Goldman Sachs Group, Inc. (The)

Good morning. My name is Katie and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs fourth quarter 2022 earnings conference call. This call is being recorded today, January 17th, 2023. Thank you. Ms. Halio, you may begin your conference.

Good morning. This is Carrie Halio, head of investor relations and chief strategy officer 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. Note information and forward-looking statements and non-GAAP measures appear in 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. I am joined by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Dennis Coleman. Let me pass the call to David.

Thanks, Carrie, and good morning, everyone. Thank you all for joining us today. I'll begin with a review of our financial performance. Simply said, our quarter was disappointing, and our business mix proved particularly challenging. These results are not what we aspire to deliver to shareholders. We generated revenues of $10.6 billion and net earnings of $1.3 billion. and earnings per share of $3.32. After nine straight quarters of double-digit returns, fourth quarter performance was certainly an outlier. Results were impacted by several near-term challenges given the difficult operating environment. On the revenue front, underwriting volumes remained extremely muted despite green shoots that appeared at the end of the third quarter. Pick and equity activity levels dropped after a busy and volatile year for many of our clients. and our equity investment portfolio saw continued headwinds. We also saw higher loan loss provision and expenses. While compensation expenses were down 15% for the year, quarterly expenses rose modestly versus the third quarter. We always strive to maintain a pay for performance culture. With revenues down, compensation was lower. That said, we also recognize that we operate in a talent-driven business and we must continue to invest in our people whose dedication is critical to our world-class franchise. On our earnings call last July, we first spoke about the challenging operating environment and the proactive measures we were taking on expenses, including slowing hiring velocity and reducing certain components of our non-compensation costs. We have and continue to be incredibly focused on managing our financial resources, especially in light of the worse-than-expected backdrop in the fourth quarter. Specifically, we reduced the size of our balance sheet, further optimized and reduced our RWA footprint, and managed down our GSIB score to hit our 3% target. We have also started firm-wide expense reduction efforts to offset inflationary pressures and right-size the firm for the current environment. We made the difficult decision to conduct a 6% headcount reduction exercise earlier this month. As we said, we had paused our regular performance management-related reductions during the pandemic and also had a period of strong growth in headcount given the opportunity set in 2021. We feel deeply for the individuals that were impacted by these reductions. They are extremely dedicated and talented individuals, and we wish them the best. Additionally, we are taking a number of strategic actions to help us reach our financial targets and create shareholder value. For instance, this quarter, we completed our reorganization, which will further strengthen our core businesses, help us scale our growth platforms, and improve efficiency. This is an important and purposeful evolution of our strategic journey. We also narrowed our ambitions and our consumer strategy and made some key decisions. We started a process to cease offering new loans on the Marcus platform. We will likely allow the book to roll down naturally, although we are considering other alternatives. In addition, we have postponed the launch of our checking product. At the right time in the future, we intend to offer checking to our wealth management clients. For now, our priority is to strengthen our deposit franchise, card partnerships, and green sky. Our narrowed approach will allow us to reduce our forward investment spend and rationalize expenses. We are very focused on developing a path toward profitability and platform solutions, and we'll provide more detail at our Investor Day next month. As you can see from our new segment reporting, we are committed to providing continued transparency for you to hold us accountable. I want to spend a moment on the broader operating environment. The backdrop over the last year has been incredibly dynamic. There were headwinds we expected, like high inflation, but some we never thought we'd see, like the ongoing land war in Ukraine. There aren't many signs of widespread distress. Balance sheets and company fundamentals are relatively healthy. But it's clear that the outlook for 2023 remains uncertain. In the U.S., central bank rate increases have started to have an impact on inflation, but they are also lowering the growth trajectory of the economy. And the labor market remains remarkably tight, with an estimated 1.7 job openings available for every unemployed American. Our clients are thinking a lot about how to navigate this complex backdrop. CEOs and boards tell me they are cautious, particularly for the near term. They are rethinking business opportunities and would like to see more stability before committing to longer-term plans. Many firms have started preparing for tougher times, focusing on factors within their control. Taking a step back, I am proud of the significant progress we have made in our strategic evolution since investor day 2020. Despite a more challenged fourth quarter performance, we delivered for shareholders in 2022. We generated double-digit returns in a year where rapid monetary tightening and ongoing macro uncertainty drove significant market disruption. with both equity and fixed income markets falling for the first time in over 50 years. We grew management and other fees by 13% year over year and grew net interest income by 19%. We reduced our on-balance sheet alternative investments by $9 billion. We also returned $6.7 billion of capital in the form of dividends and share repurchases, and we grew our book value by 7%. This brings our book value growth since our first investor day to almost 40%. roughly twice as much as our next closest competitor. That said, we remain focused on the work ahead of us, and we believe we have a lot to play for. As we go forward, we are executing on three key priorities we've laid out for the businesses. Number one, growing management fees in our asset and wealth management business. Number two, maximizing wallet share and growing financing activities in our global banking and markets business. Number three, scaling platform solutions to deliver profitability. We have a proven track record of navigating a wide range of operating environments, and we will continue to execute our long-term client-oriented strategy regardless of where we are in the cycle. We have the people in place around the world to serve our clients' broad range of needs with excellence, and we are operating from a position of strength with robust capital levels and a clear focus on the path forward. I remain optimistic about the future of Goldman Sachs and confident that we will continue to deliver for shareholders. We look forward to speaking more about this with all of you at our Investor Day on February 28th. I'll now turn it over to Dennis.