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 2025 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 14th, 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 very much, Operator. Good morning, everyone. Thank you all for joining us. In the first quarter, we generated net revenues of $15.1 billion. earnings per share of $14.12, an ROE of 16.9%, and an ROTE of 18%. In a highly dynamic environment, we produced very strong results. This quarter was characterized by rapidly shifting sentiment, with the market backdrop ending in a very different place than where it started. Still, our leading global franchise, underpinned by our best-in-class talent, risk management, and execution capabilities delivered for our clients, Our performance underscores the importance of having a scaled franchise with presence around the world. Being a leading global financial institution requires a deep expertise and diversification that can only come from long-term consistent investment in our client franchise, a deep risk management culture, and our strong people. This is what brings clients to Goldman Sachs. In global banking and markets, ongoing policy uncertainty and market volatility drove many clients to reposition their portfolios, driving higher activity in our FIC and equities businesses. I'm proud that we were able to support the intermediation and financing needs of our clients, all while keeping a keen eye on risk management. In these businesses, we have demonstrated our ability to deliver strong results in a broad array of market environments. We've consistently grown financing, and while intermediation activity across various asset classes can ebb and flow in any given quarter, our overall results have been remarkably resilient over time. In investment banking, the volatile black drop led to more muted activity relative to the levels we had expected coming into the year. But it is especially in environments like this that clients come to Goldman Sachs for help with their most important strategic decisions. We are the number one M&A advisor globally and have been for the last 20 years. We've built our leadership position through decades of investment and our incredible teams in the Americas, Europe, and Asia. This allows us to help clients execute marquee transactions like Google's $32 billion acquisition of Wiz, the largest transaction in Israeli history, or the $24 billion take private of Walgreens Boots Alliance, a firm with presence across the U.S., Europe, and Latin America. As we stand today, our client dialogues remain elevated, and our backlog is up for the fourth consecutive quarter. That being said, our ability to execute on these transactions will, of course, be dependent on market conditions. In asset and wealth management, our clients continue to come to us for the quality of our advice and track record of investing acumen across asset classes, which is especially valued in turbulent markets. This quarter, our assets under supervision rose to a record of $3.2 trillion. This represents our 29th consecutive quarter of long-term fee-based net inflows, and we are making strong progress across our key growth opportunities in this business, alternatives, wealth management, and solutions. And Alternatives, our long track record of performance, continues to support our fundraising efforts. We raised another $19 billion in the quarter, bringing our total fundraising of Alternatives since 2019 to $342 billion. We also recently launched multiple flagship funds across strategies, including infrastructure, growth equity, and private credit. In wealth management, we continue to scale our premier ultra-high net worth franchise. Total wealth management revenue grew 11% year-over-year to $2.2 billion, while client assets reached another record of $1.6 trillion. Supporting this platform, we have over 1,000 private wealth advisors with an average tenure of more than 15 years. Leveraging the firm's investment platform, global network, and banking capabilities, they work tirelessly to deliver unique and tailored solutions to our ultra-high net worth clients. We recently received a number of accolades from Euromoney, including being named the world's best private bank for 2025. These awards are a recognition of our excellence and longstanding commitment to serving the needs of our ultra high net worth client base. Across our businesses, our clear priority is to serve clients with excellence. To that end, we are always seeking ways to enhance the client experience while improving efficiency. As highlighted in our strategic update this January, we are investing to strengthen our franchise and operate more effectively at scale. This includes taking steps to unlock efficiencies in technology and automation. As an example, we are leveraging AI solutions to scale and transform our engineering capabilities as well as to simplify and modernize our technology stack. Today, many of our people have access to generative AI-powered tools to help them serve clients more efficiently and increase productivity. These include a developer co-pilot coding assistant and a natural language GSAI assistant. We continue to believe an acceleration in AI adoption will allow for further efficiencies for our own business and for companies large and small. As it is utilized more broadly, productivity gains for the economy will be significant. Turning to the macroeconomic backdrop more broadly, as I said at the outset, we are entering the second quarter with a markedly different operating environment than earlier this year. Our economists' expectation for growth in the U.S. has fallen meaningfully. from over 2 percent to 0.5 percent. The prospect of a recession has increased, with growing indications that economic activity is slowing down around the world. Our clients, including corporate CEOs and institutional investors, are concerned by the significant near-term and longer-term uncertainty that has constrained their ability to make important decisions. This uncertainty around the path forward and fears over the potentially escalating effects of a trade war have created material risks to the U.S. and global economy. We are encouraged by the administration's recent actions to pursue a more gradual policy process that allows for considered negotiations with many countries. But how policies will evolve is still unknown. We are hopeful that feedback from companies large and small, institutional investors, and ultimately consumers will support an approach that will lead to greater economic certainty and long-term growth. In the meantime, markets will likely continue to be volatile until we have further clarity. The administration's focus on trade barriers and strengthening the U.S. competitive position is commendable. At the same time, it is important to recognize that few companies have benefited more from the post-World War II economic and financial order than the U.S. This doesn't mean meaningful reform in certain areas is not warranted. Today, the U.S. has the largest, most dynamic, and resilient economy, with the dollar as the reserve currency. We have the broadest and deepest capital markets, which help fuel an unparalleled culture of innovation and sectors like technology and healthcare. These strengths, among others, give us the opportunity to think about how to attract and embed strategic manufacturing as an important driver of the 21st century economy. As a country, it is vital that we continue to leverage our considerable strengths as the global trading system for goods and services adjusts and evolves. On capital and regulation more broadly, we appreciate the administration's strong focus on appropriately calibrating regulation for the financial services industry. Following the recent nomination of Michelle Bowman as Vice Chairman of Supervision at the Federal Reserve, we will continue to actively engage on these matters and hope to see material progress across capital, leverage, liquidity, and supervision. As this quarter has shown, it's impossible to predict market outcomes, but it has also demonstrated once again that in times of great uncertainty, clients turn to Goldman Sachs for execution and insight. And our leading franchises have never been better positioned to support our clients. And we'll now turn it over to Dennis to cover the 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 $15.1 billion, earnings per share of $14.12, and an ROE of 16.9%. We provide details on selected items in the bottom table. which in total reduced our EPS by 25 cents and ROE by 30 basis points. Let's turn to performance by segment, starting on page three. Global banking and markets produced revenues of $10.7 billion in the first quarter and generated an ROE of over 20%. Turning to page four, advisory revenues of 792 million were down versus a strong performance a year ago. We remained number one in the league tables for M&A, with a lead of over $70 billion in announced volumes versus our next closest peer. Equity underwriting revenues of $370 million were flat year over year, while debt underwriting revenues of $752 million rose 8%, driven by asset-backed and investment-grade activity. We ranked first in equity and equity-related underwriting and ranked second in both high-yield debt underwriting and leveraged lending. Across investment banking, our backlog rose sequentially, driven by a notable increase in advisory. FIC net revenues were $4.4 billion in the quarter. Intermediation results were driven by higher client activity in currencies and mortgages, offset by lower performance in credit, rates, and commodities versus a strong prior year. We produced record FIC financing revenues of $1 billion, driven by solid performance in mortgages and structured lending. We remain confident in our ability to prudently grow this business over time. and always with an eye towards risk management. Equities net revenues were a record, $4.2 billion in the quarter. Equities intermediation revenues of $2.5 billion rose 28% year over year, primarily driven by strong performance and derivatives. Record equities financing revenues of $1.6 billion were higher year over year on better portfolio financing results and record average prime balances for the quarter. Across FIC and equities, Financing revenues of $2.7 billion rose 22% versus the prior year, reaching a new record for a fifth consecutive quarter. Let's turn to page five. Asset and wealth management revenues were $3.7 billion. Management and other fees were up 10% year-over-year to $2.7 billion on higher average assets under supervision and down slightly versus the fourth quarter driven by other fees, which include placement fees that can vary from quarter to quarter. Incentive fees were $129 million, up year-over-year despite the difficult monetization environment during the quarter. We expect to make progress on our target of $1 billion in annual incentive fees over the medium term, supported by an estimated $4.1 billion of unrecognized incentive fees as of year-end. Private banking and lending revenues were $725 million, up 6% year-over-year on higher lending revenues. Sequentially, results were roughly flat, as NIM compression on deposits was offset by lending revenue growth. In aggregate, our more durable revenues of $3.4 billion across management and other fees and private banking and lending grew 9% versus the prior year. We continue to expect high single-digit annual growth in these lines over time. Revenues from equity investments and debt investments hold $122 million. largely driven by net interest income in our debt portfolio. Within equity investments, net gains in our private portfolio were more than offset by declines in our public portfolio amid the more challenging market backdrop during the quarter. In the AWM segment, we generated a 21% pre-tax margin and roughly 10% ROE, excluding the impact of historical principal investments and approximately $4 billion of attributed equity Our pre-tax margin would have been two percentage points higher and ROE 2.6 percentage points higher. Now moving to page six. Total assets under supervision ended the quarter at a record $3.2 trillion. We had 29 billion of long-term net inflows across asset classes, representing our 29th consecutive quarter of long-term fee-based net inflows. Turning to page seven on alternatives. Alternative assets under supervision totaled 341 billion at the end of the first quarter. driving $523 million in management and other fees. Gross third-party alternatives fundraising was $19 billion in the quarter. We continue to expect fundraising to be in line with recent years, though this outlook could be impacted by market conditions. On page nine, firm wide net interest income was $2.9 billion in the first quarter, up sequentially on a decline in funding costs. Our total loan portfolio at quarter end was $210 billion, Up versus the fourth quarter primarily reflecting an increase in other collateralized lending. Our provision for credit losses of $287 million primarily reflects net provisions related to the credit card portfolio, which were driven by net charge-offs, partially offset by releases following a seasonal paydown of card balances. Turning to expenses on page 10, total quarterly operating expenses were $9.1 billion, resulting in an efficiency ratio of 60.6%. Our compensation ratio net of provisions was 33%. Non-compensation expenses were $4.3 billion. David mentioned we continue to execute on our three-year efficiency plan that we laid out in January, including making adjustments to our pyramid structure. Our effective tax rate for the quarter of 16.1% benefited from the impact of employee stock-based compensation. Excluding this impact, our effective tax rate would have been roughly nine points higher. For the full year, we expect a tax rate of approximately 21%. Now on to slide 11. Our common equity Tier 1 ratio was 14.8% at the end of the first quarter under the standardized approach, 110 basis points above our current capital requirements of 13.7%. In the quarter, we returned $5.3 billion to common shareholders, including record common stock repurchases of $4.4 billion and common stock dividends of $976 million. We will dynamically deploy capital to support our client franchise while also returning capital to shareholders. We remain committed to paying our shareholders a sustainable and growing dividend. Importantly, our board recently authorized a multi-year share repurchase program of up to $40 billion, providing us increased capital management flexibility. In conclusion, our performance once again reflects the diversification and strength of our leading client franchises, which enable us to deliver for our clients across a range of market backdrops. We're confident in our ability to continue to support our clients as they navigate this dynamic operating environment. With that, we will now open up the line for questions.