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 third 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-gap 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, October 15th, 2024. I will now turn the call over to the 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. Good morning, everyone. Thank you all for joining us. In the third quarter, we produced net revenues of $12.7 billion in generated earnings per share, of $8.40, an ROE of 10.4%, and an ROT of 11.1%. Overall, I'm pleased with our performance, especially in our quarter, where our results were impacted by selected items, including the narrowing of our consumer footprint, which reduced our ROE by 80 basis points. Our performance demonstrates the strength of our world-class and interconnected franchises, where we were effectively serving clients in a complex backdrop. In global banking and markets, we remain the premier M&A advisor and a leading global risk intermediary. Across investment banking, corporates, and sponsors remain actively engaged, and we see significant pent-up demand from our clients. Our backlog rose again this quarter, driven by advisory, and we expect our leading investment banking franchise to benefit from the continued resurgence in activity. In FIC, we delivered record financing revenues and facilitated our clients risk intermediation needs, particularly as activity levels picked up towards the end of the quarter. And in equities, we reported a very strong performance across both intermediation and financing. Overall, our global broad and deep platforms remain exceptionally well positioned to support our clients' evolving needs across products and asset classes. In asset and wealth management, our position as a leading global active asset manager, a top five alternatives player, and a premier ultra-high net worth franchise affords us significant opportunities in secular growth areas. Our assets under supervision reached another record this quarter, surpassing $3 trillion and representing our 27th consecutive quarter of long-term net inflows. We demonstrated further growth and more durable management and other fees in private banking and lending revenues, which together were a record $3.4 billion this quarter and up 9% versus last year. We remain confident in our ability to grow these more durable revenues at a high single-digit pace over the coming years. In alternatives, fundraising remains strong. We raised over $50 billion year-to-date and now expect 2024 fundraising to exceed $60 billion as we see ongoing demand across asset classes, including private credit, private equity, secondaries, and infrastructure. In wealth management, we grew our total client assets to $1.6 trillion, and our ultra-high net worth franchise is well-positioned to continue to grow globally as we expand our advisor footprint and our lending offerings to clients. Our pre-tax margin in AWM is up meaningfully from last year and in line with our mid-20s target. We remain focused on further improving the margins and returns in this business while also investing to drive growth across wealth management, alternatives, and solutions. As I look at the operating backdrop, the U.S. economy continues to be resilient. Inflation has been coming down. The recent unemployment data is supportive. And while we've seen some softness in consumer behavior, the tone of my recent conversations with clients has been quite constructive. The beginning of the rate cut cycle has renewed optimism for a soft landing, which should spur increased economic activity. More broadly, clients remain highly focused on the trajectory of rates in jurisdictions around the world. the policy implications of global elections, particularly in the U.S., and the high levels of geopolitical instability. Against this backdrop, our leading global franchises are supporting our clients as they navigate risks and position themselves for a range of outcomes. Before I turn it over to Dennis, I want to spend a moment on capital and Basel III revision. Although we have closely followed the recent remarks from regulatory officials about the upcoming re-proposal, We continue to have concerns about the overall regulatory process. There remains a lack of transparency and appreciation for the interconnectedness of capital requirements across the proposed fundamental review of the trading book, CCAR, and the GSIB buffer. We recognize this is an ongoing process that will take time, but as we've said before, we need to get this right. The final rule will have a significant impact on the growth and competitiveness of the U.S. economy. Acquiring too much capital will increase the cost of credit for businesses large and small and will impact growth across the country. We look forward to receiving more clarity from our regulators once the re-proposal is published and participating in the new comment period. We remain very engaged both as an industry and as a firm. In closing, I feel very good about the trajectory of Goldman Sachs. We are leaning into our strengths. Our client franchise is stronger than ever, and we continue to harness our one Goldman Sachs approach. Our world-class talent, execution capabilities, and risk management expertise are core to who we are as a firm and allow us to provide differentiated service to our clients and outperform for shareholders through the cycle. Let me now turn it over to Dennis to cover our financial results in more detail.

Thank you, David. Good morning. Let's start with our results on page one of the presentation. In the third quarter, we generated net revenues of $12.7 billion, up 7% year-over-year. Earnings per share of $8.40, up 54% year-over-year. Our ROE was 10.4%, and our ROTE of 11.1%. As David mentioned, our results were impacted by select items, including agreements to transition the GM card platform and to sell our portfolio of seller financing norms. In aggregate, these items reduced EPS by 62 cents and our ROE by 80 basis points. Now turning to performance by segment, starting on page four. Global banking and markets produced revenues of $8.6 billion in the third quarter. Advisory revenues of $875 million were up both sequentially and versus the prior year period. We remain number one in the league tables for announced and completed M&A for the year to date. Equity underwriting revenues rose 25% year-over-year to $385 million, as equity capital markets have continued to reopen, though volumes are still well below longer-term averages. Debt underwriting revenues rose 46% year-over-year to $605 million amid higher leverage finance and investment-grade activity. We are seeing increased client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity. Overall, our investment banking backlog rose quarter on quarter, driven by advisory. FIC net revenues of $3 billion in the quarter were down from a strong performance last year amid a relatively quieter summer, though we saw a meaningful pickup in activity in September. A decline in intermediation revenues was partially offset by record FIC financing revenues of $949 million, which rose 30% year over year primarily on better results within mortgages and structured lending. Equity's net revenues were $3.5 billion in the quarter, up 18% versus the prior year. Equity's intermediation revenues were $2.2 billion, up 29% year-over-year, primarily driven by strong performance across derivatives and cash products. Equity's financing revenues of $1.3 billion rose versus the prior year amid higher average balances. Across FIC and equities, financing revenues were a record, $6.6 billion for the year to date, a direct result of the successful execution on our strategic priority to improve the durability of our revenue base. Moving to asset and wealth management on page five. Revenues of $3.8 billion were up 16% year over year. Our more durable management and other fees and private banking and lending revenues reached a new record this quarter of $3.4 billion. Management and other fees increased 3% sequentially to a record $2.6 billion for the quarter and $7.6 billion for the year to date, well on the way to achieving our $10 billion annual target for 2024. Private banking and lending revenues rose sequentially to $756 million. We are seeing positive momentum in this business, and we remain focused on increasing lending penetration and expanding our loan product offerings. Incentive fees for the quarter were $85 million. We continue to expect to reach our annual target of $1 billion over the medium term, supported by approximately $4 billion of unrecognized incentive fees as of the last quarter. Equity and debt investments revenues total $294 million, reflecting NII in our debt portfolio and markups in our public equity portfolio. For the year to date, we generated $1.5 billion in combined equity and debt investments revenues. Now moving to page six. Total assets under supervision ended the quarter at a record of $3.1 trillion, bolstered by $37 billion of liquidity products net inflows and $29 billion of long-term net inflows across asset classes. We continue to see traction in our solutions business, where we are leveraging our SMA capabilities and outsourced CIO platform to deliver customized multi-asset solutions. Turning to page seven on alternatives. Alternative AUS totaled $328 billion at the end of the third quarter, driving $527 million in management and other fees. Gross third-party fundraising was $16 billion in the third quarter and over $50 billion for the year to date. This brings cumulative third-party fundraising to more than $300 billion since our investor day in 2020. We further reduced our historical principal investment portfolio by $1.7 billion in the third quarter to $10.9 billion, bringing year-to-date reductions to $5.4 billion. On page 9, firm-wide net interest income was $2.6 billion in the quarter, up versus the prior year period, reflecting an increase in interest-earning assets. Our total loan portfolio at quarter-end was $192 billion, up year-over-year driven by an increase in other collateralized lending. For the third quarter, our provision for credit losses was $397 million, primarily driven by net charge-offs in our credit part portfolio and partially offset by 70 million of net recoveries on previously impaired wholesale loans. Turning to expenses on page 10, total quarterly operating expenses were $8.3 billion. Our year-to-date compensation ratio net of provisions is 33.5%. Quarterly non-compensation expenses were $4.2 billion, down 14% year-over-year. We remain focused on driving efficiencies across the firm given ongoing inflationary pressures, competition for talent, and our desire to invest in our engineering and technology platforms. Our effective tax rate for the first nine months of 2024 was 22.6%. For the full year, we continue to expect a tax rate of approximately 22%. Next, capital on slide 11. In the quarter, we returned $2 billion to common shareholders, including dividends of $978 million and stock repurchases of $1 billion. Our common equity Tier 1 ratio was 14.6% at the end of the third quarter under the standardized approach. During the quarter, the Federal Reserve reduced our SEB requirement by 20 basis points to 6.2% following a successful appeal process, resulting in a standardized common equity Tier 1 ratio requirement of 13.7%, which became effective October 1st. We remain very engaged with our regulators on creating a less volatile and more transparent process. Given our 90 basis point buffer, we continue to have flexibility on capital deployment and are very well positioned to serve our clients and return capital to shareholders. In conclusion, our overall performance reflected the strength of our client franchise and the improving operating environment. We are executing on our strategy, where we are maintaining and strengthening our leadership positions across global banking and markets and leaning into secular growth opportunities in asset and wealth management. Across both businesses, we are making strong progress in growing our more durable revenue streams. Simply put, we are playing to our strength as a firm, and we remain confident in our ability to drive returns for shareholders while continuing to support our clients.