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 fourth quarter 2019 earnings conference call. This call is being recorded today, January 15, 2020. 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 fourth 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 Scherr. David will start with brief highlights on our financial results give an update on the broader operating environment, including developments related to 1MDB, and provide context for our upcoming Investor Day. Stephen will then discuss the recent enhancements we've made to our segment financial presentation and cover fourth quarter and full year 2019 results in detail. They'll be happy to take your questions after that. I'll now pass the call over to David. David?

Thanks, Heather, and thanks, everyone, for joining us this morning. I'm happy to be here with you. Let me begin on page one. In the fourth quarter, net revenues were $10 billion, up 23% versus a year ago, marking our highest fourth quarter since 2007. Net earnings were $1.9 billion, resulting in earnings per share of $4.69 and an ROE of 8.7%. I would note that we took a $1.1 billion litigation charge during the quarter, which burdened EPS and ROE by $2.95 and 5.3% respectively. Overall, our business performed well and against an improved market environment relative to the challenging backdrop experienced a year ago. For the 2019 full year, we generated firm-wide net revenues of $36.5 billion, nearly matching last year, which was our highest year in eight years. We reported a return on equity of 10% and a return on tangible equity of 10.6%. Litigation impact to ROE and ROTE was approximately 150 basis points for the year. We had a number of accomplishments in 2019. Our incumbent businesses across the firm performed well, and our new business initiatives progressed as planned as we navigated a dynamic operating environment over the course of the year. On the revenue side, our global markets business produced stronger results in an environment that improved over the year, driven by strong leadership and a clear focus on client service. We generated solid growth in FIC, driven by strength across our franchise, including rates, commodities, and mortgages. We grew firm-wide assets under supervision to record levels. We also delivered strong equity investment performance, which is an important precursor to our alternative platform expansion plans. In investment banking, our performance was solid in the context of lower industry deal volumes. We held a commanding lead in our M&A business and maintained our number one position in equity underwriting. While our operating expenses grew as a function of litigation and investments in our businesses, we actively controlled our costs across both compensation and non-compensation, providing capacity to fund our growth. From this position of strength, we achieved important milestones in 2019 across our key growth opportunities. We continued to institutionalize our one Goldman Sachs operating philosophy, keeping clients at the center of everything we do. We launched the firm's first ever credit card platen form in partnership with Apple and generated over $850 million in net revenues across our broader consumer banking business. We completed the initial build of our digital transaction banking platform and processed over $2 trillion of payments on behalf of the firm. Our platform rollout to third-party clients remains planned for the first half of this year. We acquired United Capital, bolstering our capabilities to provide a full spectrum of wealth management services to individuals. We realigned our investing businesses into a cohesive unit to support our alternatives growth platform. We enhanced the effectiveness and efficiency of the firm by integrating major portions of our operations and engineering teams into our businesses. and we strengthened our engineering capabilities with strategic hires of a new chief technology officer and a co-chief information officer, and added talent across the firm. Importantly, we made significant investments to expand our client franchise, grow and diversify our revenues, and operate more efficiently. Including these investments, our overall performance was solid, even though our investments reduced our returns in 2019. We are confident that they are improving the long-term profitability of Goldman Sachs. Turning to the operating environment on page two, in the fourth quarter, we had solid engagement with our institutional clients and strong growth with our individual clients. Notwithstanding, corporate client sentiment remained more measured. During the quarter, we saw steadily rising asset prices. improvement in the secured funding markets as the Federal Reserve took steps to bring stability throughout the quarter and particularly over year-end. We also saw progress toward Brexit resolution following the U.K. general election and improvements in the U.S.-China trade tensions, including the Phase I agreement. These conditions contributed to a supportive market-making backdrop relative to a year ago. Looking forward, our economists continue to expect global GDP growth in excess of 3% over the next two years. In the U.S., the fourth quarter provided a backdrop of solid growth, evidenced by a steepening yield curve and continued strong consumer sentiment. Conditions remain supported by the Federal Reserve's three mid-cycle rate cuts in 2019. Going forward, we expect U.S. growth to continue to run at about 2%, given robust labor markets, low inflation, and strong wage growth. In Europe, growth continues to remain relatively low given manufacturing weakness. However, in China, trade headwinds appear to have moderated, with both monetary and fiscal stimulus supporting growth estimates of nearly 6%. While we continue to monitor economic data and emerging geopolitical risks, including escalating U.S.-Iran tensions, Based on what we see today, we remain optimistic that the current constructive environment for economic growth can continue. Next, I would like to take a moment to discuss the situation with 1MDB. As we mentioned last quarter, we are in ongoing discussions relating to a potential settlement of issues related to 1MDB with relevant authorities across multiple jurisdictions, including most notably the U.S. and Malaysia. Given the nature of these negotiations, we determined the need to take a litigation charge in the fourth quarter. As I noted earlier, our legal provision in the quarter was $1.1 billion, with a preponderance related to 1MDB. While there can be no assurance of reaching a settlement, or the timing if we do, our conversations with authorities are progressing and remain active. We are working hard to bring closure to this matter as quickly as possible. As I've said in the past, we do not believe this matter is representative of our longstanding values. Over the past several years, we've taken the time to be self-critical and reflective to ensure that our culture of integrity, collaboration, and escalation only improves from this experience. These efforts will continue. Lastly, before passing it over to Stephen, I would like to briefly address our upcoming Investor Day, which will be held on Wednesday, January 29th. Through a series of presentations from John, Stephen, and me, and our business and control side leadership, we hope to provide our stakeholders additional insight into the firm's strategic direction. We will provide a detailed review of our strategic priorities by business, including new products and services that we have highlighted to you previously. We will also provide financial targets and goals by which our progress can be measured. We hope you will join us for the day, either in person or via webcast. With that, I will turn it over to Stephen.