Goldman Sachs Group, Inc. (The)

Good morning. My name is Katie, and I'll be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs second 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, July 16th, 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. We delivered a strong performance in the second quarter, generating net revenues of $14.6 billion, earnings per share of $10.91, and an ROE of 12.8%, resulting in an ROE of 14.8% for the first half of the year. Amid shifting market dynamics, we remained relentlessly focused on serving our clients with excellence. These results are a testament to our best in class talent, culture of collaboration, and differentiated business across investment banking, financing, risk intermediation, and asset and wealth management. Our global client franchise has never been stronger and I'm proud of how we've helped our clients navigate periods of heightened uncertainty. In investment banking, clients continue to turn to our number one M&A franchise for their most consequential transactions. The deal-making environment has been remarkably resilient. While activity was slower in the first half of the quarter, announced M&A volumes for the year to date are 30% higher year over year and 15% greater than the comparable five-year average. A narrowed range of outcomes on trade and the overall economy has helped CEO confidence and increased their willingness to transact. We've seen a pickup in momentum with both strategic and sponsor clients, as exemplified by Energy Energy's $12 billion portfolio acquisition from LS Power and Salesforce's $8 billion acquisition of Informatica. Capital markets activity has also accelerated. During the quarter, we priced 11 IPOs for clients around the globe. including Circle, Chime, eToro, and HDB Financial Services, which have performed well on the secondary market. So uncertainty could persist in some pockets, particularly in industries highly sensitive to trade policy. We are optimistic on the overall investment banking outlook, and we are incredibly well positioned to assist clients in executing on their strategic ambitions. Our client engagement continues to be elevated, and we're seeing it in our backlog. which rose for a fifth consecutive quarter driven by advisory. Importantly, our advisory backlog was up significantly versus 2024 year-end levels. We have also remained active across our leading FIC and equities businesses, which yet again produced very strong results in the quarter as policy uncertainty drove clients to reposition portfolios and recalibrate risks across asset classes. Our strong performance goes beyond the supportive opportunity set. We are also benefiting from successful multi-year execution across our strategic priorities of driving growth in financing and prudently maximizing wallet share, which we have clearly added further balance to our performance. This quarter, both our financing businesses hit a revenue record as we continue to deploy resources to grow fixed financing and bolster our leading position in equities financing. At the same time, we remain laser focused on wallet share And we now rank in the top three with 125 of the top 150 clients globally, up from 77 in 2019. Importantly, these hard-won share gains have contributed to the demonstrated resilience of these diversified businesses. In asset and wealth management, we continue to have momentum and alternatives. We raised $18 billion this quarter driven by demand for flagship funds across strategies including secondaries, hybrid capital, and growth equity. Wealth management client assets rose to a record $1.7 trillion, and we are making solid progress on increasing lending to our ultra-high net worth clients with loan balances of $42 billion. All in, our assets under supervision rose to a new record of $3.3 trillion, representing our 30th consecutive quarter of long-term fee-based net inflows. There are very few firms with this track record, and it is evident that clients continue to turn to us for our investment performance, the quality of our advice, and the breadth of our offering. From here, we see further opportunities across alternatives, wealth management, and solutions, which will fuel growth and more durable revenues across our platform. As we continue to invest in further strengthening and growing our franchise, I am encouraged by the widespread progress being made in AI, which is quickly developing into an economic force that will permeate every industry. The accelerated innovation and disruption from AI is set to create significant demand-related infrastructure and financing needs, which will drive activity across our franchise. In light of the formation of the Capital Solutions Group, we've never been better positioned to meet this demand. With regards to our own operations, we are currently investing in a number of use cases across the firm to transform the way our people work. Last month, we rolled out our natural language GSAI assistant to the entire firm, the first generative AI-powered tool to reach this scale, allowing for safe, secure, and responsible access to firm-approved external large language models. We recently began collaborating with Cognition Labs and are piloting the usage of Devon, an autonomous generative AI agent designed to transform the way we build, maintain, and develop software with risk oversight and supervision of our engineers. We will be deploying these agentic AI developers for prioritized use cases, which we believe will significantly enhance velocity, transform our capabilities, and drive efficiency. As I discussed in our strategic update in January, operating efficiently is one of our key strategic objectives, and these efforts will allow us to continue to enhance the client experience while improving productivity. Before I turn it over to Dennis, I want to emphasize the significant progress we've made on all our strategic objectives. The investment we've made to strengthen and grow our global client franchise, including our emphasis on scaling capital light businesses, have materially enhanced the resilience of our firm. I am pleased to see these results. I'm pleased to see the results of these multi-year efforts reflected in this year's CCAR stress test, which drove a significant improvement in our expected stress capital buffer to 3.4%. This increased capital flexibility will allow us to prioritize deploying resources to support our client needs, and further grow our world-class businesses. At the same time, we are committed to returning capital to the shareholders, including delivering a sustainable and growing dividend. Our board approved a 33% increase in our quarterly dividend to $4 a share, which underscores our confidence in the durability of our franchise. Since 2018, we've increased our quarterly dividend by 400%. More broadly, we are encouraged by recent statements from regulators that a holistic review of the regulatory and capital regime for the financial services industry is warranted. For example, last month's proposal on the recalibration of the enhanced SLR is a constructive step to returning the leverage requirement back to its intended purpose as a backstop measure. A more balanced regulatory backdrop will foster a more efficient financial system that will support growth and competitiveness of the U.S. economy. We look forward to further progress and will continue to actively engage with our regulators and government officials on this front. In closing, I want to recognize that despite the resilient global economy and market backdrop, much remains uncertain. Geopolitical concerns have intensified in many regions, most notably in the Middle East. A number of trade agreements have yet to materialize, and that the ultimate impact on growth from higher tariffs is yet unknown. At the moment, there's a sense that things are moving forward constructively, but developments rarely unfold in a straight line. With this in mind, we remain very focused on risk discipline. While we won't always get it right, I'm pleased with how our people have harnessed the power of one Goldman Sachs to help our clients navigate the fast evolving operating backdrop. I feel very confident about the forward trajectory of Goldman Sachs, and as I said at the outset, our leading franchises have never been better positioned to support our clients and we will continue to deliver returns for our shareholders. 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 second quarter, we generated net revenues of $14.6 billion, earnings per share of $10.91, and an ROE of 12.8%. We provide details on selected items in the bottom table, which in total reduced our EPS by 33 cents, and our ROE by 40 basis points. Let's turn to performance by segment, starting on page three. Global banking and markets produced revenues of $10.1 billion in the quarter, with an ROE for the first half of nearly 18%. Turning to page four, advisory revenues of $1.2 billion rose 71% versus a year ago, reflecting strength in the Americas and EMEA. For the year to date, we remain number one in the league tables for M&A, with a lead of roughly $85 billion in announced volume and $145 billion in completed volumes versus our next closest peer. Equity underwriting revenues of $428 million were essentially flat year over year, while debt underwriting revenues of $589 million fell 5% amid lower leveraged finance activity. Year to date, we ranked second in equity and equity-related underwriting, and second in both high-yield debt underwriting and leveraged lending. Across investment banking, our backlog rose sequentially for a fifth quarter, even with strong realizations, and remains notably higher versus 2024 year-end levels. Thick net revenues were $3.5 billion in the quarter, up 9% year-over-year. Intermediation results were driven by higher client activity in currencies, credit, and interest rate products, partially offset by lower results in mortgages and commodities. Record fixed financing revenues of $1 billion were driven by strong performance in mortgages and structured lending. Equities net revenues were a record, $4.3 billion in the quarter. Equities intermediation revenues of $2.6 billion rose 45% year-over-year, driven by strong performance across cash and derivatives as clients were active in repositioning their portfolios. Record equities financing revenues of $1.7 billion were 23% higher year-over-year on better portfolio financing results and amid record average prime balances for the quarter. While balances declined modestly in early April, clients quickly relevered, though net leverage overall remains at historically moderate levels. We continue to maintain robust risk discipline around our client financing portfolios. Total financing revenues of $2.8 billion rose 23% versus the prior year, reaching a new record for a sixth consecutive quarter, now comprising over one-third of overall FIC and equities revenues. Let's turn to page five. Asset and wealth management revenues were $3.8 billion. Management and other fees were up 11% year-over-year to $2.8 billion on higher average assets under supervision. Incentive fees were $102 million. We expect to make further progress on our target of $1 billion in annual incentive fees over the medium term, with fees ramping up more materially in 2026 and 2027 as we continue to deploy and harvest funds. Private banking and lending revenues were $789 million, up 12% year-over-year, on higher results from lending and deposits related to our ultra-high net worth clients. In aggregate, Our more durable revenues of $3.6 billion across management and other fees and private banking and lending were a record as we continued to invest in the growth of these businesses. Revenues from equity investments and debt investments totaled $82 million. Within equity investments, we saw modest net losses in our private portfolio driven by markdowns in relation to certain real estate positions. Given the more challenging harvesting environment, we expect results in the second half of 2025 to be more muted relative to our medium-term run rate expectations. In the AWM segment, we generated a 22% pre-tax margin and roughly 9% ROE in the first half of the year. Excluding the impact of historical principal investments and its $3.8 billion of average attributed equity, our pre-tax margin and ROE would have each been approximately three percentage points higher. Now moving to page six. Total assets under supervision ended the quarter at a record $3.3 trillion, up sequentially on $115 billion of market appreciation, as well as $17 billion of long-term net inflows in alternatives and equity, representing our 30th consecutive quarter of long-term fee-based net inflows. Turning to page seven on alternatives. Alternative assets under supervision totaled $355 billion at the end of the second quarter, driving $589 million in management and other fees. Gross third-party alternatives fundraising was $18 billion in the quarter, bringing year-to-date fundraising to $37 billion. We continue to expect fundraising to be in line with recent years. On page nine, firm-wide net interest income was $3.1 billion in the second quarter, up sequentially on an increase in interest-earning assets. Our total loan portfolio at quarter end was $217 billion, up versus the first quarter, primarily reflecting higher other collateralized lending. Our provision for credit losses of $384 million, primarily reflects charge-offs in our credit card portfolio, as well as modest levels of growth across both the card and wholesale portfolios. Turning to expenses on page 10, total quarterly operating expenses were $9.2 billion. Our year-to-date compensation ratio net of provisions remained at 33% and is inclusive of roughly 140 million in severance costs. Quarterly non-compensation expenses of $4.6 billion included approximately 100 million of CIE impairments, and rose 6% year-over-year, driven by higher transaction-based expenses. Our effective tax rate for the first half of 2025 was 20.2%. For the full year, we expect a tax rate of approximately 22%. Next, capital on slide 11. In the quarter, we returned $4 billion to shareholders, including common stock dividends of $957 million and common stock repurchases of $3 billion. Our common equity tier one ratio was 14.5% at the end of the second quarter under the standardized approach. While the NPR on CCAR averaging is still outstanding, under the current regulatory framework, our new CET1 requirement will be 10.9% as of October 1st. Earlier this year, our board authorized a multi-year share repurchase program of up to $40 billion, providing us increased capital management flexibility. As David mentioned, our board also approved a 33% increase in our quarterly dividend to $4 per share beginning in the third quarter, a reflection of our priority to pay our shareholders a sustainable growing dividend, and our confidence in the increasing durability of our firm. In conclusion, this quarter has once again demonstrated the power and resilience of our leading franchises. We remain incredibly well positioned to support our clients as they navigate the complex operating backdrop, and we are confident that we will continue to deliver for shareholders. With that, we will now open up the line for questions.