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 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, January 15, 2025. 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. Before I start my prepared remarks, I'd like to take a moment to touch on the devastating fires that have spread across Los Angeles. Our thoughts are with the people of L.A., including our colleagues and clients. We join everyone else in thanking the brave firefighters and first responders working tirelessly to protect that community. Now let me turn to our results. I'm very pleased with our strong performance as we continue to serve our clients in a dynamic environment. In the fourth quarter, we generated revenues of $13.9 billion. earnings per share of $11.95, an ROE of 14.6 percent, and an ROTE of 15.5 percent. For the full year, we increased our revenues by 16 percent to $53.5 billion. We grew our EPS by 77 percent to $40.54 and improved our ROE by over 500 basis points to 12.7 percent, demonstrating strong operating leverage. Before we review our financials in detail, I will start today's presentation with a strategic update. Beginning on page one, we have a clear purpose at Goldman Sachs. We aspire to be the world's most exceptional financial institution, united by our shared values of client service, partnership, integrity, and excellence. These values are the foundation of our strategy and enable us to deliver for our clients and our shareholders. As shown on page two, our interconnected client franchises are at the core of our growth strategy. Our global banking and markets business is distinguished by its scale, profitability, and leadership positions. In investment banking, we once again entered the year as the number one M&A advisor. In markets, we have the number one equities business and a leading FIT franchise. These leadership positions have been built over decades of investment, and they reflect the confidence and trust that our clients have in us. Our asset and wealth management business is comprised of a leading global active asset manager, top five alternatives franchise, and a premier ultra-high net worth wealth management business. This scaled business has over $3.1 trillion in assets under supervision with global breadth and depth across products and solutions. Importantly, our one Goldman Sachs operating philosophy drives the interconnectedness between these two world-class businesses, enabling us to seamlessly deliver a variety of unique solutions and execution capabilities to our clients. Turning to page three, delivering excellence to our clients is only possible because of our greatest asset, our people. Their exceptional focus and dedication, supported by our culture of collaboration and excellence, is critical in solving our clients' most consequential problems. Our people, history, and culture have made Goldman Sachs an aspirational brand around the globe, which allows us to attract quality talent across the organization. from our summer interns all the way to our partners. And we invest heavily in our people. Many of them have long careers at the firm, exemplified by the fact that over 40% of our partners started as campus hires. Of course, not all of our people stay at Goldman Sachs for their entire careers. Many leave for opportunities to lead other companies and investment firms. And these firms, in turn, often become important clients of Goldman Sachs. Today, more than 275 of our alumni are in C-suite roles at companies with either a market cap greater than a billion dollars or assets under management of over $5 billion. And hundreds of other alumni end up coming back to the firm as boomerang hires, including roughly 25 partners and managing directors last year alone, a testament to our enduring brand and culture. All in, we have an exceptional client franchise supported by our best-in-class talent and culture, which enables us to drive our strategy forward, and it is critical that we continue to invest in our people. Now turning to page four. At our first Investor Day in 2020, we laid out a comprehensive strategy to strengthen and grow the firm. We also laid out a number of targets that we could be held accountable for our progress. Today, the evidence is clear. We have met or exceeded almost all of these targets. We have grown our revenues from $37 billion to $54 billion, nearly 50%, while improving the durability of those revenue streams. In global banking and markets, we've maintained our position as the leading M&A advisor in investment banking and have improved our standing with the top 150 clients in FIC and equities over the past five years. At the same time, we've significantly increased our more durable FIC and equities financing revenues, which together have grown at a 15% CAGR to a new record of $9.1 billion this year. In asset and wealth management, we've consistently grown our more durable management and other fees in private banking and lending revenues, both of which were a record in 2024. Notably, management and other fees surpassed 10 billion, exceeding our 2024 target. In addition, alternatives fundraising surpassed 70 billion. The success is a direct result of our continued innovation, developing new strategies and our longstanding track record of investment performance. Additionally, we further narrowed our strategic focus. We closed on the sale of Green Sky, entered into an agreement with General Motors to transition their credit card program, and sold our portfolio of seller financing loans. Turning to page five, global banking and markets, our leading franchise, has produced average revenues of $33 billion and an average ROE of 16% over the last five years across a variety of market environments, demonstrating the diversity and strength of this business. While no one has a crystal ball, there are a number of catalysts that we believe will continue to drive activity. There has been a meaningful shift in CEO confidence, particularly following the results of the U.S. election. Additionally, there is a significant backlog from sponsors and an overall increased appetite for dealmaking supported by an improving regulatory backdrop. A combination of these conditions should spur further activity in 2025. One large strategic opportunity we are particularly focused on relates to financing. Goldman Sachs operates at the fulcrum of one of the most important structural trends currently taking place in finance. The emergence and growth of our private credit and other asset classes that can be privately deployed. Our unique origination capabilities position us to both connect companies to dependable capital and connect investors to assets that can produce superior returns. Earlier this week, we announced the formation of our Capital Solutions Group, which will harness the power of one Goldman Sachs to provide our clients a comprehensive suite of our financing, origination, structuring, and risk management offerings across both public and private markets. We are taking the current capabilities of our financing group and adding coverage of financial sponsors and alternative asset management firms to better innovate and accelerate the delivery of services to clients. We are also creating an alternatives origination group focused on sourcing to provide seamless coverage to our private credit and private equity clients. We are excited about providing our clients with access to differentiated sourcing, and investment capabilities, which will, in turn, help us accelerate growth across the franchise. Now let me turn to asset wealth management on page six. Our assets under supervision reached another record, reflecting our 28th consecutive quarter of long-term fee-based net inflows. In wealth management, our total client assets rose to $1.6 trillion. We also bolstered our more durable revenue streams. Management and other fees and private banking and lending revenues together have grown at a CAGR of 12% since 2019, and we continue to expect to drive high single-digit annual growth in the coming years. Turning to page seven, we meaningfully improved our AWM pre-tax margin in 2024, achieving our medium-term target. In our journey to further improve the return profile of the firm, we are committed to driving this business towards mid-teens returns. We see significant growth opportunities across wealth management, alternatives, and solutions. In wealth management, we are growing this business by increasing the number of advisors in the field and surrounding them with content specialists. We are expanding our loan product offerings, and we're elevating our overall client experience with further investment in our digital capabilities. In alternatives, we are scaling our flagship fund program and developing new strategies. We remain focused on penetrating the institutional client base and expanding our wealth channel. Additionally, we are investing in tailored solutions for institutional and third-party wealth clients who continue to seek customization across SMAs, direct indexing, and ETFs in a structured form. On page eight, we demonstrate the durability of the revenues across the firm. This is not the first time we've laid out this information, but it serves as a good reminder. Baseline revenues are shown in gray, which represent the sum of the trailing 10-year lows for each of the businesses that are considered to be more cyclical, advisory, underwriting, and intermediation. As I said last year, we believe this is a very conservative measurement because it's unlikely that every one of these businesses would ever hit a low point all at the same time. In the 25 years since we became a public company, it hasn't happened once. The dark blue represents more durable revenues from financing, management, and other fees, as well as private banking and lending, which grew 13%, versus 2023. Taken together, these two components made up approximately 70% of total revenues in 2024. In addition, given our diversified franchise, we've consistently demonstrated our ability to generate upside across different market environments, which further highlights the revenue-generating power of our firm. Moving to page nine, operating efficiency remains one of our key strategic objectives. And while we have made progress, we believe there are significant opportunities to drive further efficiencies across our business. We have established a three-year program as a part of our business planning process that will help us dynamically manage our expense base, harness technology and automation, and reinvest in our businesses. First, we are optimizing our organizational footprint by expanding our presence in strategic locations and calibrating our pyramid structures. Second, on spend management, we are optimizing transaction-based expenses and looking to more efficiently manage our vendor and consultant relationships. We will also continue to reduce operating expense associated with our consolidated investment entities as we further sell down those assets. Lastly, we are leveraging AI solutions to scale and transform our engineering capabilities, simplify and modernize our technology stack, and drive productivity. These efficiencies will allow us to further invest for growth and improve client experience. Moving to page 10, we believe the path to our return targets is straightforward. First, we have demonstrated our ability to deliver mid-teens returns in our leading global banking and markets franchise. Second, we are making strong progress against our plan to drive asset and wealth management to mid-teens and beyond. And lastly, we are driving platform solutions to pre-tax break-even in 2025. Taken together, we have a clear path to producing our target returns, which will further unlock shareholder value. Before turning it over to Dennis, I want to spend a moment on regulation. Last month, trade groups representing the major U.S. banks, including Goldman Sachs, filed suit against the Federal Reserve. We have long been concerned that the lack of transparency and the Fed's current stress testing creates uncertainty and, at times, produces results we cannot understand. and which can lead to higher industry-wide borrowing costs, reduced market liquidity, and inefficient capital allocations. For the industry, the bar to take this step was incredibly high. And while the Fed has announced that it's seeking to improve the stress test, this suit was filed to protect our rights. We believe it is our responsibility to continue to press for a more transparent regulatory process in order to foster a more efficient financial system that supports growth and competitiveness of the U.S. economy. In closing, I'm very confident about the trajectory of Goldman Sachs. We are incredibly well positioned to serve our clients and to continue to drive strong returns for shareholders as we execute with a relentless emphasis on client service, partnership, integrity, and excellence. Let me now turn it over to Dennis to cover our financial results in more detail.

Thank you, David, and good morning. Let's start with our results on page 11 of the presentation. In the fourth quarter, we generated net revenues of $13.9 billion, EPS of $11.95, an ROE of 14.6%, and an ROTE of 15.5%, resulting in full-year EPS of $40.54 and an ROE of 12.7%. As David highlighted, we made significant progress this year on executing our strategic priorities. In aggregate, these select items had the minimum impact on the firm's full-year results. Turning to results by segment, starting on page 14. Global banking and markets produced revenues of $35 billion for the year, up 16% amid broad-based strength versus last year. In the fourth quarter, investment banking fees of $2.1 billion rose 24% year-over-year. Advisory revenues came in at $960 million, and equity underwriting revenues increased substantially year-over-year to $499 million, as strong equity markets supported robust issuance activity. Net underwriting revenues rose 51% to $595 million amid higher leveraged finance activity given strengthening financing conditions post-election. For 2024, we maintained our number one position in the league tables for announced and completed M&A, ranked third in equity underwriting and second in leveraged lending. Despite strong accruals in the fourth quarter, our investment banking backlog rose sequentially and remains robust, particularly in advisory. The intensity of our client dialogues has been increasing, and we're seeing renewed CEO confidence and desire from sponsors to transact. While there remains some policy uncertainty, there is an expectation that the regulatory burden will be reduced, which should serve as a tailwind to risk assets and capital deployment. We are optimistic on the outlook for 2025 and expect a further pickup in M&A and IPO activity. BICnet revenues were $2.7 billion in the quarter, up 35% year-over-year. In intermediation, we saw strength in currencies and mortgages. Record-fixed financing revenues rose 34% versus last year, primarily on better results within mortgages and structured lending. Equities net revenues were $3.5 billion in the quarter. Equities intermediation revenues were $2 billion, up 30% year-over-year, primarily driven by strong performance in cash products. Record equities financing revenues of $1.5 billion rose 36% versus the prior year amid higher average balances in prime, and stronger performance in portfolio financing. For the full year, total equities net revenues were a record $13.4 billion amid strong levels of client engagement and higher client balances. Across FIC and equities, financing revenues rose 17% in 2024 to a record $9.1 billion. Moving to asset and wealth management on page 15. For 2024, revenues of $16.1 billion rose 16% year-over-year as our more durable revenues grew to new records. In the quarter, management other fees were a record $2.8 billion, up 8% sequentially and 15% year-over-year. Private banking and lending revenues rose 11% year-over-year to $736 million. Incentive fees for the quarter were $174 million, bringing our full-year incentive fees to $393 million. We expect to make further progress in 2025 towards our annual target of $1 billion. Equity and debt investment revenues totaled $993 million for the quarter, reflecting markups across our private and public portfolios and NII in our debt portfolio. For the full year, these combined revenues totaled $2.4 billion. Now moving to page 16. Total assets under supervision ended the quarter at a record $3.1 trillion, driven by $70 billion of liquidity products net inflows and $22 billion of long-term fee-based net inflows across asset classes. Turning to page 17 on alternatives. Alternative assets under supervision totaled $336 billion at the end of the fourth quarter, driving $621 million in management and other fees. Gross third-party fundraising was $20 billion in the fourth quarter and $72 billion for the year. For 2025, we expect fundraising to be consistent with levels achieved in recent years. On page 19, our total loan portfolio at quarter end was $196 billion. up year over year, reflecting an increase in other collateralized lending. Our provision for credit losses was $351 million in the quarter, primarily driven by net charge-offs in our credit card portfolio and balance growth, partially offset by reserve releases in the wholesale portfolio. Let's turn to expenses on page 20. Total operating expenses for the year were $33.8 billion. Our 2024 compensation ratio net of provisions was 32%. Quarterly non-compensation expenses were $4.5 billion, down 8% year over year. As David mentioned, we're driving efficiencies across our organizational structure, spend management, and automation efforts, which will enable us to further invest across the client franchise. These efforts are designed to enhance productivity and help drive operating leverage as we work towards achieving our through-the-cycle targets. Our effective tax rate for 2024 was 22.4%. For 2025, we expect a tax rate of approximately 20%. Next, capital on slide 21. Our common equity tier one ratio is 15% at the end of the fourth quarter under the standardized approach, 130 basis points above our current capital requirements of 13.7%. In the fourth quarter, we returned approximately $3 billion to common shareholders, including common stock repurchases of $2 billion and dividends of $965 million. In conclusion, Our strong performance this year reflects the strength of our client franchise, our intense focus on execution, and an improving operating environment. We continue to maintain our leadership positions across global banking and markets and are leaning into secular growth opportunities across asset wealth management. As we enter 2025, we remain confident in our ability to deliver for clients and drive strong returns for shareholders. With that, we'll now open up the line for questions.