The paragraph is part of Goldman Sachs' Third Quarter 2024 Earnings Conference Call, introduced by the operator, Katie. David Solomon, the Chairman and CEO of Goldman Sachs, highlights the company's financial performance, reporting net revenues of $12.7 billion, earnings per share of $8.40, ROE of 10.4%, and ROTE of 11.1%. He expresses satisfaction with their performance despite challenges such as reducing their consumer footprint, which affected ROE. Solomon emphasizes Goldman Sachs' strong interconnected franchises and their role as a leading M&A advisor and global risk intermediary. He notes that investment banking is active, with a rising backlog, positioning Goldman Sachs to benefit from increased activity.

The paragraph discusses a financial institution's strong performance in various sectors. In FIC, they achieved record financing revenues and met client risk intermediation needs, while equities also saw robust results. Their global e-platform is well-equipped to address evolving client demands. In Asset and Wealth Management, their assets under supervision surpassed $3 trillion, marking the 27th consecutive quarter of net inflows, with management and private banking fees hitting a record $3.4 billion. They anticipate continued high single-digit revenue growth and strong alternatives fundraising, expecting over $60 billion in 2024. Wealth management client assets grew to $1.6 trillion, and the ultra-high net worth segment is positioned for global growth. The pre-tax margin has improved, aligning with mid-20s targets, and they focus on enhancing margins, returns, and growth opportunities. The U.S. economy remains resilient.

The paragraph discusses the current economic outlook, noting that inflation is decreasing, and unemployment data is favorable. While consumer behavior shows some softness, optimism has been renewed by the start of the rate cut cycle, potentially spurring economic activity. Clients remain focused on interest rate trajectories and the impact of global elections and geopolitical instability. The speaker highlights concerns about the regulatory process related to capital requirements, emphasizing the need for transparency and consideration of interconnectedness. They stress the importance of getting the regulatory framework right to avoid negatively affecting credit costs and economic growth. The speaker concludes by expressing confidence in Goldman Sachs' trajectory and its strong client relationships.

In the third quarter, the firm generated net revenues of $12.7 billion, a 7% increase year-over-year, and earnings per share of $8.40, up 54% year-over-year. ROE was 10.4% and ROTE was 11.1%. Specific items, including agreements related to the GM card platform and selling a financing portfolio, reduced EPS by $0.62 and ROE by 80 basis points. The Global Banking and Markets segment produced $8.6 billion in revenues, with advisory revenues up sequentially and year-over-year, maintaining the number one position in M&A league tables. Equity underwriting revenues increased by 25% and debt underwriting revenues rose by 46% year-over-year. Client demand for acquisition financing is growing, supported by increased M&A activity, and the investment banking backlog improved due to advisory. FIC net revenues were down compared to last year but showed activity growth in September.

The paragraph reports financial results, highlighting a partial offset in declining intermediation revenues by a 30% year-over-year increase in FIC financing revenues to $949 million, driven by mortgages and structured lending. Equities net revenues grew 18% to $3.5 billion, with notable increases in intermediation and financing revenues, reaching $2.2 billion and $1.3 billion respectively. Total FIC and equities financing revenues hit a record $6.6 billion year-to-date, reflecting strategic revenue base durability improvements. Asset and Wealth Management revenues rose 16% to $3.8 billion, bolstered by durable management fees and private banking revenues now at a record $3.4 billion. Management fees increased sequentially to $2.6 billion, aiming for a $10 billion annual target by 2024, while private banking revenues climbed to $756 million. Incentive fees were $85 million, aligning with a $1 billion medium-term target, supported by $4 billion in unrecognized fees. Equity and debt investments revenues were $294 million, contributing to a $1.5 billion year-to-date total.

The paragraph reports financial highlights for a company at the end of the third quarter. Total assets under supervision reached $3.1 trillion, with significant inflows into liquidity products and long-term assets. The alternatives segment managed $328 billion, generating substantial fees, and third-party fundraising has surpassed $300 billion since 2020. The firm reduced its principal investment portfolio significantly. Net interest income rose to $2.6 billion due to increased interest-earning assets, and the total loan portfolio grew to $192 billion. Credit loss provisions were $397 million, largely due to credit card net charge-offs. Operating expenses for the quarter were $8.3 billion, with non-compensation expenses decreasing 14% year-over-year, while efforts focus on efficiency amid inflation and competition. The effective tax rate for the first nine months of 2024 was 22.6%, with a full-year expectation of about 22%.

In the paragraph, the company discusses its financial performance, highlighting a return of $2 billion to shareholders through dividends and stock repurchases. The common equity Tier 1 ratio was 14.6% at the end of the third quarter, with a new requirement of 13.7% effective from October 1st, following a reduction in the SEB requirement by the Federal Reserve. The company has a 90-basis point buffer, providing flexibility in capital deployment. It emphasizes its strong performance, strategic execution, leadership in Global Banking and Markets, and growth in Asset and Wealth Management. The firm is confident in driving shareholder returns while supporting clients. The section concludes by inviting questions from the audience, with Glenn Schorr from Evercore inquiring about the regulatory perspective on trading amid strong performance despite market volatility.

David Solomon discusses the company's approach to navigating uncertain regulatory environments and emphasizes its adaptability over time. He highlights the strength of their business in markets like FIC and equities, underpinned by longstanding client relationships and a diversified service package. Solomon notes that despite the unpredictable regulatory shifts, their focus on financing has enhanced the durability of their business. He asserts that while intermediation remains important, their broad, resilient franchises offer consistency when viewed on a yearly basis, rather than quarterly.

The paragraph discusses the positive outlook for the franchise's growth and investment potential, emphasizing its correlation to global market growth. It suggests that the ability to invest and see attractive returns will persist over the medium and long term, despite regulatory considerations. Glenn Schorr asks about the impact of weaker historical principal investments (HPI) on future revenue, given the shrinking book value. Denis Coleman responds by highlighting the company's commitment to reducing these investments, which will consequently result in lower associated revenue as these positions are removed from the balance sheet.

The paragraph discusses the impact of non-bank trading venues entering the fixed income markets and their potential to disrupt existing businesses. David Solomon acknowledges the competition in these markets but emphasizes that despite the presence of new competitors, few platforms can offer the scale and integrated services required by leading capital allocators and asset managers. He highlights the significance of providing comprehensive services to maintain competitiveness and suggests that enduring competition is a natural aspect of the industry.

The paragraph discusses the competitive nature of the equity business, highlighting the firm's success and scalability despite increased competition and digitization over the past 25 years. It emphasizes the firm's role as a significant liquidity provider and financier for clients, which is crucial for their overall ecosystem. Despite the competitive environment, the firm is confident in its position as a leading player in the market. In response to a question about achieving a 15% return on equity (ROE), David Solomon explains that the firm has a mid-teens target and aims to reach it by executing consistently over time.

The paragraph outlines a financial institution's strategy to improve its business performance across three main areas: Global Banking and Markets, Asset and Wealth Management, and its consumer platform. In Global Banking and Markets, although investment banking revenues and volumes are below 10-year averages, they have shown improvement and are expected to continue to benefit from market tailwinds. In Asset and Wealth Management, while margins have improved, further work is needed to boost returns to the mid-teens over the next few years. Additionally, the company is narrowing its consumer footprint to reduce its negative impact. By integrating these efforts, the institution aims to achieve mid-teens returns across its business segments.

In the paragraph, David Solomon addresses a question from Christian Bolu about the competitive landscape in the trading business. Solomon acknowledges that market share can fluctuate in the short term but emphasizes that, over the past five years, they've seen a significant increase in their market share. He assures that Goldman Sachs remains in a leading position and is focused on maintaining strong relationships with top clients. While competition is always present, Solomon is confident in the firm's positioning and long-term client relationships, seeing no fundamental changes that would alter their competitive stance.

The paragraph discusses how a strategic decision was made to enhance lending to ultra-high net worth clients in the private banking sector, which has been a key driver of recent growth. Historically, the company was underinvested in this area due to not being a bank 15 years ago. However, integrating services like lending into their wealth management offering has improved their market share. They've recognized their previous underpenetration in this segment compared to competitors like JPMorgan and are focused on continuing to invest in and grow this capability. Denis Coleman adds that they have successfully implemented similar strategies before.

The paragraph discusses a strategy to enhance client coverage in banking by integrating lending with other services, which improved market share. This approach is being applied to their GBM public businesses, despite currently being underpenetrated compared to peers. They aim to use the same strategy in the wealth business to boost market share and client relationships by allocating more resources and capabilities to advisors. In response to Mike Mayo from Wells Fargo Securities, David Solomon addresses questions about platform solutions and the Apple Card, noting that they are narrowing their consumer footprint and improving the Apple Card without indicating a complete exit. Mayo also asks about M&A activity being below 10-year averages, questioning the relevance due to sponsor activity.

The paragraph discusses the substantial amount of "dry powder" or available funds for acquisitions held by sponsors, estimated between $1 trillion to $3 trillion, which could potentially lead to an M&A (mergers and acquisitions) super cycle. David Solomon notes that the deployment of these funds has been slower than expected, but anticipates an increase in M&A activity over the next few years. He explains that the 10-year average for M&A volumes is currently influenced by market cap and economic growth, and predicts it will eventually rise. The discussion hints at an increase in sponsor activity and a rebound in capital markets. Following Solomon's comments, Betsy Graseck from Morgan Stanley agrees with the assessment regarding capital markets recovery.

The paragraph is a discussion between Betsy Graseck and Denis Coleman about the impact of shifting from private investments to expanded loan offerings in Asset & Wealth Management. Denis explains that the loan offerings have a lower risk-weighted asset (RWA) density compared to private equity investments, which makes it more capital efficient and better aligns with client needs. Betsy also inquires about a pending deal with GM, asking about its closure timeline and financial implications. Denis responds that the deal is signed but not yet closed, with an expected closure by Q3 of 2025, and mentions a conversion to a new issuer as part of the process.

The paragraph is a conversation between Brennan Hawken from UBS and David Solomon. Brennan asks about investment backlog, specifically equity capital markets (ECM) and IPOs, noting some recent activity in the IPO market. David acknowledges increased equity activity but notes that volumes are still significantly below 10-year averages. He mentions that sponsors are cautious due to their portfolios being marked higher but anticipates an acceleration of activity. Brennan also inquires about recent partnerships and innovations in the private credit world, asking how they plan to capitalize on these opportunities, to which David responds affirmatively but without specific details provided in this excerpt.

The paragraph discusses Goldman Sachs' integrated and unique credit platform, highlighting its strong position in credit origination within investment banking, particularly in leveraged loans and high-yield debt, as well as its prominent role in private credit through its Asset & Management business, which manages $140 billion in private credit assets. The firm's differentiated origination ecosystem, spanning Global Banking & Networks and Asset & Wealth Management, sets it apart from competitors. The paragraph also touches on a question from Steven Chubak about the impact of noncore assets, specifically in consumer and equity investments, on return on equity (ROE), noting a reported 80 basis point drag from consumer activities.

The paragraph features a discussion between Denis Coleman and Steven Chubak about strategies to improve returns, specifically through self-help levers such as exiting consumer-related activities to achieve capital relief and focusing on reducing HPI exposure. Coleman suggests that removing associated capital progressively will provide incremental benefits. Chubak, inquiring about stock buybacks, notes the current trading value relative to book value and asks about priorities for capital deployment. Coleman responds by reaffirming the firm's unchanged capital deployment philosophy, emphasizing the importance of organic growth, client engagement, and capital market opportunities, particularly in acquisition financing, which is a core activity for Goldman Sachs.

The paragraph discusses the company's strategic focus on deploying capital to drive recurring revenue streams in wealth, financing, and public sectors, while also maintaining a commitment to sustainably growing dividends and returning capital to shareholders. It addresses a question from Devin Ryan about declining fee rates in alternative asset management, specifically in corporate equity, acknowledging changes due to legacy funds and recent fundraising efforts. Denis Coleman explains that the fee rates' outlook depends on the asset mix and emphasizes the strategic value of their OCIO offerings in growing their asset management franchise.

The paragraph discusses a firm's asset accumulation strategy and trading business. It mentions that while some investment portfolios include alternative assets with lower effective fees than those charged by Goldman Sachs, the firm is focused on multichannel asset growth to enhance business scale, efficiency, and returns. Devin Ryan inquires about the resilient trading business and electronic trading capabilities, noting the firm's market share gains. Denis Coleman explains their multichannel trading strategy, which integrates voice, high-touch, and electronic channels to optimize market making and client solutions. The firm can handle both standard and complex trades, utilizing risk capital when needed. The paragraph ends with an operator moving to the next question.

In this conversation, Dan Fannon asks Denis Coleman about the timeline for achieving a $1 billion goal in performance fees, mentioning that there are $4 billion in unrecognized gains. Denis explains that reaching this target depends on various factors like market activity and monetization processes, which have been slower than expected. He anticipates moving towards the target over the next several years but cannot specify the exact timeline. Dan also inquires about the growth strategy for wealth management, focusing on expanding the adviser base through recruitment, hiring, and investment beyond merely diversifying revenue streams. Denis affirms the importance of this strategy.

The paragraph discusses Goldman Sachs' strategic decision to make a sustained investment in advisers as part of their business strategy for growth, particularly within their ultra-high net worth segment. This investment is not influenced by changing market conditions or the firm's previous capacity to invest. The firm is committed to this approach over multiple years to drive growth and returns across their Asset and Wealth Management (AWM) division. The paragraph shifts to a conversation with Gerard Cassidy from RBC, who asks about the advantages of private credit compared to traditional loans in client investments. David Solomon acknowledges the question, noting that private credit is a broad concept with many facets, including its role in investment-grade lending on insurance company balance sheets.

The paragraph discusses the firm's involvement in direct lending and syndication activities, particularly in the below investment-grade business and with sponsors. The firm is uniquely positioned to offer a variety of financing solutions, including syndication, underwriting, direct lending, and alternative capital structures tailored to client needs. There is an expected growth in private credit, especially in the leveraged finance space, and the firm is aiming to capitalize on this growth. In the leveraged finance market, competitors such as JPMorgan are frequently encountered.

The paragraph discusses the competitive landscape and positioning of Goldman Sachs in the financial sector, specifically in relation to direct lenders, investment-grade platforms, and alternative client lending in the private credit space. Denis Coleman highlights Goldman Sachs' capacity to lend, underwrite, distribute, and offer investment opportunities across different capital structures, emphasizing their broad and unique position in the market. The operator then introduces a question from Saul Martinez regarding the margin trajectory in Goldman Sachs' Asset & Wealth Management sector, noting the current 24% pre-tax margin and inquiring about future margin expansion beyond the mid-20s target, considering factors like business growth and unrecognized incentive fees.

In the discussion, Denis Coleman addresses a question from Saul Martinez about achieving a pretax margin of above 30% like some of their peers. He explains that while they have reached their mid-20s target, they aim to further increase their margins by scaling their top line, improving their platform mix, and enhancing operational efficiencies. Coleman emphasizes the importance of balancing incremental margin improvements with long-term value investments. Martinez also inquires about capital allocation strategies amidst regulatory and political uncertainties, particularly regarding Basel proposals. Coleman acknowledges the challenges of operating under such uncertainties and justifies the current capital buffer strategy.

The speaker discusses the economic outlook and client opportunities, emphasizing the importance of maintaining a buffer in their capital position to support new opportunities and account for uncertainties, including regulatory changes. They express confidence in their ability to adjust activities based on regulatory feedback and timelines. The operator then concludes the Goldman Sachs third quarter 2024 earnings conference call.

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