The operator, Taryn, welcomes everyone to the Goldman Sachs Third Quarter 2023 Earnings Conference Call and provides a disclaimer. She then introduces Chairman and CEO David Solomon and CFO Denis Coleman. Solomon addresses the recent terrorist attacks in the Middle East and expresses optimism about the firm's future. He reflects on the past five years and highlights the firm's core businesses and their potential for strong returns. Goldman Sachs is known for its long-standing reputation as a trusted advisor to top businesses, institutions, and individuals.

Goldman Sachs is a global platform with a strong brand, talented employees, and a culture of collaboration. They have evolved to have a One Goldman Sachs operating ethos and are a leader in complex transactions. They have recently been involved in successful IPOs and are optimistic about the reopening of capital markets. In Asset & Wealth Management, they have had 23 consecutive quarters of long-term fee-based inflows and are on track to achieve their targets for management and alternative fees.

The company has made progress on their strategic goals and has sold some assets to strengthen their platform. The US economy has been resilient, but there are concerns about rising interest rates and geopolitical tensions. The company remains cautiously positioned and supports sensible regulation for a safe and sound financial system.

Some people believe that the 2008 financial crisis warrants stricter regulations, but the proposed rules are excessive and do not consider the improvements made by banks since then. Requiring too much capital could lead to higher costs for businesses, a shift to unregulated sectors, and a decrease in US competitiveness. These rules could result in slower economic growth and harm the banking system. However, there is ongoing engagement with regulators and government stakeholders, and changes to the proposed rules are expected. Despite regulatory uncertainty and geopolitical risks, Goldman Sachs is confident in their client franchise and long-term opportunities.

In the third quarter, we focused on executing our strategy to strengthen our Global Banking & Markets franchise and grow our Asset & Wealth Management business. Our core business performed well and we remain committed to delivering for clients and shareholders. Our net revenues were $11.8 billion and net earnings were $2.1 billion. We made the strategic decision to narrow our focus, which impacted our net earnings by $828 million. Our Global Banking & Markets segment generated $8 billion in revenues, with lower advisory revenues but higher equity and debt underwriting revenues compared to the previous year.

Goldman Sachs has had a successful year so far, ranking number one in several categories and number two in high-yield debt. Their backlog has decreased due to successfully bringing transactions to market, but client engagement remains high. FICC net revenues were down from last year but up from the second quarter, with record FICC financing revenues. They also won bids for two pools of Signature Bank's capital call facilities, allowing them to increase connectivity with alternative asset managers. Equities net revenues were $3 billion, with equities intermediation revenues rising 7% and equities financing revenues lower than last year. Total financing revenues for FICC and Equities were nearly $6 billion for the year-to-date, a record performance. These results are a direct result of the company's strategic priorities.

In the Global Banking & Markets segment, the year-to-date ROE is 13.4% despite low activity levels in Investment Banking. Asset & Wealth Management revenues were lower year-over-year due to weak equity investments, but management and other fees and private banking and lending revenues both reached record highs. The segment's pre-tax margin was impacted by losses from historical principal investments and Marcus loans. Total assets under supervision were $2.7 trillion, with consistent long-term fee-based inflows. Alternative AUS totaled $267 billion and fundraising for the year-to-date was $40 billion, including the successful close of Goldman Sachs Vintage Fund IX at $14 billion.

In the third quarter, we have made significant progress towards our fundraising target, with a total of $219 billion raised so far. Our on-balance sheet alternative investments have also decreased by $3 billion, bringing us closer to our target of below $15 billion by 2024. Our Platform Solutions revenues were $578 million, with a reserve release of $637 million related to the GreenSky loan book. Net interest income was down due to increased funding costs, and our loan portfolio remained flat. Our provision for credit losses was $7 million, and our CRE exposure is relatively small and diversified. We have marked or impaired office-related exposures by 50% this year. Expenses are detailed on page 11.

In the third quarter, the company's total operating expenses were $9.1 billion. The compensation ratio, net of provisions, was 34.5%, including $275 million in severance costs. The company is on track to surpass their goal of $600 million in payroll efficiencies and is focusing on reducing non-compensation expenses. The effective tax rate for the first nine months was 23.3% and is expected to be under 23% for the full year. The company's common equity Tier 1 ratio was 14.8% and they returned $2.4 billion to shareholders in the quarter. They expect to moderate share repurchases in the fourth quarter due to uncertainty around capital rules, but remain committed to paying a sustainable dividend with a competitive yield.

The third quarter results demonstrate the success of the company's focused strategy and priorities, which will lead to strong returns for shareholders. The company is confident in its ability to support clients and is optimistic about future opportunities. In the Q&A session, a question is asked about the gap between current results and the mid-teens target, and the CEO discusses the potential for improvement in capital markets activity and freeing up capital from the denominator. The company is also simplifying its structure to focus on two core businesses, and investment banking activities are currently below average but expected to improve.

The business, which makes up 7% of the firm, has been performing well with a 13.4% ROE despite a challenging environment. The company believes that the capital markets and banking environment will improve in the coming years. The Asset & Wealth Management business is also expected to have mid-teens or higher returns as they reduce historical principal and make it a lower capital business. The company is confident in their ability to meet their targets and reduce drag in their platforms. Overall, the company is confident in their ability to achieve a mid-teens target, taking into account the Basel rules.

The speaker mentions that the Basel rules could potentially be a headwind to their targets, but they are optimistic about delivering higher returns to shareholders. They also mention that there are sectors that have yet to be affected by the higher rates, but there may be a lag in the economy and some sectors may experience a slowdown in the next few quarters.

Denis Coleman, CEO of a company, is discussing the current state of consumer behaviors with other CEOs. He mentions that there has been some softness in certain consumer behaviors in the last eight weeks, but does not want to over-emphasize it. He also talks about the company's reduction in CRE and CIE exposure, with a 50% mark or impairment in the office space and a 15% adjustment in non-office spaces. The company plans to continue reducing these exposures. When asked about growth opportunities in the next year or two, David, another executive, does not provide a specific answer.

Goldman Sachs CEO David Solomon discusses the opportunities for growth in the company's Global Banking & Markets and Asset & Wealth Management franchises. He mentions their focus on growing wallet share and expanding their financing footprint. In Asset & Wealth Management, they expect to see high single-digit revenue growth driven by management fees and the growth of the wealth management sector. Solomon also mentions their over $100 billion in private credit and the launch of private credit vehicles.

The speaker discusses the potential impact of the proposed Basel III Endgame on the competitiveness of the Global Banking & Markets ecosystem. They mention the potential for growth in private credit as part of the Asset & Wealth Management franchise. The speaker also acknowledges that the new rules may have a varying effect on different businesses within the ecosystem, and there may be a need for mitigation actions.

David Solomon, CEO of Goldman Sachs, discusses the potential impact of proposed regulatory changes on the prime business and the need to see the final rules before making any definitive statements. He also addresses the partnership with Apple and the credit quality of the senior credit card portfolio, which is being managed by a new hire with extensive experience.

The speaker reiterates their focus on managing partnerships with Apple and GM, and reducing the drag and improving profitability. They also mention progress in managing costs and credit quality in the Consumer portfolio. The speaker then hands off to Denis, who comments on the net charge-off ratio and coverage ratio. Adjustments have been made to credit underwriting and the speaker will continue to monitor credit performance. The call then moves on to the next question from Steven Chubak.

David Solomon reaffirms the company's commitment to achieving a 60% efficiency ratio, despite increased competition for talent driving pressure on expenses. The recent business exits and changes in revenue mix may impact their ability to reach this goal, but they are confident in their narrowed focus on Global Banking & Markets and Asset & Wealth Management. The competition for top talent remains strong, but Goldman Sachs has a highly desirable work environment and will continue to strike a balance between investing in talent and maintaining efficiencies.

The speaker believes that the company's strategy of focusing on two core businesses will lead to a reasonable efficiency ratio target. They also believe that the long-term growth trend in the alternative asset management business is still intact, despite current headwinds such as the LP denominator effect and slower realization activity. The speaker notes that there is a strong dynamic of good flows into private asset classes due to the large amount of assets held by baby boomers. However, they acknowledge that the capital raising environment is currently more muted than it has been in the past.

The speaker, David, discusses the success of investing in new vintages and a new reset environment, even with higher rates. He mentions that the sponsor community generally makes money by selling assets and buying new ones, and they are starting to see more opportunities. He predicts that the level of activity in the sponsor community will increase in the next 12-24 months. The speaker also mentions that the current comp ratio has ticked up, despite revenue growth, due to severance costs of nearly $300 million.

In the third quarter, there were small severance costs and adjustments made to the comp ratio based on year-end performance expectations and retention of talent in key businesses. The company plans to sell historical principal investments by the end of next year, but it is unclear what portion of these assets are related to commercial real estate.

The speaker takes responsibility for the losses incurred by the company in relation to their consumer expansion strategy and principal investments. They acknowledge that they have made a pivot in their approach, but with hindsight, they may have made different decisions. The speaker believes it is important for companies to try new things and learn from their experiences.

David Solomon addresses a question about how much the return on equity (ROE) will improve by getting rid of the company's extra principal investments and remaining consumer businesses. He explains that the impairments and rough performance of the historical principal investments have been a drag on ROE, and the company believes it is better to release that capital and focus on lower capital fund businesses. He also mentions that the drag from platforms is getting smaller and they hope to eradicate it in the next 12 to 24 months. As for buybacks, the company is limited by Basel III but may have more capital available with the discarding of principal investments.

Goldman Sachs has built a strong cushion and buffer by reducing its SCD and will continue to do so. They are being cautious due to uncertainty surrounding Basel rules, but will still buy back stock and pay dividends. The company expects to see more capital release and potentially more buybacks in the future. They are taking a conservative approach until there is more clarity on the capital rules. When asked about the impact of Basel Endgame and higher interest rates on trading revenues, the company stated that they cannot speculate, but believe that intermediation activity will continue to grow.

The company's focus is on ultra-high net worth management, where they have a leading franchise. This market is still fragmented and there is room for growth, especially in Europe. The company has seen good growth in the past five years and believes there is potential for further growth by investing in more resources.

The decision to sell United Capital and PFM allowed Goldman Sachs to focus on their ultra-high net worth growth, which they believe will be a better returning business. The $15 billion capital call facilities with Signature Bank will help gain share with alternative asset managers, which is an area of growth for Goldman Sachs. This also brings in new clients and strengthens their overall position with them. Financing clients is important to Goldman Sachs.

Devin Ryan asked a question about Platform Solutions and Transaction Banking during a conference call. Denis Coleman responded by stating that the current expenses are not a reasonable run rate and that they expect growth in revenue and efficiency in expenses over the next 12 months. He also addressed the decrease in revenues and deposit balances in Transaction Banking, stating that they are focused on growing with high-quality clients. He also mentioned their commitment to the business and its potential value for Goldman Sachs. Finally, he mentioned the challenges in private equity fundraising.

David and Denis discuss fundraising and the maturity of the business in the alternative space. They mention their broad-based platform and their focus on areas such as secondaries and private credit. Incentive fees will be lumpy but are expected to increase next year. They also mention their performance targets and the potential for upside from incentive fees. Gerard Cassidy asks about the four IPOs that the company was involved with in the quarter.

The CEO and CFO of Goldman Sachs discuss the current state of private equity and going public. They note that conversations about valuations are easier now and that there are more realistic expectations. They also mention that having real data points is helpful in advising clients. The CFO adds that Transaction Banking, a new business line, has seen a slight decrease in revenues.

Denis Coleman, speaking on behalf of the company, discusses the current state of their Transaction Banking activity, which is a strategic focus for them. While revenues and deposit balances are slightly down, they have grown their client count and remain committed to investing in high-quality balances and clients in the long term. The company expects the growth rate to slow and has made a strategic hire to help with operations. They are working towards becoming PPNR positive in the next 24 months.

Goldman Sachs is working to improve the efficiency of its platforms for clients and is in discussions with its card partners. The company plans to manage expenses and operating efficiency while also growing in the future. Net charge-offs were down this quarter, but the company is not predicting a continued decline in credit and maintains a reserve coverage ratio of 13.3. The company expects to see elevated charge-offs in the future, especially in the consumer portfolio.

During a conference call, an analyst asks Denis Coleman about the reduction in PE investments and how it correlates to the reduction in capital allocated to the Asset Management and Wealth segment. Coleman clarifies that the release of capital from historical principal investments is about $9 billion, not $16 billion as suggested by the analyst. He also mentions that the recent headcount reduction was a one-time event and they do not expect it to repeat. The severance payments are factored into the compensation ratio and the firm is focused on driving the franchise forward.

The operator announces that there are no more questions and thanks everyone for participating in the Goldman Sachs Third Quarter 2023 Earnings Conference Call. The call is now over and participants can disconnect.

This summary was generated with AI and may contain some inaccuracies.