Goldman Sachs Group, Inc. (The)

Good morning. My name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs third quarter 2019 earnings conference call. This call is being recorded today, October 15, 2019. Thank you, Ms. Miner. You may begin your conference.

Good morning. This is Heather Kennedy Miner, head of investor relations at Goldman Sachs. Welcome to our third quarter earnings conference call. Today we will reference our earnings presentation, which can be found on the investor relations page of our website at www.gs.com. No information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audio cast is copyrighted material of the Goldman Sachs Group, Inc., and may not be duplicated, reproduced, or rebroadcast without our consent. Today I'm joined by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Stephen Scher. David will start with a high-level review of our financial performance and the operating environment. He'll then provide a brief update on several strategic items, including key investments we are making to drive future growth, the significance of the Apple Card launch, specifically as it relates to other technology innovation at the firm, and recent personnel changes to align with our longer-term strategic priorities. Stephen will then cover third quarter results across each of our businesses. They'll be happy to take your questions after that. I'll now pass the call over to David. David?

Thanks, Heather, and thanks to everyone for joining us this morning. I'm happy to be here with you. Let me begin on page one. We reported third quarter 2019 revenues of $8.3 billion, down 6% versus last year. Net earnings were $1.9 billion, resulting in an earnings per share of $4.79. Here to date, we produced an ROE of 10.4% and an ROTE of 11%. Our business performed well against an uncertain geopolitical backdrop characterized by increased volatility and shifting client sentiment. A few highlights worth mentioning. In investment banking, despite lower results versus a strong third quarter in 2018, we continue to have the world's leading franchise, ranking number one in global announced and completed M&A and number one in equity underwriting year-to-date. In ICS, we generated year-over-year growth, demonstrating the breadth of our client footprint, including progress across both fixed income and equities. We produced record net interest income in debt investing and lending, which annualizes to $3.6 billion. In investment management, our assets under supervision increased by over $100 billion to another record of $1.8 trillion, and we generated record quarterly management and other fees. Lastly, we successfully launched a new and innovative credit card with Apple. Turning to page two, the operating environment in the third quarter remained mixed and slowed the pace of activity by many of our corporate clients. During the quarter, trade war concerns contributed to a risk-off sentiment and sharply lower global interest rates, particularly in August. Markets were also impacted by turmoil in Argentina, Brexit headlines in Europe, and a temporary spike in oil prices in September. Throughout the quarter, responses from central banks, including the Federal Reserve and the ECB, remained accommodative supporting both capital markets and the sustainability of global economic growth. Looking forward, our economists continue to expect global GDP growth in excess of 3% for this year and next. That said, global growth is not without risk as trade issues remain challenging. In Europe, growth is decelerating in part due to trade and manufacturing weakness with notable challenges in Germany. In China, while trade has been a headwind, both monetary and fiscal stimulus support growth estimates of roughly 6%. Here in the U.S., growth continues to run at about 2%, with strong labor markets, low inflation, and healthy wage growth. Economic conditions have also been bolstered by the Fed's two mid-cycle rate cuts. Importantly, in monitoring the data, consumers continue to show resilience and remain a meaningful source of strength in the US economy. That said, recent data suggests slowing in manufacturing and industrial production. Mindful of that, we remain vigilant of where we are in the economic cycle and conscious of it as we manage risk across our firm. In my regular conversations with CEOs, there is considerable focus on the duration of the current economic cycle. While most CEOs remain focused on growing their businesses and capturing opportunities, Amid the disruptive forces of new technologies, geopolitical issues continue to give rise to some caution. That said, equity valuations remain relatively high. Financing markets are generally open and attractive to issuers, particularly given the low rate environment and historically low borrowing costs. In addition to corporates, financial sponsors remain active with significant capital to deploy today. Switching gears, I'd like to spend a moment discussing our ongoing strategic investments, a topic Stephen has covered in prior calls and will expand on in a moment. These investments reflect our deliberate and disciplined approach in building new, scalable businesses to serve a broader set of clients, including our Marcus Consumer business, the recently launched Apple Card, and a new transaction banking platform. On our broader consumer business, we are very pleased with our progress in building a modern digital consumer bank. Our competitive advantage is that we have no legacy, branch, or technology infrastructure, avoiding channel conflicts. And yet, we are a bank with a sizable balance sheet and a well-recognized brand, which is needed for successful disruption. Our strategy is to acquire customers under our own proprietary brand and to leverage Goldman Sachs relationships to embed our products into the ecosystem of our partners. In three short years, we have raised $55 billion in deposits on our markets platform, generated $5 billion in loans, and have built a new credit card platform and launched Apple Card in partnership with Apple and MasterCard, which we believe is the most successful credit card launch ever. In addition, we are making a number of important infrastructure enhancements across our incumbent businesses to better serve our clients and to operate more efficiently. These include investments in our institutional client platform, Marquee, where we have seen strong growth to over 50,000 monthly active users and over 1 million API data requests every day. We are also investing to develop the next generation of electronic trading platforms in both FIC and equities. Taken together, these investments draw on our returns in the short term, but are critical to expanding our capabilities and our competitive position, and we believe will be highly accretive in the medium to longer term. Next, let's discuss the recent Apple Card launch, which was an outstanding effort by the teams involved. Since August, we've been pleased to see a high level of consumer demand for the product, From an operational and risk perspective, we have handled the inflows smoothly without compromising our credit underwriting standards. Beyond the launch, we are proud of the successful platform build, which was completed in short order. This is a testament to the quality of engineering at Goldman Sachs and the collaborative engagement of our business and control functions in developing, building, and launching a true platform business. This success positions us to attract top-notch engineering talent as our most recent technology hires demonstrate, and to execute our plan to build digital platforms across the firm. Before passing over to Stephen, I would like to take a moment to talk about some of the recent leadership changes across the organization. As a management team, John, Stephen, and I are very focused on creating opportunities for the next generation of leaders at Goldman Sachs. As we set forth an ambitious long-term strategic plan for the firm, It is natural point in time for some of this transition to occur. We are fortunate to have an exceptionally deep pool of talent, as many of our new business leaders are also 15 or 20-year veterans of the firm. And as we execute this transition, we invigorate and empower leaders across the businesses in the Federation. Going forward, I am confident that we have an outstanding team in place to serve our clients and achieve the long-term strategic goals we are setting. Lastly, I would like to briefly address our upcoming strategic update. We've been actively working to finalize a date and the format for a strategic review, and we'll provide additional details to the market in the coming weeks. Our target timing remains late January. I look forward to that session as an opportunity for us to engage with you on a number of topics, including our strategy, investments in new initiatives, forward plans across each of our businesses, and a variety of other key issues. With that, I'll turn it over to Stephen to walk through the results in each of our businesses.