion of capital returns from H P. I a platform solutions to shareholders. Because if you are maybe talk through how the books against things like SLR constraints at that level of capital return.
And then just more broadly on capital just given the improvement opportunity set here.
Christian Ballou: How are you balancing returning capital to shareholders versus investing in the business.
Christian Ballou: Okay.
Christian Ballou: Sure So I'll start and Dennis will add particularly on capital return, but our our our path to mid teens is a simple analysis of what you laid forward.
Speaker Change: Perm is driving toward having two fundamental business platforms. We've been very clear on this is we've narrowed our focus global banking and markets and asset and wealth management, we still have the legacy platforms, but we continue to make progress around that.
Speaker Change: Global banking and markets I think has shown over the course of the last five years that this business should be mid teens throughout the cycle.
Speaker Change: Wealth management, we've commented to you that we've met our medium term.
Speaker Change: <unk> margin target margin, but we have not yet.
Speaker Change: The returns in that business to the levels that we believe that we can return them. We believe over the next couple of years continued scaling and profitability of our terminal platform combined with our ability to continue to grow management fees and at the same time also free up capital from the legacy principal investments will allow us to.
Speaker Change: Bring the returns and asset wealth management to the mid teens or higher.
Speaker Change: In addition platform solutions, where we still have the Apple card platform. This year, depending on how you look at it I'll give you rough numbers was a 75 to 100 basis point drag on the firm's overall Roe.
Speaker Change: That will improve in 2025 and 2026 and.
Speaker Change: And so it's just math if you are a mid teens global banking and markets business, if we get asset wealth management, the mid teens, plus and we removed the drag from the platforms that gets you to a mid teens business, we have a high level of confidence in our ability to execute against that.
Speaker Change: Dennis will give you a comment you know, we're obviously generating a lot of capital we do see opportunities to deploy so Dennis will give you some comments on how we're thinking about capital deployment and also returns.
Speaker Change: Thanks, David and and Christian I think Youre, making references some capital release numbers, yeah within the overall remaining portfolio of H P. I. We do note that there's about 4 billion of retaining attributable of remaining attributable equity and then obviously over time, we both have to narrow the pre tax dragon platform solutions and ultimately someday may be able to release all of the <unk>.
Speaker Change: Equity associated with that business as well. So those are obviously contributors to our longer term return target achievement I think as it relates to <unk>.
Speaker Change: Capital return as we as we sit headed into 2025, we have 130 basis points of cushion versus ragman as David commented as the firm believes there should be a significant uptick in client opportunity as always we would look to fill.
Speaker Change: Fill that demand is best we possibly can as a matter of priority we.
Speaker Change: We remain committed to sustainably growing our dividend and then obviously.
Speaker Change: Seek to return excess capital you all will have noted last year was a record year for capital return by Goldman Sachs. So we were able to grow the franchise.
Speaker Change: Grow the firm as well as returned record levels of capital to shareholders as we head into 'twenty five we'll support clients investing sustainably growing our dividend and then to the extent we have excess capital return it to shareholders all the while managing an appropriate buffer given some of the ongoing regulatory uncertainty.
Speaker Change: Okay got you.
Speaker Change: Maybe maybe David Little Kudos to you on the firm.
Speaker Change: What are you taking share across your businesses, whether it's markets or.
Speaker Change: I mean alternatives and in private walls to doing a great job, but but just given you know to your point the improved opportunity set here and perhaps more friendly regulatory environment.
Speaker Change: Any thoughts on.
Speaker Change: Doing a strategic do you to accelerate your your growth prospects within alts or private wealth.
Speaker Change: Yeah I I appreciate the question Christian and look we always we always think about particularly around our asset wealth platform are there things that could accelerate our growth in journey and the overall mix of the firm as I've said before the bar for doing something is high.
Speaker Change: I'd also say these businesses are.
Speaker Change: Are sold they're not bought.
Speaker Change: And you know at the moment the market is valuing these businesses with an extraordinary amount of forward growth.
Speaker Change: We obviously watch the space and over time, you know could there be opportunities, yes, but at the moment, we're very focused on execution I think one of the things. We're so excited about for the firm is we have an ability to continue to execute organically what we've laid out in front of you and continue to improve the returns of the firm plus I think as you point.
Speaker Change: Now we have payer wins from both the environment and improving environment for the kinds of activities that flow into our ecosystem and also the overall business and regulatory environment. So I think execution right now continues to be our primary focus.
Speaker Change: We will take our next question from Betsy <unk> with Morgan Stanley.
Betsy: Hi, good morning.
Speaker Change: Good morning Betsy.
Betsy: Hi.
I did just want to follow up on one thing here regarding the point you were making on platform solutions.
Betsy: As a drag.
Betsy: Right now 75 to 100 bps on ROE, but 25 and 26 that will improve so could you just step us through I mean, we know we know what your plans are for platform solutions, but I'm wondering what's happening in 'twenty, five and 26 that will drive.
Betsy: The reduction of the drag in this year and next if you could speak to that.
Betsy: Yeah.
Betsy: It is.
Betsy: At a high level Betsy.
Speaker Change: We're we're obviously the primary thing is the platform solutions.
Speaker Change: Is the is the Apple partnership as you know we have a contract with Apple to run that partnership until 2030.
Speaker Change: Although there is some possibility that it won't continue until that timeframe, but most important thing. That's happening is the card continues to improve its performance and the card is driving toward profitability.
Speaker Change: The improvement in the profitability of the card as an impact on the short term drag.
Speaker Change: Ultimately, whether it's in the medium term or through the life of the contract that's not going to be a long term business for the firm and that will ultimately allow us to exit and return capital, but I'm really not in a position to comment any more specifically other than the direction of travel that you're aware of.
Speaker Change: Okay, Great and then separately on the changes that were discussed with regard to how youre structuring the financing team that's within investment banking, if I got it right.
Speaker Change: Could you just help us understand how does the management structuring change the revenue growth outlooks that you are looking for.
Speaker Change: Like why do guys it's Charlie.
Speaker Change: Deliver better growth sure sure so yes.
Yeah. So so so first of all it is it's in global banking and markets and so I think the way Betsy you should think about global banking and markets and we've been on a journey.
Speaker Change: To really think about all the efficiencies that exist between what was the traditional investment banking business.
Speaker Change: What we'll call the financing of our capital markets businesses, and then the global markets businesses, which are the trading businesses. When we brought them all together in global banking and markets. I think you should know think about that big business that big $35 billion business.
Speaker Change: As kind of having three big platforms. One is what we'll call traditional investment banking too is what we'll call capital solutions and three is what we call global markets are trading.
The organizational structure, the or creating allows us we believe to take advantage of something that Goldman Sachs is very uniquely positioned at the fulcrum up which is the intersection between both public markets and private markets and the way you're married capital with issuers, but also.
Speaker Change: So Mary issuers and their need for capital with all different kinds of investors and I think the thing that we're very uniquely positioned to August one we have extraordinary relationships with 12000 companies in the world.
Speaker Change: Two we have extraordinary what I'll call public market financing capabilities.
Speaker Change: Three we also have an ability whether it's through our balance sheet, whether it's through what you'd call traditional distribution channels in the institutional clients or it's through our asset management platform and our own asset management products to have a range of alternatives that we can marry two issuers to make sure they get the bed.
Speaker Change: Product service and resolved and so this is a way of getting that all coordinated in a <unk> fashion across the firm and so we've taken the traditional financing businesses and capital markets businesses. We've taken all the coverage of financial sponsors we've taken all the coverage of alternative firms in our trading businesses.
Speaker Change: We're putting them together and we're bringing talent that understands both our own balance sheet and capital deployment.
Speaker Change: And the ability to distribute these products together to try to optimize our capability around that and this is where we actually think there's going to be growth in the capital markets and so our ability to capture more of that share. We think the setup allows us on a relative performance basis to do better.
Speaker Change: And that's the one thing I'd add just in terms of the overall financials. Obviously you know our segments are not changing the sub segments that we report into or not changing is these sort of streamlined.
Synthesize origination capability, we think will enable us to accelerate revenue growth by serving our clients more efficiently, but the suite of activities that are undertaken by these originators and structures will continue to populate the same financial line items that we have today. We just think this is a better way of it.
Speaker Change: Organizing our people against the client opportunities that and doing everything else that David just a numerator and look if you go back in history, Betsy just to expand on it I mean years ago to the capital markets business is 25 years ago, the capital markets businesses sat in the trading business within 20 years ago. It was a dramatic thing to put them in investment banking that they were closer to clients and so our mindset is.
Speaker Change: How do we organize our people our resources <unk> ethos and B is connected to our clients to make the experience for our clients as seamless and as simplified it is leveraging as possible.
Speaker Change: We will take our next question from Brennan Hawken with UBS.
Brennan Hawken: Hi, good morning, Thanks for taking my question.
Speaker Change: You spoke earlier to the capital unlock within.
Speaker Change: The improving Roe.
Speaker Change: But some of the more business oriented components would be driving lending.
Speaker Change: Solutions within wealth and scaling the flagship products in August, which I thought was interesting I was hoping you could speak to lending penetration where that sits versus your targeted within the wealth business and whether theres been an uptick in demand more recently, given some of the market developments and what contribution you're expecting from from ranking the flagships and maybe.
Speaker Change: Highlighting some of those franchises.
Speaker Change: Sure Brian. Thanks, Thanks, a lot for the questions I appreciate it.
Speaker Change: So obviously the strategy to grow to grow well is.
Speaker Change: As you know three parts of a primary focused wealth management faults and solutions.
Speaker Change: Within wealth management.
Speaker Change: Our Newberry, one, particularly attractive opportunity set for us, which is which is lending and we've noted previously that we believe that we are relatively underpenetrated.
Speaker Change: To some of our competitors across our wealth platform and we've been making investments in our human capital expertise educating our client facing professionals that we have capabilities and ambitions to support clients through lending activities.
We did grow our private wealth lending balances about $5 billion on the year. We are committed to a multi year journey of increased penetration I think relatively we are still very well. So we're making progress we're optimistic but I think we have a lot of room.
Speaker Change: To improve that.
Speaker Change: In terms of the Alts business you know there are a number of ways that we continue to grow and make progress in our <unk> franchise continues to be an attractive and appropriate component of our wealth clients portfolio. We have very good manufacturing capabilities as a firm and also a robust third party wealth.
Speaker Change: Panel as well that clients can take you know take advantage of.
Speaker Change: Within the portfolio of well of alternatives offerings that we make available to clients, we have certain of our flagship funds.
Speaker Change: And those you know are raised from time to time and those are attractive opportunities for us to secure a client for deployment and they also position the firm well as a known incredible deploy our of capital. So we will continue to raise those funds over time and as we have more.
Speaker Change: Assets under management per strategy, if you will better depth on.
Speaker Change: That will enable us to improve the overall operating leverage of that component of the asset and wealth management business.
Speaker Change: Great. Thanks for that color and David spoke to some of the operating efficiencies when reviewing when giving the strategic update.
Speaker Change: It's interesting because.
Speaker Change: What do we think about the push and pull of.
Speaker Change: Expenses and efficiencies as we move into 2025, given the expectations for pretty robust in all of the indications you've given for pretty robust improvement in capital markets activity or maybe if it's easier to answer whats the right way to think about.
Speaker Change: Incremental margins on revenue growth as we move forward.
Brennan Hawken: Sure Brennan I appreciate that we're actually trying to do a number of things at the same time, which is what gives rise to your question. So so first and foremost we continue to see good opportunities to grow the firm and we expect that as we continue to grow the firm we should be able to continue to deliver incremental operating leverage you saw.
Brennan Hawken: In the course of the last year that our efficiency ratio improved by 200 basis points now it's on the order of 63% moving closer to our target of 60%. So scaling the business driving incremental operating leverage continues to be a huge focus of this management team. It's also the case that we see very.
Brennan Hawken: <unk> opportunities to make investments to scale the firm to improve client experience to improve our employees' productivity and we want to be able to finance some of that incremental investment spend a lot of which takes place in the engineering space.
Speaker Change: Space by driving incremental efficiencies across the firm and thinking about as David ran through the ways. We organize ourselves the way we locate our professionals the way we manage our spend processes accountability. There's program that David made reference to his accountability up to the management committee of the firm. It's an important piece of how we focus on.
Speaker Change: Running the firm efficiently and we think it's something that's designed to give us capacity to fund some of the investments that we think are the are the best ways to continue to scale the firm make it more resilient and improved overall client and employee experience.
Speaker Change: Thank you we'll take our next question from Mike Mayo with Wells Fargo Securities.
Mike Mayo: Hey, David there was another.
Speaker Change: Wall Street C. E. O said he was the most positive he's been in 25 years.
Speaker Change: So how good could things yet.
Speaker Change: And in your mind, because you're saying the regulatory environment and the economic environment. The backlogs are up in that are you know if I was doing a model for the industry do we go back to the 21 pandemic highs and on the other side of this.
Speaker Change: Highlighted by Slide nine you know you're all focused on expenses and on that if maybe if rates go up too much what level of a tenure yield do you think it puts a wrinkle in the kind of a bullish thesis you're laying out here a tenure of 5%, 6%, 7%, what's the most likely thing that would derail.
Speaker Change: Your lofty expectations.
Speaker Change: Look Mike I appreciate the question I'd say at a high level. There's no question that I highlighted in my remarks, there's been a sentiment shift broadly as I talk to Ceos.
Speaker Change: Since the election, but that doesn't stop us from Goldman Sachs constantly.
Speaker Change: By nature with managers, you know thinking about how the environment can change how that it's involved I think at the moment for our business and our business mix, particularly around capital markets activity et cetera, you know we haven't it feels like we have a tailwind going into 2025 and I do think that levels that have been below historical averages theyre going to at a minimum.
Speaker Change: Normalized maybe do better.
Speaker Change: Certainly wouldn't say have any expectation of capital markets activity going back to 2021.
Speaker Change: Anomaly anomalies anytime.
Speaker Change: Soon.
Speaker Change: But it is a more constructive environment and so you know that's you know that that of course.
It's something that we think about as we think about deployment of resources and investment in the business now all that said, we can't predict the environment the environment changes and we're running the firm for the medium and the long term and so we are very very focused on our growth and returns over the medium term our growth of the firm over the medium term.
Speaker Change: And our ability to serve our clients and execute well and I am very confident very very confident that no matter what the world throws at US Goldman Sachs over time, we'll continue on that journey of doing really well in growing the returns of the firm and serving our clients with excellence and distinction.
Speaker Change: You know I think the environment feels good but I'm not at all confused that you know I could wake up in three months and there could be things going on in the world that would change that perspective, we're always thinking about that always trying to look around corners and are always going to manage the firm for the medium and the long term.
Speaker Change: And then specifically I guess why is platform solution still around I mean, you're number one in dealmaking and you haven't been out to work that out and on the other hand, the financing organic growth how big is that today and how big do you expect that to be in five years and what about you know credit risk that's related to that.
Speaker Change: Yeah on the first question I don't I don't really have anything to say, it's different than what I've said about our journey around the consumer platform from the business, but I appreciate the question Avi.
Speaker Change: And you know on the second point.
Speaker Change: We continue to believe that there's opportunity.
Speaker Change: For us to grow our financing business, our financing business scales with growth in the world of course, we're incredibly focused on risk management and credit risks and the scale of that business against our equity base and our balance sheet et cetera, but as the world grows we believe there's opportunity for us to continue to grow and scale that business.
Dennis Coleman: I think we've proven that over time I mean, Dennis do you want to add anything around that yeah, just I draw a connection back Mike to someone some of the comments that David made earlier, which is it really the secret sauce in driving some of these activities for clients is origination distinction and differentiation.
Dennis Coleman: Obviously, where the capital solutions group enables us to have all of that origination centralized and we can from that origination continued to grow the fixed financing balance sheet in an appropriate risk adjusted fashion, we can underwrite and distribute some of that product to other investors across our franchise.
Dennis Coleman: And we can also help AWS source investments that provide attractive risk adjusted returns to the clients that AWS. So theres an opportunity to continue to invest in growing the financing capabilities that we've been reporting on but we also have incremental outlets.
For the origination excellence given the demand that we see across various stripes of investors around the market.
Speaker Change: Thank you we'll take our next question from Devin Ryan with citizens JMP.
Devin Ryan: Thanks, So much good morning, David and Dennis.
Devin Ryan: First question just on the banking and markets market share wallet share obviously incredibly impressive over the last handful of years and I think just a testament to the execution when we when we look at this kind of new capital solutions organization.
Devin Ryan: Seemingly better position with sponsor clients and just I think gives us an indication of where you guys are going there. How do you think about your market share today with sponsors.
Devin Ryan: And not sure if you'd give any framework or numbers. There and then how you think about the ability to take share in that group and how important that will be to driving further kind of wallet share gains.
Devin Ryan: From here like you've done in the past thanks.
Devin Ryan: Yeah.
Speaker Change: You know over the last 20 years, we've made an enormous investment in our relationships and our coverage of the sponsor community, we have leading share with the sponsors I don't think we quantify it specifically.
Speaker Change: What we have you know it's fair to say, we have leading share with the sponsor community.
I think we're very well positioned as they are active to capture our fair share or even sometimes more than our fair share of that of that activity you know what.
What I, what I'd say is it's been an environment, where they've been incredibly quiet both from a deployment perspective also a monetization perspective.
Speaker Change: And that's just not consistent I you know I have said.
Speaker Change: Insistently sponsors make money by doing two things buying new things selling old things and so the fact that we've gone through a period of time, where where they haven't done a lot of either of those things that will normalize over time part of it was a reset in kind of valuation expectations. Some of it was growing into valuation expectations that are kind of run.
Speaker Change: [noise] ahead.
Speaker Change: But I do believe very strongly that the next 24 months will be a much more constructive environment for sponsor activity and you know our share positioning with them is very good I think these organizational changes will only strengthen that position.
Speaker Change: Great. Thank you and then just in terms of the on the alternative asset management fund Raisings been terrific. How should we think about the pace of deployment of kind of that record fundraising and then just kind of the trajectory of kind.
Speaker Change: Kind of the acceleration in performance fees, because it would seem that that could be a pretty big step function higher in performance fees, but you need to deploy that capital first of all just the timeline to kind of think through that path. Thank you.
Devin Ryan: Sure Devin so we're focused on that as well and it's a good question because it is it hits a number hits a number of topics. So obviously, we had good success are raising alts funds and surpassed all of the various targets that we set out repeatedly.
Devin Ryan: Now, it's an opportunity for us to deploy and the and the deal making environment and the you know a transaction volumes will be in the market of the last couple of years being some boot subdued has also impacted our ability to deploy into transactions. So as the overall backdrop improves that should be a more attractive opportunity for us to start deploying the monies.
Devin Ryan: We've raised and drive or a U S. At the same time that same slightly more muted environment for transaction activity has been theres been less by way of monetization activity and so as we again enter into hopefully a more supportive backdrop there'll be better opportunities for us to continue to monetize investments across our fund structures.
And as we reached the end of investment cycles, and fully monetize them because I'm in a position to start returning capital to our investors then you'll see the incentive fees start to come through our financials as well our incentive fees were up sharply.
Devin Ryan: Year over year basis, but they're still short of our $1 billion annual target. Our expectation is that we will continue to make progress towards that target over the course of 2025, the extent to that progress obviously will be a bunch of function of the environment, but we should continue to make progress towards $1 billion.
Devin Ryan: Target, given where we sat in the outlook that we have.
Speaker Change: Thank you we'll take our next question from Dan Fannon with Jefferies.
Speaker Change: Thanks, Good morning wanted to follow up on the alternatives you talked about consistent levels of fund raising is you know as we look at 25 could you maybe talk to the asset classes or the funds that you think will drive the growth going forward and how the fees maybe different or are they the same as kind of what.
Speaker Change: And the ground of your existing book of alternatives today.
Speaker Change: Sure. So you know given the breadth of our alternatives platform.
Speaker Change: The fund raising has come in from a number of different channels have been very diversified I think that's one of the strengths of our platform is one of the ways. It positioned us as one of the top five alternative players in the market. So as we move forward. We would continue to expect to raise money across the various asset classes within our alternatives platform.
Speaker Change: We are not seeing significant fee compression. If you will that's a question that we get on the alts on the outside so we'd expect to be raising the same type of funds with roughly the same fee structure. There obviously can be variations in mix and so different types of products sourced through different channels bring with them different fees. So that can change you know average effective fee.
Speaker Change: As in the Alt space, but in terms of our strategy continue to raise a diversified suite of funds expect a reasonably consistent volume.
Speaker Change: And don't expect you know fees per type of of origination activity to meaningfully change.
Speaker Change: Understood and then just as a follow up.
Speaker Change: Both asset and wealth management revenues on the management fee side saw good growth.
Speaker Change: Year over year, both for the year in the fourth quarter, there was a little bit higher growth in wealth, both in the fourth quarter and the year I guess as you look at those businesses going forward do you expect to see a divergence in either of those segments or do you think that consistently they will both grow at similar levels.
Speaker Change: So look there are obviously different idiosyncratic factors within both the asset management and the wealth management sectors. We obviously like the Optionality to continue to raise and grow our management fees across both of those sub segments are.
Speaker Change: We you know we re underwrite our expectation that we will continue to grow AWS management other fees high single digits over the next several years, we've obviously outpaced that.
Speaker Change: Recently, but you know we sort of would re underwrite our forward growth expectations to be high single digits.
Speaker Change: Thank you we'll go next to Gerard Cassidy with RBC capital markets.
Gerard Cassidy: Hi, Dennis Hi, David.
Speaker Change: Hi.
Speaker Change: David or Dennis can you share with us I mean, the outlook. Many of US you you folks included I think it looks <unk>.
Speaker Change: Positive for the capital markets business as the economy et cetera.
Speaker Change: Aside from the geopolitical risks that are obvious to all of US can you guys give us two or three risks.
Speaker Change: There could derail this shared optimism we have for the outlook for the business.
Gerard Cassidy: I mean, the world the World type I mean I appreciate the question Gerard the world's a complicated place and Theres a lot going on in the world markets react and change their sentiments.
Speaker Change: Very quickly.
Speaker Change: Obviously you have.
Speaker Change: Hi.
New administration with that change so a bunch of things people are talking about.
That that has people excited from a business environment, a lower regulatory touch environment et cetera, but at the same point there are a broad array of policy initiatives that can all have an impact on market sentiment and the direction of travel and I'd say at the moment, there's uncertainty when you look when you look broadly.
Speaker Change: Cross immigration policy.
Speaker Change: Trade policy tax policy energy policy.
Speaker Change: You'll get more clarity around all of this done.
Speaker Change: But there there are there are different outcomes, there can be sentiment shifts.
Speaker Change: Plus there's a lot going on in the world and there are all sorts of significant risks. We spent a lot of time thinking about we think about cyber risk a lot its something we havent talked about a while on this call. So the world is a complicated place fundamentally at our core we're risk managers, we try to think about these things make sure. The firm is resilient and well positioned to navigate them I would say at the moment.
Speaker Change: The environment is quite constructive the economy in the U S is quite constructive still but it's a complicated world and I think we all should be on our toes and be prepared for the unexpected because I'd tell you every single year. The consensus that are that people tell me in January the year turns out to be different than the consensus.
Speaker Change: I'm sure you know this year, you know there'll be some there'll be some surprises to the ups and it'll be some surprises to the downside there always are.
Speaker Change: Yeah, No I agree with that that's for sure. Thank you David and then coming.
Speaker Change: Coming back to obviously you guys have been investing heavily in technology for years and driving those operating efficiencies in slide nine you talk about them, particularly in automation and then you talked about leveraging the AI solutions.
Speaker Change: As outsiders when do you think we'll be able to see the success that you're having with AI I know theres, probably early successes already but.
Speaker Change: Will it be come a time, when we will be able to say Wow, you know earnings actually favorably impacted by X percent because of the success in the AI implementation that you've done.
Speaker Change: You know why.
Speaker Change: We are having early success and this firm is zealously focused on its expense base and creating efficiencies that give us the capacity to invest in our franchise and grow our client franchise.
Speaker Change: Can we get to a point, where you can say it's affected it by this percent.
Speaker Change: I don't necessarily think that's that's the way to think about it we're going to continue to use technology to make the firm more productive we're going to continue to scale and create automation of platforms that allow us to deploy resources in other places will allow us to serve our clients better and grow our franchise and that's something we're going to continue to be.
Speaker Change: Operationally very focused and we've made good progress on it but we have we see we haven't done this frame. This in his comments and I hinted at it too we see lots of opportunities to continue to do that in the coming years and I think the way that investors should look at it and think about it it's that focus on that and the capacity it creates.
Speaker Change: How's us scale investments that can continue to strengthen the franchise.
Speaker Change: And so that's the way I think we think about it we try to operate.
Speaker Change: Thank you at this time there are no further questions ladies and gentlemen. This concludes the Goldman Sachs first quarter 2024 earnings Conference call. Thank you for your participation you may now disconnect.
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