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 first quarter 2024 earnings conference call. On behalf of Goldman Sachs, I will begin the call with the following disclaimer. The earnings presentation can be found on the investor relations page of the Goldman Sachs website and contains information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material of the Goldman Sachs Group, Inc., and may not be duplicated, reproduced, or rebroadcast without consent. This call is being recorded today, April 15, 2024. I will now turn the call over to Chairman and Chief Executive Officer David Solomon and Chief Financial Officer Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference.

Thank you, Operator, and good morning, everyone. Thank you all for joining us. We feel very good about our first quarter results. which reflect the strength of our world-class and interconnected franchises and the earnings power of our firm. This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths. As you can see, we are delivering on our strategy, and we are pleased with the returns we generated this quarter. As laid out in January, we have three strategic objectives. To harness one Goldman Sachs to serve our clients with excellence, to run world-class differentiated and durable businesses, and to invest to operate at scale. Across the firm, we are effectively serving clients in what remains a complex operating environment. Looking back on the last year or so, one of the most common questions clients and investors have asked is around the timing of a broader reopening of the capital markets. I've said before that the historically depressed levels of activity wouldn't last forever. CEOs need to make strategic decisions for their firms. Companies of all sizes need to raise capital. And financial sponsors need to transact to generate returns for their investors. Where we stand today, it's clear that we're in the early stages of reopening the capital markets. But the first few months of 2024 seen a revigoration and new issue market access. For example, there were a number of large IPOs across geographies. And the strong reception across transactions, including the IPOs for Galderma, Reddit, and Rank, is the latest sign that investors' risk appetite is growing. In debt capital markets, tighter spreads have contributed to a constructive issuance environment and investment grade, with volumes hitting a record for the first three months of the year. Additionally, refinancing was a major theme, with robust high-yield and institutional loan refinancing volumes. Given a more accommodative issuance backdrop, as well as the potential for increased acquisition financing alongside higher M&A activity, we expect solid levels of debt underwriting activity to continue this year. With our longstanding leadership positions across the global capital markets, we have been at the forefront in helping our clients access the markets, and our firm stands to benefit further as transaction volumes rise from the 10-year lows. It's important to note that alongside the reopening, we are seeing in capital markets our intermediation businesses continue to be active in supporting our clients' needs. And we're growing financing revenues across FIC and equities, which together were a record this quarter and rose 18% sequentially. All in, our top-tier intermediation franchise and more durable financing results are helping raise the floor in global banking and markets. In asset and wealth management, assets under supervision rose to a new record of $2.8 trillion this quarter, which represented our 25th consecutive quarter of long-term fee-based net inflows. We have a diversified platform across public and private markets and are delivering solid performance across asset classes, and we continue to invest resources in growing this business, particularly across wealth management, alternatives, and solutions. In wealth management, we saw significant strength this quarter with total client assets ending at $1.5 trillion. In alternatives, we raised $14 billion in commitments despite a more difficult fundraising environment. And in solutions, we saw continued demand for our outsourced CIO and SMA offerings. These are all areas in which we still see significant opportunities and where we have a proven track record and demonstrated right to win. I also want to touch on a topic coming up in virtually every client conversation I have, artificial intelligence. While there is broad consensus about the transforming potential of AI, there is enormous appetite for perspectives on how certain aspects may play out, including the timeline for commercial impact, shape of potential regulation, impact on job, and where value will accrue in the ecosystem. Today, we are proud to be at the forefront of advising clients on these topics, and how to think about potential use cases in their operation. As we look longer term, to the extent that this technology develops in line with expectations, there will be significant demand for AI-related infrastructure, and as a result, financing, which will be a tailwind to our business. For our own operation, we have a leading team of engineers dedicated to exploring and applying machine learning and artificial intelligence applications. We are focused on enhancing productivity particularly for our developers, and increasing operating efficiency while maintaining a high bar for quality, security, and controls. Like with any emerging technology, a thoughtful approach and keen eye on risk management will be crucial. Turning to the macro environment, we continue to be constructive on the health of the U.S. economy. The Fed most recently telegraphed three rate cuts in 2024, but last week's CPI print has lowered market expectations. This will continue to evolve and be highly data dependent. I'm also mindful that U.S. equity markets are hovering near record levels at a time when we continue to see headwinds, including concerns around inflation, the commercial real estate market, and escalating geopolitical tensions around the world. This combination could slow growth. But that said, the U.S. economy has proven to be resilient, supported by a number of factors, including government spending, as well as labor force growth driven by above trend levels of immigration. So while the environment is constructive and markets expect a soft landing, the trajectory is still uncertain. Nonetheless, I'm very confident about the state of our client franchise, the caliber of our people, and our culture of collaboration and excellence. Every day as I interact with the people of Goldman Sachs around the world, I am consistently impressed by their talent, capabilities, and how tirelessly they work to serve our clients. The quality of our people reinforces my conviction in the long-term opportunity set for Goldman Sachs and our ability to deliver for clients and shareholders. And we'll now turn it over to Dennis to cover our financial results for the quarter.

Thank you, David. Good morning. Let's start with our results on page one of the presentation. In the first quarter, we generated net revenues of $14.2 billion and net earnings of $4.1 billion. resulting in earnings per share of $11.58, an ROE of 14.8%, and an ROTE of 15.9%. We provide details on the financial impact of selected items in the bottom table, the aggregate of which was immaterial this quarter. Let's turn to performance by segment, starting on page three. Global banking and markets produced revenues of $9.7 billion in the first quarter and generated an 18% ROE on a fully allocated basis. Turning to page four, advisory revenues of $1 billion were up versus a year ago amid higher completed transactions. We remain number one in the league tables for both announced and completed M&A. Equity underwriting revenues of $370 million and debt underwriting revenues of $699 million both rose significantly year over year amid an increase in industry volumes. Our backlog fell quarter on quarter as we successfully brought transactions to market. though client engagement and dialogues remain robust. Thick net revenues were $4.3 billion in the quarter, up from a strong performance last year as our global scaled franchise continued to serve clients amid a dynamic operating environment. Intermediation results were driven by better performance in mortgages, credit, and currencies. Our long history of risk-taking acumen enabled us to effectively make markets across a number of different geographies and asset classes. We produced record FIC financing revenues of 852 million, which rose sequentially primarily on better results in repo. We remain confident in our ability to continue to grow balances and drive growth in this business over time. Equities net revenues were $3.3 billion in the quarter. Equities intermediation revenues of $2 billion rose 14% year over year on better performance and derivatives. Equities financing revenues of $1.3 billion were modestly higher year-over-year as record average prime balances during the quarter were only partially offset by lower financing spreads. Moving to asset and wealth management on page five. Revenues of $3.8 billion were 18% higher year-over-year. Record management and other fees were up 7% year-over-year to $2.5 billion. As a reminder, we closed the sale of personal financial management in November of last year. which contributed approximately $60 million in fees in the year-ago period. Incentive fees for the quarter were $88 million, up sequentially and year-over-year. Based on our bottoms-up analysis, we expect to reach our target of $1 billion in annual incentive fees over the medium term, supported by an estimated $3.8 billion of unrecognized incentive fees as of year-end. Private banking and lending revenues were $682 million. up substantially as revenues in the prior year period were negatively impacted by the partial sale of our Marcus loan portfolio. Equity investments and debt investments revenues totaled $567 million. In equity investments, we saw improved performance year over year in our private portfolio that was largely offset by a markdown on a large public position. Now moving to page six. Total assets under supervision ended the quarter at a record $2.8 trillion. We had $24 billion of long-term net inflows, largely in fixed income. representing our 25th consecutive quarter of long-term fee-based inflows. Turning to page seven on alternatives. Alternative assets under supervision totaled $296 billion at the end of the first quarter, driving $486 million in management and other fees. Gross third-party fundraising was $14 billion in the quarter. We continue to expect to raise between $40 and $50 billion in alternatives across private equity and other strategies this year. More broadly, we are leveraging our longstanding leadership position in private credit to capitalize on this secular growth opportunity and expect to grow our assets from roughly $130 billion to $300 billion over the next five years. On-balance sheet alternative investments total approximately $44 billion. In the first quarter, we reduced our historical principal investment portfolio by $1.5 billion to $14.8 billion. We expect reductions at roughly this pace for the rest of 2024, and expect to sell down the vast majority of our HPI portfolio by the end of 2026, consistent with our target. Next, platform solutions on page 8. Revenues were $698 million. Overall, segment profitability has improved, with a pre-tax net loss of $117 million for the quarter. In line with our target, we expect to drive this business to pre-tax breakeven next year. On page 9, Firmwide net interest income was $1.6 billion in the first quarter, up sequentially on an increase in interest-earning assets. Our total loan portfolio at quarter end was $184 billion, roughly in line with the fourth quarter, as an increase in other collateralized lending was partially offset by the sale of the remaining Green Sky portfolio. Our provision for credit losses was $318 million, which reflected net charge-offs in our credit card lending portfolio. Within our wholesale portfolio, impairments trended modestly lower versus the levels in the last few quarters. Turning to page 10, we continue to provide additional information detailing our CRE exposure. As you know, we moved early in actively risk managing our CRE exposure and currently have $26 billion in loans, $4 billion in AWM alternative equity and debt securities, and $2 billion in equity at risk related to CIEs. Turning to expenses on page 11, total quarterly operating expenses were $8.7 billion, resulting in an efficiency ratio of 60.9%. Our compensation ratio net of provisions was 33%, reflecting improved operating performance for the firm. Non-compensation expenses were $4.1 billion. These costs declined year-on-year, even inclusive of a $78 million FDIC special assessment charge, and were down sharply versus the fourth quarter. Our effective tax rate for the quarter was 21.1%, and for the full year, we expect a tax rate of approximately 22%. Now on to slide 12. Our common equity Tier 1 ratio was 14.7% at the end of the first quarter under the standardized approach. In the quarter, we returned $2.4 billion to shareholders, including common stock repurchases of $1.5 billion and common stock dividends of $929 million. We are currently running with a 170 basis point buffer above our capital requirements. Given expectations for significant modifications to the Basel III proposed rule, we should have materially more flexibility on capital deployments. We also remain committed to paying our shareholders a sustainable and growing dividend. In conclusion, our first quarter results reflect the strength of our leading global banking and markets franchise and our growing asset and wealth management business. Simply put, we are delivering on the things we said we would do. We are focused on our strategic objectives and the execution focus areas for 2024 that we laid out in January, which will help our businesses produce mid-teens returns through the cycle. We are confident in our ability to deliver for shareholders while continuing to support our clients and remain optimistic about the future opportunity set for Goldman Sachs. With that, we'll now open up the line for questions.