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 First Quarter 2020 Earnings Conference Call. This call is being recorded today, April 15, 2020. Thank you, Ms. Minor. You may begin your conference.

Good morning. This is Heather Kennedy Minor, Head of Investor Relations at Goldman Sachs. Welcome to our First 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. Note 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 the firm's response to the COVID-19 pandemic, including our organizational resilience and business continuity, and our efforts to support our communities around the world. Then he'll speak to our results in the context of the recent market volatility and the broader operating environment. Stephen will then discuss our first quarter results in detail, including the firm's strong financial position and our execution priorities in the current environment. David and Stephen will be happy to take your questions following their remarks. I'll now pass the call over to David. David?

Thanks, Heather, and thank you everyone for joining this morning. First and foremost, all of us at Goldman Sachs hope that you and your loved ones are safe and healthy. We are grappling with an unprecedented global crisis that is putting extraordinary pressure on all of society, on families, on small business owners, on large companies, on non-for-profit organizations. on governments and economies around the world, and of course, on the healthcare system. There is no doubt that some segments of society, particularly our most vulnerable communities and small businesses, are suffering more than others. Thankfully, there are areas of inspiration. To all of the frontline workers, including doctors, the nurses, the individuals showing up to work every day to keep our supermarkets, our pharmacies, and our public transportation operating through this crisis, We are extremely grateful to you, and we are in awe of your courage and dedication. From where we sit today, it is too early to know the full impact or to predict the specific path to recovery, but I am confident, particularly in light of the decisive and thoughtful actions being taken around the world by the public and private sector, that together we will overcome this adversity. Our people have demonstrated time and time again extraordinary resilience and the ability to grow and adapt to change. and I am enormously proud of how our colleagues have risen to the occasion in recent weeks. They have been working tirelessly to help our clients navigate the challenging and volatile markets brought about by this pandemic. And as a leadership team, our first priority remains the safety and well-being of all of our Goldman Sachs teammates. To do this, we activated a comprehensive global business continuity plan. This has been an extraordinary effort with exemplary performance from all involved, especially our engineering and operation teams, admits the significant increase in market volatility. Over the past month now, we've been operating with approximately 98% of our global employees working remotely, while handling two to three times the normal trading volumes and maintaining very high levels of engagement across all our stakeholders, from corporations and institutions to individuals. Across the globe, including our teams in Bengaluru, Warsaw, Dallas, and Salt Lake City, We successfully outfitted employees with the necessary technology to work, communicate, and engage without interruption. Our smooth transition is a testament to our forward planning, technology capabilities, and business resiliency. At a time of reduced market liquidity, our people are working relentlessly to support our clients. This effort includes intensive engagement by our operations team, who've worked alongside their industry counterparts, to clear the extraordinary volumes of trades, sales, and margin activity. Throughout these events, the level of cooperation among financial institutions and the dedication and resiliency of our people is inspiring. We are also staying very close to our corporate clients. Over the past few weeks, I've personally spoken to almost 100 CEOs to share best practices, offer advice, and often to take advice from them. They face a variety of challenges, including distribution and supply chain disruptions and cash flow uncertainty. Many are working to keep their employees on the payroll despite a significant revenue headwind. I am broadly impressed by the private sector efforts to work together to help our communities navigate this crisis. For our part, to help support corporate financing needs, we are proud that in recent weeks we have reopened markets and underwritten a record amount of U.S. dollar investment-grade debt for clients. In addition, we have been an active participant in programs announced by the Federal Reserve to support the economy. We are also supporting the flow of capital in international markets. This year, we have led over $15 billion of fight COVID-19 bonds, including issuances for the African Development Bank, the Inter-American Development Bank, Austria, France, and Indonesia, where proceeds will be used to alleviate the economic and social impacts of the pandemic. During this period, we have also been actively engaged with our individual customers across the wealth spectrum. This has included providing advice, financing, execution, and investing opportunities for our PWM and high net worth clients. In consumer banking, it has meant providing uninterrupted access to our digital deposit, lending, and payments products, and continuous service through our call centers, which are now operating virtually. We've also taken important steps to support our consumer banking clients through this challenging time. We were early to announce the COVID-19 customer assistance program in March, and we have now extended it to April, giving our customers the flexibility to skip a monthly payment without penalty or interest. More broadly, over the past six weeks, John, Stephen, and I have remained in active dialogue with central banks, governments, and regulators. We commend the rapid, forceful, and unprecedented fiscal and regulatory responses designed to ensure liquid and well-functioning capital markets and to provide emergency financing to small businesses and and individuals that need it most. These actions will undoubtedly help mitigate the demand shocks caused by the virus and speed the economic recovery. The Federal Reserve and the US government, along with the ECB, Bank of England, and other global central banks have sent a clear message that they will decisively support the broader economy with the global banking system as an active partner. Goldman Sachs, alongside many other financial institutions, is prepared to play our part to help communities and businesses both small and large, suffering from the economic impact of this devastating health crisis. We are harnessing our resources, experience, and network to help where we can. We are working with public and private sector clients to partner on new initiatives with a focus on community assistance and economic support for businesses and serving our clients and customers. For our part, we've taken a number of important steps, including making a $550 million commitment to COVID-19 relief efforts. We will help small business owners weather this challenging time through $500 million for small business loans and $25 million in grants to community development financial institutions who have a long track record of reaching underserved communities and businesses. We have worked with many of these mission-driven lenders for years through our 10,000 small business program. In addition, we launched a COVID-19 relief fund with $30 million commitment through Goldman Sachs GIVES, including a special employee matching grant program to help healthcare workers, families, and the most vulnerable populations. Lastly, in response to the well-publicized shortage of equipment for health professionals, we continue to donate supplies to frontline workers who need them most. Across the US and Europe, we have donated 2.5 million surgical masks and 700,095 masks, which we acquired over a number of years following prior epidemics like SARS, as a part of our operational risk management efforts. As the situation rapidly evolves, we will continue to adapt our response while supporting the broader financial system, our clients, our people, and our communities. More broadly, these are defining times for organizations. Adversity compels us to innovate, to leverage new technologies, and to find new ways of thinking and interacting. At Goldman Sachs, we've always prided ourselves on doing that to help our clients succeed, and we continue to execute on this commitment as we move forward. With that context, I will turn to the quarter on page two of the earnings presentation to discuss our financial results. In the first quarter, net revenues were $8.7 billion, roughly flat versus a year ago. Net earnings were $1.2 billion, resulting in earnings per share of $3.11, an ROE of 5.7%, and a return on tangible equity of 6%. The first quarter proved to be two very different operating periods, with a solid January and February, followed by a challenging and volatile backdrop in March. In both contexts, our franchise businesses performed well. From a client perspective, we maintained our leading position as a strategic advisor to our investment banking clients in a period of stress. We delivered solid growth and thickened equities on high levels of client engagement, as we extended balance sheet liquidity to clients during the most volatile markets in March. We continued to advise our wealth management clients and accelerated deposit growth in our digital consumer banking business. In asset management, we saw direct impact from market dislocation as our on-balance sheet equity and debt investments experienced material mark-to-market losses from falling asset prices. We also recognized higher credit losses and bolstered our reserves. Challenges notwithstanding, we maintained a strong and highly liquid balance sheet with capital ratios above our minimums and robust levels of liquidity. Importantly, our franchise remains strong, and we feel well-positioned to deliver best-in-class advice, execution, and risk expertise to every client engagement. Turning to the operating environment on page three, the financial market started the year on solid footing, fueled by continued economic growth and strong consumer sentiments. Our business performed well in both January and February as markets notched new highs driven by client confidence and activity. This backdrop, however, deteriorated with unprecedented speed in early March as financial markets began to price in the severe risks from the spread of COVID-19 across the globe and the dramatic measures needed to contain it. We witnessed spikes in volatility across most financial assets and global markets. The S&P 500 declined sharply from all time highs in February and the VIX hit new highs. We also witnessed significant widening of credit spreads in both investment grade and high yield and de-risking from clients across all asset classes. Given our strong financial position, we were able to commit our balance sheet on behalf of clients and support strong volumes across our global markets franchise as investors sought to reduce risk exposures. The very high levels of activities of activity demonstrate the strength and scope of our franchise and our ability to serve clients as an important risk intermediary. Looking forward, our economists expect a very significant near-term decline in growth, followed by a rebound in the second half of the year when they expect us to get back about 50% of the decline in output that we lose in the first two quarters. More specifically, annualized U.S. GDP is forecasted to decline in excess of 30% in the second quarter before recovering in the third and fourth quarters. resulting in an economic contraction of about 6% of the year. This compares to growth expectations of over 2% just a few months ago. There is obviously a wide range of uncertainty around forward projections given the unknown duration of the health crisis. The reality is that none of us know for sure. This is why it is critically important during this difficult period that we maintain a strong financial profile and remain agile and flexible in our service to our clients. Lastly, I'll share a few comments on our Investor Day commitments. While January seems distant under these circumstances, more distant under these circumstances than the 10 or so weeks that have passed, the strategic direction we laid out for the firm remains no less compelling. Strengthening our core businesses, expanding in new and adjacent businesses, and operating with greater efficiency remain ever important to the firm. We established targets that contemplated a normal operating environment. And clearly, this is not a normal operating environment. Yet our targets represent medium and long-term goals, which we still aspire to. Interestingly, this environment has created opportunities for us to accelerate our strategic plans in certain areas. Our transaction banking rollout remains on track, and our growth in corporate deposits has exceeded expectations. In our alternatives business, we have accelerated fundraising on a strategic solutions fund of meaningful size, to help clients take advantage of attractive investment opportunities. In our high net worth business, we completed our rebranding of United Capital to Goldman Sachs Personal Financial Management on schedule in March. And our strong growth in consumer deposits continues to underscore the strategic importance of that business. You should expect us to manage through the current environment dynamically, with our priorities of serving clients and protecting the long-term value of our franchise. We will adjust our tactical response as appropriate, which may impact the timing, cadence, or the size of certain investments. That says our strategic goals remain in place. As we execute, we look forward to updating you on our progress. With that, I will turn it over to Stephen.