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 15th, 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 .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 and FIC, driven by strengths 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 alternatives 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 noncompensation, 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 -golden-sacks operating philosophy, keeping clients at the center of everything we do. We launched the firm's first-ever credit card platform 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 UK general election and improvements in the US-China trade tensions, including the phase one 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 US, 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 US 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 US-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 US and Malaysia. Given the nature of these negotiations, we determine 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 have said in the past, we do not believe this matter is representative of our longstanding values. Over the past several years, we have 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. To a series of presentations from John, Stephen, and me, and our business and control site 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.

Thank you, David. Let's turn to page three. Before reviewing our financial results, I'd like to spend a moment discussing our new financial disclosure. On January 7th, we announced a realignment of our segments, which form the basis of our earnings presentation today. We now report the following four businesses, investment banking, global markets, asset management, and consumer and wealth management. We believe our revised financial reporting reflects our ongoing commitment to transparency. The segments more closely aligned to how we now manage the firm, with clear lines of management responsibility and leadership over each segment. The segments importantly also reflect how we serve our key clients, including corporations, governments, institutions, and individuals. And lastly, the segments provide for greater accountability in the execution of our forward strategy as our initiatives are executed and reported. Importantly, I would note the key structural change to eliminate the investing and lending segment is consistent with our business strategy and will allow you to track our lending and financing activities alongside the relevant businesses, as well as to allow our progress in a more transparent way. Also of note and consistent with our broad commitment to transparency, we elected not to create a corporate segment. This is a different approach than many of our peers who retain costs or capital at the corporate level. We believe our process of allocating all firm-wide costs and capital is a prudent management tool and a more comprehensive way of evaluating the true performance of our businesses. Next, let me itemize several of the more significant elements of our segment changes, which we listed in our recent 8K filing. As I mentioned, the most significant change was the elimination of investing and lending. Now the results of our lending and financing activities are included within each of the four segments. For example, corporate lending activity is included in our investment banking segment. This encompasses relationship lending, transaction-related financing, and broader lending to our corporate clients. Secured or collateralized financing activity on behalf of institutional clients of our securities business is now reflected in FIC and equities financing within our global markets segment. Lending related to our alternatives investing businesses, including investments in debt securities and real estate credit, is reflected in the asset management segment. And lending to our individual clients across all wealth bands is in the consumer and wealth management segment. Additionally, we now report the firm's on-balance sheet equity, credit, and real estate investing activities in our asset management segment. This segment houses both GSAM and our merchant banking activities for asset management clients, supporting our third-party alternatives business expansion. Consolidating our on-balance sheet and third-party asset management investing activities is consistent with our forward strategy. To that end, this segment includes management and incentive fees associated with asset management clients across the full spectrum of asset classes, from cash to alternatives. And we'll also include the impact of quarterly valuation changes to balance sheet positions held in public and private equity investments. Another significant change is additional disclosure in our new consumer and wealth management segment, including wealth management fees, incentive fees, private banking and lending revenues, as well as consumer banking revenues. This segment houses our longstanding private wealth business, as well as our newer consumer offerings. Broadly speaking, and as I noted earlier, the new segments align with the client orientation of the firm. Investment banking, global markets, and asset management encompass the firm's engagement with corporates, governments, and institutions, and consumer and wealth management includes our engagement with individuals. With that as background, let me review the financial results of the firm on the basis of our new segments. Starting on page four, investment banking produced fourth quarter net revenues of $2.1 billion, up 12% versus the third quarter, but down 6% versus a robust fourth quarter last year. For the full year, investment banking net revenues were $7.6 billion, our second highest ever, down 7% from a record 2018, reflecting lower industry deal volumes. Fourth quarter financial advisory revenues of $855 million were up 23% sequentially, but down 29% versus last year, consistent with lower industry volumes. In 2019, we participated in $1.4 trillion of announced transactions and closed 375 deals for nearly $1.3 trillion of deal volume, contributing to our number one M&A lead table rankings. Looking forward, conditions for continued M&A activity remain solid. Client dialogues are healthy, financing markets are open, and we are seeing active interest across a variety of sectors. We also continue to see strength in our backlog coming into the new year, notwithstanding solid revenue bookings from deal closings in the fourth quarter. Moving to underwriting, equity underwriting net revenues of $378 million were up 3% versus the third quarter and up 23% versus last year. For the year, we ranked number one globally in equity underwriting, supported by $68 billion of deal volume across more than 375 transactions. During the quarter, where we saw particular strength in our U.S. and European equity businesses, we participated in leadership roles on several of the largest public offerings. Turning to debt underwriting, net revenues were $599 million, up 14% versus the third quarter and up 37% from a year ago, reflecting higher asset-backed and leveraged finance activity. Our franchise remains well positioned, as evidenced by our number two high-yield lead table ranking. Revenues from corporate lending were $232 million. These revenues relate to a net $28 billion funded portfolio of corporate loans now held in investment banking, as well as our portfolio of corporate lending commitments. As background, there are three components to our corporate lending portfolio. Relationship lending to our corporate clients, credit extensions for strategic activity, including acquisition financing, and lending to our broadening footprint of corporate clients where we target attractive returns. Looking forward, given our active level of strategic dialogue, our expanding client footprint, and strong corporate relationships, we remain optimistic about the continued level of commercial engagement by our corporate clients, aided by the current backdrop of well-functioning and constructive capital markets. Moving to global markets on page five. Net revenues were $3.5 billion in the fourth quarter, up 33% versus last year. Our growth was driven by a better market backdrop in FIC versus the end of last year and strong performance in our equities businesses. For the full year, global markets generated $14.8 billion of net revenues, up 2% versus 2018, driven by stronger FIC and higher equity financing performance. In the fourth quarter, FIC net revenues were $1.8 billion, up 5% sequentially and up 63% year over year. Our growth versus last year was driven by higher FIC intermediation revenues where we saw better performance, as well as higher FIC financing revenues, notably in repo. Four out of five of our FIC market-making businesses posted higher fourth quarter net revenues versus the prior year, reflecting the continued strength of our client-centric model and improved diversification of our business mix. Our rates franchise in the U.S. performed particularly well as we executed on behalf of our clients and navigated the broader market environment effectively. In commodities, our business performed well across the board, driven by significantly stronger performance in oil, natural gas and power, and investor products. In mortgages, net revenues rose, aided by strong client activity and performance in agency securities. In currencies, net revenues improved versus last year amid a better geopolitical backdrop despite lower volatility. We saw strong performance and activity around the general election in the U.K. and saw healthy corporate deal contingent hedging activity in the quarter. Lastly, in credit, we saw better investment-grade performance in the U.S. and EMEA offset by lower client activity. As we have discussed previously, we are working to further improve wallet share with each of our clients across both risk intermediation and financing while investing to expand our capabilities, to automate workflows, serve our clients electronically, and deliver structured solutions in efficient formats. Turning to equities on page six. Net revenues for the fourth quarter were $1.7 billion, down 8% versus the third quarter, but up 12% versus a year ago. Equities intermediation net revenues of $979 million rose 9% versus a year ago on stronger cash revenues in the U.S. and Asia and strong performance in low-touch end-block trading, partially offset by lower derivatives activity. Equities financing revenues of $732 million were up 17% -over-year, reflecting improved spreads and higher client balances. Financing activity remains a strategic priority for the business, given it has historically exhibited attractive returns and considerable adjacent benefits to our broader equities franchise, particularly for our growing systematic client base. Moving to asset management on page seven. Collectively, our asset management activities produce net revenues of $3 billion in the fourth quarter, up 52% versus last year, driven by stronger equity investment performance. For the full year, asset management generated net revenues of $9 billion, in line with a strong 2018, as growth in equity investment revenues offset lower incentives. Fourth quarter management and other fees related to client assets under supervision totaled $666 million, up 6% versus a year ago, offset by lower incentive fees. Across the asset management segment, we managed AUS, totaling $1.3 trillion at year end, and we'll cover firm-wide AUS trends in a few moments. Next, our equity investments generated record quarterly net revenues in the fourth quarter of $1.9 billion, up significantly versus last year, driven by gains on our public and private investments. Approximately 90% of the gains were event-driven, including sales or marks on public securities, as we took advantage of harvesting opportunities. The fourth quarter showed material improvement relative to the third quarter, where we experienced headwinds on certain large equity positions, including Avantor, TradeWeb, WeWork, and Uber. During the fourth quarter, those positions taken together rebounded, and for the full year produced gains of approximately $400 million. In the quarter, we also exited our position in Uber and reduced our position in TradeWeb. Our public portfolio was $2.4 billion at year end. Where appropriate, we will continue to reduce the size of certain positions in the public portfolio. Net revenues from lending activities in asset management were $427 million and primarily relate to loans backed by commercial and residential real estate. Lending revenues include net interest income and -to-market gains on debt investments. On page 8, turning to consumer and wealth management, we produced $1.4 billion of revenues in the fourth quarter, up 8% versus a year ago. That driven by our leading ultra-high net worth business, ACO and our newly acquired United Capital high net worth business, and our consumer banking businesses. For the full year, consumer and wealth management generated net revenues of $5.2 billion, essentially unchanged versus a year ago, as strong consumer banking growth and higher management and other fees offset lower incentive fees. For the quarter, wealth management net revenues included record management and other fees of $967 million, up 17% versus last year, reflecting organic growth and the United Capital acquisition. Assets under supervision rose to $561 billion at year end. We also saw lower incentive fees, while private banking and lending revenues were relatively stable. Consumer banking revenues were $228 million in the fourth quarter, up more than 20% versus last year, reflecting higher net interest income from strong growth in deposits and higher loan balances. Consumer deposits at year end totaled $60 billion across the U.S. and U.K., up nearly 70% versus last year. Funded consumer loan balances totaled approximately $7 billion, of which $5 billion were from Marcus Consumer Loans and $2 billion from credit card lending. The slowing pace of growth in our Marcus Unsecured Loan business reflected the anticipated growth in our credit card lending from the launch of Apple Card. While still in early stages of growth, our consumer business generated a total of $864 million in revenues for the firm this year from a standing start just three years ago. Now let's turn to page nine for our firm-wide assets under supervision. Total client assets for which we earn a management fee, including those in asset management and consumer and wealth management, totaled a record $1.9 trillion in the fourth quarter, up $97 billion versus the third quarter and $317 billion versus a year ago. Our 2019 growth was driven by $108 billion of long-term fee-based net inflows from fixed income and equity, including the acquisition of United Capital, $65 billion of liquidity net inflows, and $144 billion of market appreciation. Switching gears on page 10, let's address net interest income and our lending portfolio. Total firm-wide NII was $1.1 billion for the fourth quarter, up 6% sequentially and 7% year over year, driven by loan growth. This NII measure is more comprehensive than the one we previously highlighted in debt INL and most notably now includes all NII from global markets activities. For the full year 2019, we reported NII of $4.4 billion, up 16%, driven by deposit and loan growth in consumer and wealth management, increased lending and investment banking, as well as more lending activity in global markets. Next, let's review loan growth and credit performance. Our total loan portfolio was approximately $109 billion, up approximately $4 billion sequentially and up $11 billion versus a year ago, with the year over year increase encompassing corporate, commercial real estate, wealth management, and Apple Card loans. Our provision for loan losses in the fourth quarter was $336 million, up $45 million versus last quarter, driven primarily by idiosyncratic wholesale impairments and loan growth in our Apple Card portfolio. Provisions related to our Marcus portfolio were modestly lower quarter over quarter. Our firm-wide net charge-off ratio increased by 20 basis points sequentially to approximately 70 basis points in the fourth quarter. Our losses remain in line with our expectations given the current point in the cycle. We continue to monitor the portfolio and broader risk factors and believe our credit exposure remains appropriately sized. We also take note that in 2020, we will experience a full year of loan loss provisioning related to growth in the Apple Card portfolio. This growth in provisions will occur under the new CSEL accounting standard, which requires reserves for the expected life of loan. Importantly, the reserve build for a growing credit card portfolio does not reflect actual economic losses. Incremental reserve build will depend on loan growth, but given our expectations for card growth, we expect our 2020 total firm-wide loan loss provision to be higher than in 2019. With regard to CSEL adoption, based on our loan portfolio as of year end 2019, we expect to record a day one increase to our reserves of approximately $825 million in the first quarter, which will not impact our income statement or EPS. This will result in a one-time after-tax reduction to retained earnings of approximately $625 million, which for regulatory capital purposes will be phased in over the prescribed transition period. Next, let's turn to expenses on page 11. Our total operating expenses of $7.3 billion increased $2.1 billion versus the fourth quarter of last year, reflecting higher compensation and litigation expense in the quarter, as well as our continued investment for growth. On compensation, as we have said in the past, our philosophy remains to pay for performance, and we are committed to compensating top talent. Our full year compensation ratio of .8% is roughly flat versus 2018, and our compensation expenses were flat year over year. Over the course of 2019, we reduced compensation expenses across many of our businesses to improve operating efficiency and to support incremental compensation expenses related to our growth initiatives, where revenue production is beginning to materialize. As we have said in the past, longer term, we view the compensation ratio metric as less relevant to the firm as we build new scale platform businesses. On noncompensation expense, our cost for the full year 2019 rose 13% versus last year, with litigation expenses and investment spend contributing to that growth. Specifically, litigation expenses accounted for 300 basis points of the percentage increase, while investments in technology and new businesses, including specifically Marcus, Apple Card, Transaction Banking, and United Capital added another 300 basis points. We also incurred additional expenses from our consolidated investments. For the full year, the total pre-tax impact of our organic business projects, including Marcus, Apple Card, and Transaction Banking, is approximately $700 million, resulting in a drag of roughly 70 basis points on our ROE. At Investor Day, we will talk more about our plans for these businesses to scale over the coming years and how we expect them to be accretive to our returns. For the full year, our efficiency ratio was 68%, which includes a 340 basis point impact from litigation expense. Finally, on taxes, our reported tax rate was 17% for the fourth quarter and 20% for the year. Our tax rate this quarter reflected the impact of updated guidance from the U.S. Treasury regarding the beat tax and incorporates an adjustment to prior quarterly accruals relating to this guidance. Given this updated guidance, we expect our tax rate over the next few years to be approximately 21%. Turning to select balance sheet data on slide 12, let's begin with capital. Our common equity tier one ratio was .3% using the standardized approach, down 30 basis points sequentially, driven by lower shareholders' equity. Our ratio under the advanced approach increased by 30 basis points to .7% due to enhancements in loss given default severity modeling that were favorable to the ratio. Our SLR of .2% was flat sequentially. During the full year 2019, we returned a total of $6.9 billion of capital to common shareholders through both share repurchases and common stock dividends. Our basic share count ended the quarter at another record low, 362 million shares, down over 30% from our peak in 2010. Our book value per share was $219, up 5% versus a year ago. As you will recall, our share repurchase authorization for the 2020 CCAR cycle beginning in the third quarter of 2019 was $7 billion or $1.75 billion a quarter. In the third quarter, we repurchased only $673 million, carrying forward the unused authorization. In the fourth quarter, we repurchased $2.2 billion, utilizing approximately $400 million of the prior quarter's unutilized capacity. Going forward, we carry a repurchase authorization of approximately $4.2 billion over the next six months. As we make capital return decisions, we will continue to balance our priorities of prudent capital management and the return of capital in excess of what is needed for investment that is shareholder accretive. As such, the magnitude of our forward repurchases will, as always, depend on our earnings, capital levels, and competing investment opportunities. Now turning to the balance sheet. Total assets ended the year at $993 billion, essentially unchanged versus the third quarter and up 7% versus last year, driven by higher client activity and areas of growth across the firm. On the liability side, our total deposits increased to $190 billion, up $32 billion versus last year, while our total unsecured long-term borrowings were $207 billion, down $17 billion over the same period. Over the full year, we refinanced approximately $20 billion of parent vanilla debt maturities with approximately $5 billion of issuance, relying more significantly on our growth in retail and other deposits as we continue to diversify our funding sources. This trend toward deposit growth and reduction in unsecured long-term borrowings should continue. Before taking questions, I would like to spend a moment to discuss the $5 billion organic growth initiative announced in 2017. That initiative comprised a number of important efforts on which we continue to execute, including client expansion in investment banking, wallet share growth in global markets, consumer loan and deposit growth, lending and financing deployment, and asset management growth. As we go forward, we will continue to execute on these initiatives, but our focus and communication will instead reflect more ambitious, firm-wide performance targets to be introduced on Investor Day. We will not be focused on revenue targets, but rather on returns and efficiency consistent with our broader long-term strategic plans to drive shareholder value. These targets will also reflect growth opportunities that were not included in the original $5 billion, such as transaction banking and credit cards. We look forward to discussing our new targets in detail at the end of the month. In conclusion, our fourth quarter was strong, leading to full year performance that was in line with the evolving macro environment and reflective of our continued investment in new businesses. We aim to operate more efficiently and drive higher returns in the future and look forward to sharing our medium and long-term objectives at Investor Day in approximately two weeks' time. With that, thanks again for dialing in, and we'll now open the line for questions.

Ladies and gentlemen, we will now take a moment to compile the Q&A roster. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. If you are asking a question and you are on a hands-free unit or speakerphone, we would like to ask that you use the handset when asking your question. Please limit yourself to one question and one follow-up question. And your first question is from the line of Glenn Shor with Evercore. Please go ahead.

Hi, thanks very much. I don't know what to expect on this one. So doing more lending across the franchise, and it clearly is working, and you now break out for us, intermediation versus financing in trading or in markets. And I think there's opportunity to do more there. Some of your peers do a lot more on the financing side. So the small question is, are we going to see more at Investor Day in terms of metrics that we can help model and build and evaluate performance on? And that's question one on that. And question two on that is, how quickly can you expect those to A, grow and B, enhance returns over the next year or two?

Sure. Thanks, Glenn. Stephen, I'll take your question. I guess on the small question you asked, which is, should you expect more disclosure and the frequency of it? I think the answer is ultimately yes. As it relates to lending broadly around the firm, there are a number of categories of lending that will over time become more material. And as they become more material, we will both by obligation but equally by interest look to provide incremental more information on that lending. And I would say consumer is a good example of that as between unsecured consumer lending and equally what we're doing on the credit card side. I think broadly speaking in lending, I would say mindful of the cycle, our clear plan is to grow financing revenues in both FIC and equities to answer your direct question. And I would say the type of lending that's going on there is largely in the repo business and FIC. It's in prime and equities. I think from a credit risk point of view, we like and can digest and evaluate that risk, notwithstanding where we sit

in

the cycle more broadly. And I think metrics in global markets around that lending, again, will continue to grow out. Last thing I'll say as it relates to investor day, look, we're going to lay out certain targets at the enterprise level. We will be more disclosive about individual businesses. But I think equally important investor day will be the beginning and not the end of a dialogue around this, so that the numbers just don't stand alone. And we give you context for rate of growth and how we're managing it.

Okay, I appreciate anything there. And then on the expanding the corporate client base, the specific question I have is, are you fully cut over on processing Goldman's cash management payments? And where are we in terms of dialogue with signing on any clients?

Sure. So in transaction banking, as we have said from its inception, we would be the first customer and then we would look to bring on clients of the firm. We are the first customer. And I think, as was mentioned during the script, we have been processing payments on behalf of the firm across five currencies and totaling about $2 trillion in terms of what's getting processed. And so that's going well. And the firm is obviously benefiting from that. Keep as a customer lower operational deposits on deposit with commercial banks in that regard. We have all along been in dialogue with clients of the firm first in the context of getting their sense and input as to what this platform ought to look like. How would we design it? So as to meet pain points that they are experiencing, that collaborative engagement has been going on. And we are now engaging these clients as future customers of the firm in the context of transaction banking with certain of them already putting operational deposits on deposit with the bank. And I think, as we've said in 2020, you'll see that client roster and that participation in the business grow.

Your next question is from the line of Christian Boulou with Autonomous. Please go ahead.

Good morning, David and Stephen. Firstly, thank you for the new disclosure. It's very helpful. My first question is on credit provisions. It looks like about a third of the credit provisions are – and the vast majority of sequential quarter increase in provisions came from the asset management division. But when I look at sort of the NII disclosure on page 10, it looks like only 15% of NII comes from asset management. So I'm not sure what the mismatch is there, but just step back here a little bit, help us understand what exact kind of lending goes on in the asset management division, maybe a bit more color on the credit quality there, and the overall return profile of that portfolio.

Sure. Thanks, Christian, for the question. So let me start with kind of the geography and the segment. So in our asset management business sits alternatives lending. So think about that as a portion of the old debt INL. So this is MES and lending that's made on a principal basis. So what you see reflected in that line is both net interest income that's derived from those assets and equally volatility in the valuation of those debt assets themselves. So that describes the geography of it. In terms of what played out over the course of the year in provisioning, so the delta in provisioning for the full year was $390 million. About $100 million of that was found in the consumer and wealth management business, and the vast majority of that was related to provisioning to the growth in Apple Card. I should point out it was not related to any either impairments or off model, if you will, provisioning related to the balance of the consumer business. It was related to the growth in Apple Card. The balance of the $390 million, call it $300 million or so, related to impairments on loans across a variety of different segments, asset management being one, investment banking being the other, and that was around corporate wholesale credit. It involved impairments across a range of different industries, most notably in energy, some in manufacturing, none of which were material in the context of the firm. And so that's the way the provisioning divided up as between impairments and loan loss provisioning for the growth largely in the Apple Card portfolio.

Okay, thank you, Helpful. Maybe stepping back on the balance sheet as a whole, you're kind of sitting close to a trillion dollars, which is more or less kind of the highest level since the financial crisis in 2008. So just help us understand just broadly speaking what's driving growth and sort of the returns you're getting for deploying incremental balance sheet. And in just longer term, how critical is balance sheet growth to driving revenue growth? And how does that sort of factor your longer term thinking around capital return?

Yeah, so I would say a couple of things. First, as a general matter, our balance sheet growth is itself purely a function of being in the service of client demand. So we're guided entirely by where demand lies for client petitioning of the firm in the context of the flow of our business. So over the course of 2019, we deployed balance sheet by example against repo where there was demand for liquidity, particularly in the context of the various uncertainty that existed in the repo market. We grew balance sheet so as to stand as an intermediary of liquidity for our clients. So it grows as a function of client demand. I think as we think about areas of balance sheet growth, we think about it purely in the context of accretive returns for the firm. It's not a revenue driven proposition. It's really about can we deploy balance sheet on behalf of clients so as to generate accretive returns to the firm? And that's kind of the true north, if you will. That's where the compass points in terms of how our balance sheet ultimately fluctuates. And candidly, as the CFO, I look at balance sheet much as I do liquidity or any other resource around the firm as allocating in the pursuit of accretive growth oriented opportunities and shareholder return for our stakeholders.

Your next question is from the line of Michael Carrier with Bank of America. Please go ahead.

Good morning and thanks for taking the questions. Maybe first, revenue trends were strong in the quarter. I think you mentioned corporate sentiment is still a bit muted, which I think can take more time. I'm just curious if you're seeing any improvement on the corporate front. And on the institutional side, were there any asset purchases during the quarter that had much impact on global markets?

Sure. Thanks for the question, Michael. There's no question I think that the environment during the course of the year improved as the year went on. And while I'd say corporate sentiment is still lagged a little, particularly given some of the macro overlays like U.S. China, trade, et cetera, there's no question in the fourth quarter the environment improved. Based on the data or information we can see across activity and dialogue with clients, I would say that it's improved in the fourth quarter and the trends that we're seeing early into 2020 are a little bit more positive. And so those would be the usual things that we could look at across activity set. With respect to your second question, there were no material asset purchases that impacted global markets.

Okay. And then just a quick follow up on the efficiency ratio. I'm sure you guys will get into that in two weeks. And there's a lot of noise this quarter. But I think in the past you mentioned, I think 2019 kind of being the height of investments and just want to get an update on does that still pertain and we should start to see some improvement on the efficiency ratio as the revenues and some of the newer areas start to gain traction.

Sure. Thanks, Michael. So on the efficiency ratio, at Investor Day, in my presentation, I will go through kind of that migration and give you the elements of it. Obviously, it feeds both in the context of revenue and expense. And so, you know, we'll go through that in terms of your question on the height of investment. I have said, and would reiterate here that 2019 is the depth of investment when you look at investment across three of our discrete products, namely, Marcus, AppleCard and transaction banking. And equally, I've made that reference and again reiterate here, excluding the reserve calculation, which I obviously spoke of in the context of the prepared remarks. So when you look at the investment ex reserve, 19 for those three initiatives, you know, is the lower point. And I think we'll start to see reduced expenditures relating to that. You know, I would say that overall and then again, this relates back a bit to your efficiency question. You know, my expectation around non-compensation expense ex litigation is that it would run roughly flat in 2020 relative to where we are. The whole ambition of what we're doing around expenses is trying to create operating leverage and efficiency so as to continue to fund investment around the firm. And that's not investment limited to the three products that I spoke about, but equally across, you know, technology investment around the infrastructure of the firm and the like. And so, you know, we'll start to see that play out obviously in the context of flat expenses year over year. Our hope and expectation is that we'll start to see higher revenue generation from some of these investments, you know, which will play out positively in the context of the efficiency ratio itself.

Next question from the lineup. Stephen Chewback with Wolf Research. Please go ahead.

Hi, good morning. Good morning. So I wanted to start off just thinking into some of the new segment disclosures, particularly the consumer and wealth side of the business. And clearly what stood out most to us, and you alluded to this earlier in the call, was the pre-tax margin coming running much lower, somewhere close to 10%. Clearly the new business initiatives, the significant drag that that's had on the margin is quite evident. I was hoping you could speak to what inning you're in currently just in terms of the platform build out and new investment for that strategy specifically. And just through the cycle, how we could think about long-term pre-tax margin potential for that segment as you continue to scale and maybe begin to run a bit closer to some of the peer comps.

Sure. So let me answer the question generally. We have disclosed obviously information around expenses and pre-tax. Our intention at Investor Day is to go to pre-tax margin and returns across the whole of the business. And then in the context that that will provide you in Investor Day, our intent is to continue to do that on quarterly earning calls like this. So you should have an expectation that will continue along that path. I'd also say, and I'll reflect on this here generally, but more specifically in our Investor Day, our intent is not to leave you in the dark as to the consumer and wealth management segment in terms of overall margins. Meaning, we want to give you a sense of where the wealth business sits. That is the PWM business, which obviously demonstrates a much higher margin than what the segment reveals with the segment being in effect burdened by the continued growth and investment spend in the consumer space. So we will separate that out. My guidance to you in terms of expectation is that the wealth management segment or subsegment within that performs at a much more market level margin than the way in which the segment otherwise illustrates. But again, we will decompose that for you with context as we move forward.

That's great to hear, Stephen. And just one follow up from me as it relates to the provision. Appreciate the detail you provided in an earlier question. The guidance calling for higher provision in 2020, I don't think that comes as a big surprise to anyone. But just given expectations for a healthy step up in provision simply due to Cecil implementation and some consumer loan seasoning, I was hoping you could maybe just help us frame a bit better. What's a reasonable provision level or run rate expectation if there's no change in the macro? But we simply have to reflect the impact of Cecil with an assumption that you'll see relatively steady growth in consumer loans.

Yeah, look, I think generally speaking, our own budget is in the realm of call it 1.1 to 1.3 billion dollars in terms of a broader budget. I would say a lot of that reflects continued growth in the Apple card portfolio as well as lending more generally. But again, as you grow from a negligible level at the inception through to what we hold both in terms of roughly 1.9 billion of where we are and what that growth will be in the ensuing year. Obviously, that provision through 2020 will be exaggerated. You'll see it that way. But that's just part of the overall growth. You know, as an aside, the provisioning growth related to Apple card again, more from a standing start is itself burdened by Cecil relative to where provisioning would have been. So it's marginally more exaggerated in the context of the life of loan component to Cecil and the like. Now, you know, what I offer you by way of budget is just that it obviously will depend on the pace of loan growth broadly, the pace of loan growth in Apple card, which we are going to calibrate based purely on risk parameters and our own judgment about the tone and nature of the market in which we're

operating. Our next question comes from a line of Betsy Grisick with Morgan Stanley. Please go ahead.

Hi. Good morning. Hi, Betsy. Hi, Betsy. Hi. It's a little bit of a philosophical question around lending and how you're thinking about your various loan books. And the question is kind of coming from the perspective that I'm thinking you're you know, you've been working with a balance sheet that's a high velocity balance sheet. And I'm wondering if you perceive your various loan books as moving more from a velocity balance sheet towards a storage balance sheet. Is there anything in there? I'm thinking about, you know, do you do you hedge some of your loan books now? Are there some that you're going to continue to hedge some that you would not consider hedging? Does it impact how we think about the capital and the capital allocation to loans? I'm wondering if that resonates at all with how you're thinking about the loan books in the various segments? Yeah,

no, no, no, it's a very good question. I'd say the following. First, there's nothing about what we're doing in growing our our loan book, particularly around consumer, for example, that is in effect substitution for business that will continue to do of a capital markets orientation around lending. So, for example, and we look at the two consistent with trends that each market shows and kind of risk parameters and levers that we hold to manage risk. I'll give an example. If you think about corporate lending. So, for example, lending, we make by way of acquisition financing that we provide to our clients. What I look at in the context of our deal book has a lot to do with size, but equally with velocity turn. So, right now, our deal book turns that inside of three months. That's an important metric to think about as we manage corporate lending and capital markets related lending that's going on. That's less of a relevant consideration, if you will, in the context of growth in our consumer loan book, or what we do around Apple card as a component of that there. We're quite careful to consider what we do about provisioning how we think about the qualitative overlay to the size of our provisioning as we look at a maturation of that portfolio start to look at more on premise data as it relates to our consumer portfolio as opposed to third party metrics. And so we think about these two things in some sense differently in terms of what you apply by way of the rigor and metric and overlay in managing that risk. But equally, we obviously look at the totality of lending that's going on and the rate of growth as it relates to the overall balance sheet and the firm itself. So I hope that's helpful and sort of our broad philosophical approach to lending.

And does it then come back towards capital and what kind of capital ratios you need? What I'm hearing is on the consumer side, maybe more capital consumptive, but obviously there's an ROA associated with that that should pay for it. Whereas on the banking side, that velocity suggests that it might not be as capital consumptive as a commercial loan in a different organization. Yeah,

I mean, the way I'd answer that question again, to sort of stick to sort of a broad view of it all from the firm, you know, we're driving and growing new businesses at the firm that inevitably will carry with them more durable and recurring fee revenue. They were therefore will by definition carry with it less stress loss in the context of it. They will in some sense be less capital dense than where they've been. And so, you know, we're going to evaluate risk return against the capital that's required against each individual business and render judgments there as to what those returns look like on a capital adjusted basis, where we want to deploy capital, where we don't. I guess what I'm suggesting to you, it's a much more dynamic process than not. And but overall, it fits within the component of growing and building businesses that have less stress draw and therefore the potential for lower density from a capital perspective.

Your next question is from the line of Mike Mayo with the Wells Fargo. Please go ahead. Hi,

Stephen, I think you said non comp should be flat in 2020, but in 2019, almost every non cop category went higher. So is that simply because of just why is that the question? What's changing?

Yeah, so, Mike, maybe the way to answer that is let me decompose a little bit of the growth year over year and non comp expense. So, as you know, we reported a 13% increase in non comp expense. About 3% was related to litigation. I'm not going to I'm not going to sort of foreshadow where that will be, but just understand that in the component of growth, 3% of the 13% was just that about another 3%, 3 to 4% was related to broader investment around the firm, whether that's tech investment, consumer transaction banking and United Capital. Now, that's going to grow, but that segment of non comp expense is going to start to sort of graduate off as those businesses start to hit a certain level of maturity. And as I've said, we are looking to prune expenses all around the firm so as to create operating leverage and fund the continue investment expense that's there. And then finally, I would say, you know, there is there are certain elements of investment entities and other components of expense growth in non comp that equally will come off over time. So I just draw that out. What I do want to tell you is that as we get to investor day, we're going to give you a certain expense target that we're going to look to harvest out of the firm in very concrete terms. That will help feed what I've been describing, which is an objective of creating capacity for reinvestment in the firm over time. And so that's why when I guide you that direction as being flat, it is consistent with creating that capacity. There will be growth. Some of the growth will come off. Others will be funded by capacity. You know, we create in and around the firm.

All right, that's helpful. And then just one big picture question of both David and you, Stephen mentioned well functioning and constructive capital markets. You said the trends early in 2020 are more positive. Why do you think that's the case?

And do

you think this time is different versus the past decade? Do you think these improvements are sustainable or not? What's your level of conviction? In other words, we haven't heard you on the earnings call, David or Stephen, for a long period of time. So we can't tell your relative constructiveness on the market.

So just a little more color on

that.

All right. Well, I appreciate the question, Mike. And I don't know that I can help you with my relative. I'll try to reiterate some of the things that I said, and hopefully it'll be helpful context. So, you know, I do think I do think the economic environment at the moment is constructive. What I said on the call about the U.S. economy and our expectation of growth of about 2 percent in in 2020, we have relatively high conviction on. I can give you a set of things from a macro or geopolitical perspective that could change, which should significantly shock confidence and therefore change that picture. But I think the chance of that happening in 2020 at this point seems low. It's not zero, but it doesn't seem likely. I think that there's been a slight improvement. And that's what I that's what I said when I was asked earlier. We were talking about corporate sentiment, a slight improvement in corporate sentiment as we came to the end of the year. And there was some progress in the year on some of the macro overhang that would have a tendency to affect corporate sentiment. And so I think you have a slightly more positive corporate sentiment heading into 2020. And I do see some indications around deal activity that look a little stronger in the fourth quarter. And as we step into the first quarter of this year. So I do think it's constructive. I made comments with respect to sluggishness in Europe, but a little bit more constructive on China again, with a little bit of a clearing of the U.S. And I think that's a good example of a slight improvement in China as a step forward. That might remove some slight headwinds. But but I don't know how to give you a relative. I think our general point of view is in the distribution of outcomes. The highly most likely outcome is we have a relatively benign economic environment in 2020.

Next question from the line of Brennan Hawken with UBS. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just a quick follow up on the target around the noncomp in your expectations. I think, Stephen, you had said that you expect to it to be flat from here. Just to clarify, is that that from here, noncomp for the full year of 2019 ex litigation or is that the four Q run rate ex litigation?

No, I would say it's in the 2019 ex litigation, kind of where we stand on the full year.

Perfect. Thank you very much. And then another one on expenses. The there was a curious about comp and whether or not there might have been some noise in the comp ratio this year. There was an elevated level of partners retiring. Did that have any impact on that metric here this year or or less?

I think it's a question, Brennan. No, with respect to the comp ratio, partner retirements and the movement of partners in and out of the firm had no impact on the comp ratio. You know, I would just comment because I, you know, I've seen some commentary on this. When we look at the movement of partners through the cycle, the two year cycle of partners, and we have an election coming up this fall, there's nothing about the movement. In 2019 that looks different to us than the movement we've seen over the first year of the last number of cycles. So, you know, we have movement or a partnership. It's part of the culture, the partnership that younger partners have brought up. And despite some of the dialogue around it, we don't see anything significant about the movement of partners at this point in the cycle.

Next question is from the line of Jim Mitchell with Buckingham Research. Please go ahead.

Hey, good morning. Maybe we can talk a little bit about your expansion of the Alternatives business and just maybe talk a little bit about the efforts to accelerate that growth and if there will be any kind of balance sheet usage associated with that or is it really going to be just sort of AUM growth?

So, what we've what we've tried to do and at the investor day will give you more color on this and kind of walk you through a plan around it. We've run an alternative business that has been some client capital and balance sheet capital. And in the context of that client capital and balance sheet capital, the business has been housed in multiple different businesses spread across the firm. We have now brought all those businesses together in one business and we are we have put together and are moving forward with a plan to significantly increase the institutional client money that we manage with that infrastructure around the globe. Historically, we have managed some institutional money, but we've managed very significant private wealth money in addition to using our balance sheet. On a go forward basis, we don't plan to grow the balance sheet, but we will continue to use balance sheet, but we will remix that balance sheet so that the RWA density is different and it's less capital intensive. But the primary growth plan for the business is to over time raise a significantly increased amount of institutional capital that appreciates the fact that our consolidated alternative platform is broad, global and deep. And that we operate in all the all the different categories, private equity, growth equity, credit, infrastructure, real estate. And we also do it all over the world and have resources all over the world to execute on that. And that is very attractive to the long, the large institutional capital raisers. And we have not traditionally attacked or have partnered with them across this broad platform. And so at Invest Today, we'll give you more color on how we plan to do that and what you could expect from that over the coming five years.

That's really helpful. Is there any challenge or do you find, you know, in competing with your more pure play competitors that are publicly traded, do you think there's some sort of disadvantage in raising institutional money, having your hands in other businesses or do you don't think that's an issue?

Well, we've been we've been in these businesses for 30 years and we've executed well in these businesses for 30 years. We've also been a leader in providing services to those businesses that you refer to. We have an active dialogue with those companies about our activities and what we plan to do. And John, Stephen and I are extremely focused on the client orientation and the client nature in the context of the way we run. You know, we run the firm. The other firms that are out there have very, very ambitious institutional capital raising plans from institutions. But there's a lot of capital to allocate and we're very comfortable that they can raise a lot of capital. We can raise a lot of capital. What's interesting about this business is this is a business that actually is growing secularly. And so we think we're very well positioned, given where we are, both to participate, but also to continue to service those clients in a differentiated value added way.

No next questions from the line of Chris Kutowski with Oppenheimer. Please go ahead.

Yeah, actually my question is related to that last one, which is in looking at the asset management segment and the $22 billion of mainly private equity investments. You know, I guess the question is, you know, I mean, if you put it in the context of the publicly traded alternatives, you know, Blackstone has a pretty big business. And their GP investments is about a billion eight by comparison. And, you know, so what is the strategic need for and rationale for keeping that large of a balance sheet commitment?

So we have we have a differentiated model and there's no question that Blackstone operates a business with very low, you know, with no capital. If if maybe we were starting today from scratch with a white sheet of paper, you might develop the business differently. But what's happened because of the way we run our business is we've built out a very, very broad, deep global network of investors all over the world. And we think that's a real asset to capital allocators. We've done that because we've built up strength investing off our balance sheet. And historically, candidly, one of the things investors have liked is they like the fact that we partner with them and we have skin in the game and we're committed to investments with them. That alignment, I think, is a very, very good thing. And I think that'll be a differentiated component of our strategy here. And so strategically, that's something I think that differentiates us in the context of this strategy. Also, as we grow new products and services in the space around the world and add to what we're doing, it is easier to fund the acceleration of that. If you do have the capacity to use balance sheet to jumpstart some of those businesses. So, again, going back to what I said before, we would not expect the balance sheet to grow. We would expect to change the RWA density by shifting some out of equity into more credit or infrastructure type assets. But we think we have a competitive advantage or a different strategy that's a good advantage to partner with our clients and we plan to continue it.

Okay, that's it for

me. Thank you. We're going to ask questions from the line of Devin Ryan with JNP Securities. Please go ahead.

Great. Good morning, David and Stephen.

Hey, Devin.

Hey, I guess first question here. So, you know, I saw the Marcus app was rolled out last week and I'm just curious, what took so long, I guess, to get that out? And how are you thinking about integrating that with some of the other products and consumer and really integrating it with clarity money in that app as well? And really, the question is, I'm just trying to understand some of the branding and consumer and what you're going to be using, you know, call it as a digital storefront.

So, on the Marcus app, you know, when we first began Marcus three years ago, you recall that, you know, our two products were deposits and unsecured loans. So, the utility of the app early on was not quite high, meaning people who carry a loan are not looking to check on it with the frequency of those that use apps, you know, for their day to day exchange. And so, we sort of set a set of priorities for ourselves in terms of the direction we were going to build. And we would ultimately come upon, you know, the app. I would say from the moment we began to think about the design of the app and, in fact, bringing clarity money into the house, the idea was to take the best of the technology. That is what clarity money had developed, which was super interesting in terms of prompts and the use of intelligence to do that and kind of a two-way engagement with the user or consumer of the app. We wanted to embed that in a broader app that we would roll out. So, you're seeing the first phase of that now, particularly as people will start to engage more and more with us, again, with greater frequency than they did at the start. And we're embedding the best of what is clarity money in the context of the creation of that app overall. And so, it was really a question of anticipated use, slower at the start, faster now, a question of priorities, and now bringing it together. On your question about branding, I think I'll defer you to Investor Day when we'll talk a lot more with much greater context, you know, than I could answer in a single question on the branding strategy around consumer and around wealth management more broadly.

Okay, terrific. Looking forward to that. And then just to follow up here, modeling the comp ratio and cadence moving forward. So, the fourth quarter comp ratio was about 600 basis points below the first quarter level. I know that's much tighter than the historical relationship and also no consistent with how you're now looking to accrue on more of a real-time basis. You also had a very strong fourth quarter for equity investment performance, which I would think could have a lower comp ratio to it. So, I'm just trying to get some flavor for whether the 2019 relationship is a decent proxy on a quarterly basis or the stronger fourth quarter in the equity performance, maybe skew that a bit lower.

Sure. So, let me start from the top. As you know, our comp and benefits line was flat year over year, and our comp to net revenue number was roughly in line slightly higher than where it was last year. So, that's to look at the full year. Embedded in your question was in fact the right reference, which is, as I've said several times, we are accruing for compensation each quarter as the accounting standards require, which is our best estimate of the compensation we would need. And so, we've done that much more on a straight line without relying or waiting on the fourth quarter so as to be a bigger adjustment. And so, you're seeing more straight line because of that. You're seeing this fourth quarter variability relative to where we were in the past. That's just a function of the way in which we are now accounting again, more of a straight line than not. I would say just to step back from the particulars, I think that from a compensation point of view, we had taken payroll and compensation expense down in a number of different businesses over the year in order to redeploy compensation to populations of people that are working on some of the growth businesses that we have. By definition, that compensation dollar is not producing an equal amount of revenue as it would in other areas. It will as those businesses grow and mature. And so, part of this is a reallocation of compensation in that direction while maintaining comp and benefits at a constant or flat year over year and reflecting in on the comp and at revenue number being roughly flat as well.

Your next question comes from a line of Gerard Cassidy with RBC. Please go ahead. Thank you.

Good morning. Morning. I was wondering, and you may not be able to answer this question today, which is fine, and if you can't possibly, you may want to give us this detail at investor day. But in the regulatory filings for all the banks, there's a category of loans called loans to non-depository financial institutions. And when we look at that for the top banks like your own, the growth has been pretty impressive since 2013. When we look at it for your organization back then, it was about $6.7 billion, and today it's approximately $43 billion. So the question is, what's in that portfolio? And again, if you don't have the details, I understand, but maybe you could share with us on investor day some good details of what's in that portfolio.

Yeah. So I think I want to give you an answer with some specificities. So let me suggest that Heather Miner and her team get back in touch with you and we can itemize, as is publicly disclosed, what exactly sits in that category. And we can give you some progression of how that's migrated. I just don't have the particulars around that to hand.

That's okay. That's not unusual by the way. When we ask this question of other banks, most people don't really give us the details. But that's fine. Then the second question, can you give us some color? Obviously the Apple Card has received a wonderful amount of publicity, and Apple has branded it, of course, as a card created by them and not a bank type of logo. The question I have is, Apple is obviously very respectful of their brand and their customers. And in a recession, we all know unemployment goes up. And we also know that credit card delinquencies are linked to unemployment. Have you guys, is there anything that concerns you that as we go into a recession, state unemployment goes to 6% delinquencies for all credit cards, more than double from where we are today? Are you going to be hand-strung trying to collect those delinquencies because of the way it's been branded as an Apple Card and it's not a bank? Yeah.

So thanks for the question. I want to be really clear on this. Notwithstanding whoever lays claim to the creation of the card, there's only one institution that's making underwriting decisions, and that's Goldman Sachs. So Goldman Sachs is making all of the underwriting decisions as it relates to it. We have set targets and goals and objectives, along with Apple, as a good partner would. And Apple is completely in the know as to sort of how we are going about these underwriting decisions. But the ultimate decision sits with us. And so we calibrate, manage our risk and collections in the context of that. And so I think I just want to be really clear about that. It is the bank that renders underwriting decisions in that regard.

Our next question is from the line of Brian Kleinhansel with KBW. Please go ahead.

Yeah, thanks. I'll be quick here. It looks like on the consumer side you saw deposits go up about $5 billion this quarter, but you seem to see have better growth when you enter into new markets. Is there any type of geographic expansion that you're planning within the markets business that can kind of accelerate growth on deposits there? Thanks.

Yeah, sure. Thank you. You know, the question has come up frequently. Obviously, the primary growth is in the U.S. In the U.K. we have seen considerable growth in deposits, which has really pleased us even relative to the early expectations. You know, we have looked at a variety of other jurisdictions in terms of where we could raise deposits. Germany as a name has come up several times. It's natural that it would, you know, in the context of Brexit and planning and doing more asset generation in through, you know, our European business. I think we'll wait and see how things progress around Brexit, the size, magnitude and pace of asset growth there, you know, before we make a decision about, you know, where we next plant the flag from a deposit perspective. And so there are no immediate plans in terms of a next in terms of next jurisdiction, but we continue to evaluate it. And, you know, we have built the platform, particularly in the U.K. with embedding greater flexibility for us to open it or open a new jurisdiction without building from ground zero. And so, you know, it was planned with that with that in mind.

At this time, there are no further questions. Please continue with any closing remarks.

So, since there are no more questions, I would like just to take a moment to thank everyone for joining the call on behalf of our senior management team. We hope to see many of you later this month. If any additional questions arise in the meantime, please do not hesitate to reach out to Heather. Otherwise, enjoy the rest of your day. And we look forward to speaking with you at Investor Day.

Ladies and gentlemen, this does include the Goldman Sachs Fourth Quarter 2019 earnings conference call. Thank you for your participation. You may now disconnect.