Katie, the conference facilitator, welcomes everyone to the Goldman Sachs Fourth Quarter 2023 Earnings Conference Call and provides a disclaimer about the presentation and recording. She then introduces Chairman and CEO David Solomon and CFO Denis Coleman. Solomon begins the call by acknowledging the challenges of 2023 but highlights the company's focus on execution and strengthening their core businesses. He also mentions the potential for a soft landing and resurgence in strategic activity. The company's aspiration to be the world's most exceptional financial institution is also mentioned. Denis will provide the financial results.

Goldman Sachs is a top global investment bank with a strong focus on serving clients and achieving growth. They have two interconnected franchises, Global Banking & Markets and Asset & Wealth Management, which are well-positioned for success. The company has made progress in key areas, such as maintaining leadership positions in investment banking and improving relationships with top clients. They have also seen significant growth in financing revenues over the past four years.

The Asset & Wealth Management division has shown strong performance and growth in revenue. They have made strategic decisions to narrow their focus and have exited certain businesses, such as the Marcus lending business and Personal Financial Management. They have also reached agreements to transition their credit card program with General Motors. The company remains committed to innovation and growth, but is now focused on their two core businesses where they have a proven right to win. They recognize the importance of scale and efficiency in their operations.

The Global Banking & Markets division has consistently generated high revenues and attractive returns over the last four years, thanks to efforts to strengthen the client franchise and increase wallet share. The division maintains top rankings in various areas and has seen significant growth in more durable financing revenues. The Asset & Wealth Management division has also made progress in increasing more stable revenue streams and reducing principal investments. The division has also seen strong investment performance, leading to inflows.

The company has seen strong performance in both traditional and alternative funds, with a majority of their funds ranking in the top half of their respective categories. They have also achieved a milestone of raising over $250 billion in alternatives, surpassing their target a year early. Fundraising has been broad-based and has contributed to the improvement of the company's revenue durability. The company's more durable revenue sources, such as financing and management fees, have shown a 13% CAGR since 2019.

In 2023, Goldman Sachs generated over 70% of its revenues through consistent baseline and diversified franchise. The company's leadership team spent time realigning priorities with strategic vision, values, and strengths. Strategic objectives include harnessing One Goldman Sachs, running world-class businesses, and investing at scale. Execution focus areas for 2024 are aligned with these objectives, including investing in people and culture. The desired outcomes are to be a trusted advisor to clients, an employer of choice, and to generate strong returns. With a clear strategy and strong platform, Goldman Sachs is confident in its ability to continue serving clients and delivering for shareholders. Denis Coleman then takes over to cover the company's financial results.

In 2023, the company generated net revenues of $46.3 billion, net earnings of $8.5 billion, and earnings per share of $22.87. However, due to strategic decisions and FDIC special assessment fees, net earnings and ROE were reduced. Global Banking & Markets saw a decline in revenues, but maintained its top position in various league tables. There has been a positive level of activity in capital markets in the US and Europe. FICC net revenues were down due to lower activity in rates and other macro products, but FICC financing saw record revenues. Equities net revenues were up, driven by better results in derivatives and financing.

In 2023, revenues for financing in FICC and equities rose by 10%, reflecting a focus on growing client financing. In Asset & Wealth Management, revenues increased by 4% to $13.9 billion, driven by record management and other fees and private banking and lending revenues. Despite a decline in equity investments revenues and incentive fees, management and other fees for the full year were $9.5 billion, on track to reach the $10 billion target in 2024. Total firm-wide assets under supervision reached a record high of $2.8 trillion, with strong net inflows in fixed income and alternative assets for the 24th consecutive quarter. Alternative assets under supervision totaled $295 billion, generating $571 million in management and other fees for the quarter and surpassing the $2 billion target for 2024. Third-party fundraising since the 2020 Investor Day has reached over $250 billion, and on-balance sheet alternative investments totaled approximately $46 billion.

In the fourth quarter, the portfolio was reduced by $4 billion, with a focus on exiting it over the medium-term. Platform solutions had a 58% increase in revenues for the full year, and $577 million in quarterly net revenues. The firm-wide net interest income was $1.3 billion, down 13% from the previous quarter. The loan portfolio was $183 billion, with an increase in other collateralized lending. The provision for credit losses was $577 million, driven by net charge-offs and seasonal balance growth. Expenses will be discussed on page 20.

In 2023, the total operating expenses for the year were $34.5 billion, with flat compensation expenses and increased non-compensation expenses due to special assessment fees. The effective tax rate for 2023 was 20.7% and is expected to increase to 22-23% in 2024. The common equity tier 1 ratio was 14.5% and $1.9 billion was returned to shareholders in the fourth quarter. The company's capital management philosophy prioritizes client deployment, sustainable dividend growth, and returning excess to shareholders. The company made progress in narrowing its strategic focus in 2023 and is well-positioned to execute its objectives in 2024.

The company is optimistic about the future and has identified execution focus areas for 2024. They will now take questions from the audience. The CEO is feeling optimistic about the investment banking sector and sees an increase in M&A activity and a replenishment of their backlog. They are also encouraged by the level of strategic dialogue and expect to see more IPOs in 2024.

The speaker discusses the increased activity and engagement in debt and equity issuance, as well as the need for companies to reevaluate their capital structures. They also mention the overall improvement in the market and the firm's cautious approach to risk management. The goal of reducing on-balance sheet investments is also addressed, with progress made last year and a clear target to eliminate them within the next three years.

The speaker, David Solomon, responds to a question about the FICC business and its recent performance. He clarifies that while the overall activity levels were up and down during the year, the current quarter was quiet, particularly in the back half. He expects more activity in the first few weeks of the year and acknowledges that the activity in this segment can fluctuate based on the macro environment. He also mentions that the financing revenues have been growing and there is potential for further growth in the future.

Denis Coleman, CEO of Goldman Sachs, discusses the opportunities for growth in both FICC and equity financing in the next few years. He mentions that their focus on clients and market share has been successful and they have a leading equities franchise. They also plan to increase activities with existing clients and bring on new clients. When asked about the potential impact of exiting their partnership with Apple, David Solomon, Chairman and CEO, states that they continue to work on reducing the drag and the impact will be less in 2024. The deposit platform, Marcus, has been a successful venture for the company, exceeding their expectations in terms of beta.

The speaker is responding to a question about their plans to adjust their thoughts on being in the top decile of payouts for a certain product. They state that their strategy for pricing and maintaining balances has not changed and they saw good growth in deposits last year. They also mention their focus on driving growth in strategic channels and being thoughtful about their funding mix. The speaker then addresses a question about how they will reach their desired return on equity and notes that the current environment was not conducive for their core business, which had a 12% ROE on a fully allocated basis. They emphasize the importance of looking at their core business of banking and markets, which is a significant portion of the firm.

The speaker believes that the business will continue to perform well in the mid-teens range, with potential for even better returns in a better environment. They are also working on reducing the balance sheet in Asset & Wealth Management, which has been a drag on returns, but they are making progress and expect to see mid-teens returns with a smaller balance sheet in the next two years. The majority of the firm is focused on these two businesses, and the other drags will be significantly reduced in 2024. The speaker is optimistic about the firm's progress in the medium-term, as long as the environment remains reasonable. The higher stock markets also help with the disposition of principal investments.

David Solomon and Denis Coleman discuss the interplay between a potential recovery in investment banking and trading intermediation. They believe that a better market could lead to some benefit in revenue performance, but they are focused on reducing that broadly. They also mention that the transparency in platforms has increased and they expect the drag on performance to be significantly reduced in 2024. They are not able to provide specific details yet, but they believe it will be small in the overall context of the firm's performance. They also mention that they can continue to grow their financing activity and normalize investment banking activity, which has been growing for the past 25-35 years.

The speaker discusses the potential impact of market disruption on FICC and investment banking activity. They also mention uncertainties in the market, such as the trajectory of rates and debates about the Fed's quantitative tightening. The speaker believes that the business mix will improve in 2024, but they are prepared to operate in any environment. The interviewer asks about commercial real estate and the speaker mentions new disclosures and potential impacts on the company's CRE and office loans.

Goldman has exceeded its fundraising goal in the alternative sector and is looking to expand in private credit, while also being mindful of reducing risk and supporting clients in the process.

Denis Coleman, Goldman Sachs' co-head of asset management, provides an update on the company's private credit growth, stating that they expect to raise another $40-50 billion in alternatives by 2024. He also discusses the company's unique competitive advantage in this space and their continued focus on building partnerships with capital allocators. In response to a question about the Basel endgame comment letters, Coleman mentions that today is the end of the comment period and that it is not the end of the process.

The speaker believes that the proposed rules regarding banking regulations are just the beginning of a longer process, and that there is significant concern among industry peers and end users about the potential impact of these rules. They also believe that the rules were not proposed appropriately and should be withdrawn and reproposed. However, they are prepared to adjust their businesses and pricing if necessary. When asked about their efficiency targets, the speaker did not provide a specific growth target for non-compensation expenses, but emphasized their flexibility and ability to adapt.

Denis Coleman, speaking at a conference, discusses the company's focus on improving their efficiency ratio in 2024. He mentions that the impact of selected items would have brought the ratio to 65%, but they have implemented initiatives to reduce non-compensation expenses. They are reviewing all categories of expenses, benchmarking, and looking at processes and incentives to manage inflation. They do not expect these activities to repeat in 2024 and will maintain a pay for performance approach to compensation expenses.

The company's expenses are variable and will depend on the types of activities and mix of business in 2024. Over the past four years, 40% of alternative inflows have come from the wealth channel, but this may decrease as the company invests in institutional partnerships. The economics of these alternatives are attractive in both private wealth and institutional partnerships.

The speaker discusses the differences in economic propositions for partnerships with varying levels of investment and emphasizes the company's focus on scaling and investing in distribution channels. They also mention the uncertainty around capital rules and state that their primary focus for capital allocation is supporting their clients. However, they will also consider opportunities for deployment of capital and potential bolt-on deals.

The company has a capital planning program in place and will return capital to shareholders if there are no opportunities to invest it with clients. They are currently being more conservative due to uncertainty around Basel III, but are confident in their ability to deploy capital and plan to continue growing the dividend. The exit of legacy on-balance sheet principal investments will lead to expense reduction and improved margins in the Asset & Wealth Management business. The company recently raised a growth equity fund, which requires a smaller team to manage compared to their previous on-balance sheet investments.

David Solomon and Denis Coleman of Goldman Sachs discuss the success of the company's growth in relationships with top FICC and equity clients. The success is attributed to the firm's scale, One GS ethos, and the hiring of additional staff. Competition has also been a factor, with Credit Suisse no longer being a major competitor. Overall, the firm's focus on scale and collaboration has contributed to the growth in this business.

In the past, Goldman Sachs operated its businesses separately, resulting in inconsistent experiences for clients. However, in 2019, the company began focusing on providing an integrated and partner-like experience for clients, which has improved their satisfaction and loyalty. This approach has also led to increased wallet share and opportunities for the company. Goldman Sachs continues to gather feedback from clients and adjust its operations to ensure excellent service. The company's One GS operating ethos is a key factor in its ability to serve clients with excellence.

David Solomon and Denis Coleman discuss their company's plans for the future, including their focus on expanding their global presence and increasing activity in the Americas. They also mention slower growth in Asia, particularly in China. When asked about comp leverage and operating margins, Denis notes that the adjusted efficiency ratio is set at 65%, which is a good starting point for thinking about the company's goals for 2024.

The speaker discusses the evolving business and the need to be mindful of the mix of activities and expenses. They mention that compensation was roughly flat compared to the previous year, and that they have observed solid performance and significant execution activity. They also mention managing selected items and the potential for comp leverage, with expectations for revenue and comp dollars to increase. The speaker notes their track record of delivering strong marginal margins.

Mike Mayo asks about the Lead Independent Director, Bayo, who is no longer on the Board due to his firm being purchased by BlackRock. He asks who will replace him and what type of person the Board is looking for. David Solomon responds that Bayo is still the Lead Director until the deal closes and they have a governance process in place.

During the conference call, the speaker announced that the Board had met and would make an announcement about the transition at the appropriate time. The sale would create a transition, but there were no further details at this point. The Lead Director, Bayo, would manage the transition in an orderly manner. When asked about potential candidates for the transition, the speaker stated that the Board is always considering new members, but would not comment on any specific individuals. The call then ended with no further questions.

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