Goldman Sachs Group Inc (GS) — Q1 2021 Earnings Call Transcript

Good morning. This is Heather Kennedy Miner, Head of Investor Relations at Goldman Sachs. Welcome to our first quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. No information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audio cast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. Today, I am joined by our Chairman and Chief Executive Officer, David Solomon; our Chief Financial Officer, Stephen Scherr; and Carey Halio, our incoming Head of Investor Relations, who will host this call beginning in July. Carey most recently served as the firm’s Deputy Treasurer and CEO of GS Bank USA and began her career in credit risk as a bank analyst. She brings 22 years of experience at Goldman Sachs to her new role. As I leave this seat to assume the role of COO of our asset management business, I want to extend my sincere appreciation to each of you for your partnership over the years. On the call today, David will start with a high-level review of our first quarter performance and our client franchise. He will also provide an update on the operating environment and macroeconomic backdrop. Stephen will then discuss our first quarter results in detail. David and Stephen will be happy to take your questions following their remarks. I’ll now pass the call to David. David?

Thanks, Heather, and thank you everyone for joining us this morning. Before I begin my remarks, let me thank Heather for leading the firm’s Investor Relations effort for the past four years and welcome Carey to the role. I will begin on page 1 of the presentation with a summary of our financial results. In the first quarter, we produced record net revenues of $17.7 billion. The strength and breadth of our client franchise continued to be evident as we delivered net earnings of $6.8 billion, record quarterly earnings per share of $18.60, and a return on equity of 31% and a return on tangible equity of 32.9%, the highest in over a decade. Our first quarter results underscore the ongoing strength of our franchise in the supportive environment in which we operated during the quarter. These results also evidenced our successful execution towards the firm’s strategic priorities. We maintained our leading global positions across M&A and equity underwriting. We delivered the best performance in global markets in a decade with strength in FICC and equities driven by solid client activity across our platform and reinforced by last year’s market share gains. In asset management, we recognized significant net gains across our public and private equity positions, and we continued to harvest on-balance sheet investments in our efforts to transition the business to more third-party assets, where we are making progress in raising funds across a range of investing strategies. In Wealth Management, we continue to provide valuable advice to our ultra-high net worth PWM clients, while we further scale our personal financial management business. And in Consumer, we continue to make strong progress on our vision to create the leading digital consumer banking platform. This quarter, we launched Marcus Invest in the U.S., our digital investment offering, which provides consumers access to diversified investment portfolios with as little as a $1,000 investment. The customer response and uptake since launch has been positive and we are focused on scaling the platform. We’re also working towards the launch of digital checking in the U.S. and Marcus Invest in the UK. Importantly, we maintained a resilient and highly liquid balance sheet as we continue to deploy our resources to support clients amid an evolving and dynamic market backdrop. With that, let me turn now to the operating environment on page 2. As anticipated, we saw improvement in the macroeconomic backdrop during the first quarter, which was supported by the continued accommodative fiscal and monetary policies of central banks and governments around the world. At this stage, it is clear to me that the U.S. is poised for a strong recovery this year, led by consumer spending that is rebounding to pre-COVID levels. This sentiment is reflected in the capital markets with U.S. equities hovering at or near records and bolstered by recent U.S. employment data and our economists’ forecast on GDP growth. Despite these positive developments, we recognized that the operating backdrop will undoubtedly evolve and that much of the global economic recovery will depend on the progress around COVID-19. While the rollout of vaccines is well underway in the U.S. and the UK, distribution has been challenged in several other countries around the globe, and the prospect of new variants adds to potential concerns around the trajectory of the economic recovery. As you would expect, we remain vigilant to risks across markets. We are mindful of elevated valuation levels across certain asset classes, increased volatility in certain single-name stocks, and are aware of the inflationary risks inherent in the actions being taken to stimulate continued growth in the economy. Let me now also take a moment to share my views on a few important topics while I’ve been fielding questions from clients and other stakeholders. First, on the events related to Archegos Capital, this was a case of an investor with highly concentrated and leveraged positions. This is not the first time we’ve seen a situation like this, and it likely won’t be the last. We have robust risk management that governs the amount of financing we provide for these types of portfolios. Our risk controls, all of which were put in place long before the March events, worked well. We identified the risk early and took prompt action consistent with the terms of our contract with the client. I am pleased with how the firm handled it, and it’s a reflection of the engagement and communication of teams across Goldman Sachs, both in the business and on the control side of our firm. These events raised reasonable questions around market practice and transparency. They are worthy of debate, and we intend to play a constructive role in that dialogue. Next on SPACs, we continue to believe that providing sponsors a mechanism to access public markets for capital formation is an innovation that’s here to stay. However, as a meaningful participant in this market, we will continue to be thoughtful regarding the transactions we underwrite, with a particular focus on the quality of sponsors, sponsor economics, investor protections, and disclosure. We believe the industry should evolve on these important issues in the interest of more efficient and transparent markets. I also want to touch on the topics of cryptocurrency, blockchain, and the digitization of money. As activities in these areas progress, there will be a significant disruption and change in the way money moves around the world. Many central banks are looking at digital currencies and working to apply this technology to their local markets and determine the longer-term impact on global payment systems. There’s also significant focus on cryptocurrencies like Bitcoin, where the trajectory is less clear as market participants evaluate their possibility as a store of value. At Goldman Sachs, we continue to look for ways to expand our capabilities to support our client needs and evaluate applications to improve our organizational efficiency. Of course, we need to operate within the current regulatory guidelines. For example, we cannot own Bitcoin or trade it as principal. Goldman Sachs will play a role in these innovations as they are important to our clients and important to the future of global financial systems. Another topic coming up in stakeholder conversations is sustainability. We remain steadfast in our commitments to sustainable finance. Central to our purpose as an organization, our programs are commercially attractive and utilize our expertise and capital to support all of our stakeholders. During the quarter, we issued our first sustainability bond, where we raised $800 million, the proceeds of which will be allocated towards initiatives aimed at accelerating climate transition and advancing inclusive growth. We also launched One Million Black Women, an initiative that I’m very proud of and through which the firm will commit $10 billion of direct investment capital and $100 million in philanthropic capital for capacity-building grants over the next decade to narrow the opportunity gaps for Black women in the United States. Separately, we also committed an additional $500 million to ‘Launch With GS’, our program designed to invest in diversified companies and fund managers, bringing our total commitments to $1 billion. Finally, I want to take a few minutes to comment on our people. I continue to hear from clients that the quality and dedication of our people is one of our great differentiators. The firm’s quarterly results are a product of our client focus and the dedication of the employees of Goldman Sachs, day in and day out. Notwithstanding the challenges that they have all faced as we mark one year into the COVID-19 pandemic, our people have rallied to the needs of our clients. I would like to thank my colleagues around the world. I am in awe of their performance and of our results this quarter due to their hard work, dedication, and our culture of teamwork. It will always be a priority for our firm to attract and retain the best talent to serve our clients and execute on our strategy. We have a vibrant partnership and a deep bench of talent across the organization. Many will spend their entire career with us. Some will even become clients of the firm. This is a virtuous ecosystem that has been in place for decades. It is also aligned with the evolution of our partnership strategy where we’re working to continue to make the partnership more aspirational. I recognize there’s an enormous amount of discussion about how companies will operate their businesses post-pandemic. For Goldman Sachs, our people operate at their best when they are forging close bonds with colleagues and furthering the apprenticeship culture that has defined us. We have found the best way to do that is to work together in person on a regular basis. Let me be clear, achieving the objective of bringing our colleagues back to the office is not inconsistent with the desire to provide our people with the flexibility they need to manage their personal and professional lives, which is the way we have always run this firm. And given the experience of the past year, I’m more confident than ever in our ability to facilitate this approach going forward. Over the course of the past few months, we’ve been welcoming thousands of colleagues back to the office in a manner consistent with safety guidelines in each city in which we operate. We have implemented testing and other protocols across our offices to make for a safer work environment and to provide those returning to the office with a sense of confidence in the return. Importantly, I look forward to increasing number of employees returning as vaccination programs around the world expand, and we welcome new joiners to the firm’s offices this summer. Regarding our junior bankers and others in the organization who have been working tirelessly to support our clients, and at times have been overburdened, I’ve been passionate about the experience of our junior people throughout my career. As you can now see from our results, client activity is extraordinarily high. And I fully appreciate how busy our people have been. This has been exacerbated by the isolation of working remotely in a COVID-19 environment. To address this, we are taking concrete actions including additional hiring, reallocating resources, and pursuing stricter enforcement of boundaries. In this 24x7 connected world, we have to help those transitioning into the workforce to understand that Goldman Sachs is the place we work very hard to serve our clients, but all need to be thoughtful about personal resilience and wellbeing. In closing, I’m very pleased with how our people delivered for our clients and drove attractive returns for our shareholders. I’m confident in the state of our client franchise and the progress we are making as we execute our strategic priorities. With that, I will turn it over to Stephen.

Thank you, David, and good morning. Let me begin with our summary results on page 3. During the first quarter, the firm’s performance reflected meaningful strength across all four of our business segments. In investment banking, clients remained very active in raising capital, particularly in the equity markets, and we witnessed high levels of M&A activity amid elevated strategic dialogues. In global markets, we saw strength across all products and regions, as client engagement remained high. In asset management, record performance was attributable to gains from our equity investments, particularly as we harvested private equity positions in an attractive market. We also saw double-digit revenue growth year-over-year in our consumer and wealth management segment for the third consecutive quarter as we further expand our wealth capabilities and scale our consumer offering. Turning to specific business performance on page 4, let me begin with investment banking. Investment banking produced record quarterly net revenues of $3.8 billion, up 73% versus a year ago. Financial advisory revenues of $1.1 billion rose 43% versus last year on increased transaction closings in the quarter. During the quarter, we maintained our number one league table position as we participated in over $400 billion of announced transactions, over $100 billion ahead of our next closest competitor, and closed over 100 deals for approximately $300 billion of deal volume. The bigger headline in investment banking again this quarter was equity underwriting, where we generated a record $1.6 billion in revenues, over four times greater than the levels the year ago. We ranked number one globally in equity underwriting with our volumes climbing to nearly $50 billion across roughly 240 deals, including over 90 initial public offerings, for companies across all markets like Coupang in Korea, InPost in Poland, and Bumble in the U.S. Our equity underwriting market share increased more than 60 basis points during the quarter, largely driven by improved share in IPOs. We experienced strong activity this quarter in follow-ons and new products, including our participation in a growing number of SPAC transactions. In debt underwriting, net revenues were $880 million, up 51% from a year ago, driven by strong activity levels, particularly in leveraged finance and asset-backed transactions. In addition, our engagement with sectors impacted by COVID, including airlines and hospitality, was high. Notwithstanding the significant realization of revenue in a quarter, our investment banking backlog ended the quarter at record levels, with sequential growth supported by sustained M&A activity as well as replenishment from underwriting transactions. Revenues from corporate lending were $205 million, down 54% versus the first quarter of last year, which included significant gains on hedges maintained with respect to our relationship loan book. Revenues in the quarter reflect net interest income including from transaction banking and fees from relationship lending, partially offset by approximately $85 million of losses on hedges as spreads tightened modestly. Moving to global markets on page 5. Our franchise exhibited broad-based strength across businesses in both FICC and equities. Net revenues were $7.6 billion in the first quarter, up 47% versus a year ago, and the highest since 2010. During the quarter, we benefited from a supportive market-making environment and facilitated considerable client activity. Turning to FICC on page 6. First quarter net revenues were $3.9 billion, up 31% versus a year ago, driven by a 36% increase in intermediation, where we experienced healthy client flows and demonstrated strong risk management, and grew revenues in four out of five businesses versus last year. In mortgages, revenues rose significantly, bolstered by solid results in agency mortgages and residential loans and high levels of client engagement as the business continues to diversify its revenue across market-making, loan origination, and financing. In commodities, higher year-on-year performance was driven by solid inventory management across products amid volatile markets and healthy client flows. In rates, revenues rose amid strong risk management and client engagement, particularly on the back of anticipated fiscal activity in the U.S. and diverging central bank actions during the quarter. In credit, revenues were up versus a year ago as the business benefited from continued improvement in credit spreads, while client activity remained healthy amid robust primary issuance. We also saw increasing volumes related to our automated bond pricing engine and growing activity in electronic trading. In currencies, revenues fell due to lower activity versus a strong quarter a year ago, though client engagement remained high across both the G-10 and emerging markets franchises. Turning to equities, net revenues for the first quarter were $3.7 billion, up 68% versus a year ago, as we deployed our balance sheet to support clients and intermediated risk with discipline. Equities intermediation produced net revenues of $2.6 billion, up 69%, reflecting the global scale and breadth of our client franchise and aided by elevated client volumes across cash and derivatives, as well as strong risk management. In cash, we facilitated client flows across high and low touch channels, and executed a number of block trades for clients during the quarter. In derivatives, we produced record results as we saw solid activity in flow and structure transactions across both the U.S. and Europe. Equities financing revenues of $1.1 billion were the best in over a decade, rising 65% year-over-year. Average balances in our prime business grew to record levels, as we supported clients amid the volatility and market events of the first quarter. As we continue to grow our prime business, we are well aware of the risks inherent in that business and the resources including liquidity that are consumed. While we avoided losses related to recent events involving Archegos Capital, as David noted, the situation underscored the potential risks of the business and the corresponding importance of our risk infrastructure and control systems. As to forward expectations for global markets, it remains difficult to predict client activity. While we do not expect the pace of activity in the first quarter to necessarily persist for the balance of the year, we believe the high levels of primary issuance, the current trajectory of economic recovery, and diverging central bank policies, particularly in emerging markets, could continue to support elevated client activity. Our confidence on the foreword of global markets rests largely on the market share gains generated last year through a deepening of client relationships and our ongoing investment in technology platforms to enhance client experience and drive efficiencies. Moving now to asset management on page seven. In the first quarter, we generated record revenues of $4.6 billion. Management and other fees totaled $693 million, up 8% versus a year ago, driven by higher average assets under supervision, partially offset by fee waivers on money market funds. Incentive fees of $42 million were lower versus a strong year-ago quarter. Equity investments produced $3.1 billion of net gains, including appreciation across our public investments and marks related to event-driven activity in our private equity portfolio, such as sales or capital raises. More specifically, on our $3 billion public equity portfolio, we had gains of roughly $340 million. This quarter, we disposed of over $1.5 billion of positions, given attractive market conditions. Despite the quantum of public positions sold in the quarter, the more moderate decline in the size of our portfolio reflects the impacts of IPOs in our private portfolio and market appreciation. Across our $17 billion private equity book, we generated gains of nearly $2.6 billion from various positions, more than two-thirds of which were driven by events relating to the underlying portfolio companies, including fundraisings, capital market activities, and outright sales. Additionally, we had operating revenues of $225 million related to our portfolio of consolidated investment entities. We announced or closed on dispositions of private assets of $1.5 billion in the quarter, bringing the total private sales since our 2020 Investor Day to $4.7 billion. There is an implied $2.3 billion of capital associated with those assets. Additionally, we have line of sight on nearly $3 billion of incremental asset sales. Despite these actions, and as I mentioned on our January earnings call, we increased the equity attributed to asset management as a result of our 2020 CCAR stress test. This change was driven by our dynamic capital attribution methodology, which takes various regulatory constraints into consideration. On the forward, a continued reduction in balance sheet positions will produce a more meaningful impact on attributed equity reduction. Importantly, we remain on track to achieve our net reduction in segment capital, consistent with what we presented at our 2020 Investor Day, to below $18 billion by 2024. The ongoing harvesting of our investment portfolio is consistent with our strategy of migrating our business to third-party versus on-balance sheet investing, and attractive market valuations have accelerated some sales. We are keen to continue such activity as it would be capital accretive to the firm. That said, dispositions at attractive levels now will diminish gains from sales in forward quarters. We are mindful of that trade-off and are working to offset the revenue impact in subsequent years as we look to realize increasing fee income from the number of alternative funds being formed and invested. Finally, in asset management, net revenues from lending and debt investment activities were $759 million on revenues from NII and gains on fair value debt securities and loans. This reflected modestly tighter credit spreads on our portfolio of corporate and real estate investments. Let me now turn to page 8, where we show the composition of our asset management balance sheet, consistent with the information that we’ve provided to you in prior quarters. Our equity and CIE portfolios remain highly diversified by sector, geography, and vintage, and our debt investment portfolio is also diversified with loans in the segment largely secured. Moving to page 9, consumer and wealth management produced $1.7 billion of revenues in the first quarter, up 16% versus a year ago. Management and other fees of $1.1 billion rose 12% versus last year, reflecting higher assets under supervision, which rose 25% to $637 billion. Consumer banking revenues grew to $371 million in the first quarter, up 32% versus last year, reflecting higher credit card loans and deposit growth. Next, let’s turn to page 10 for our firm-wide assets under supervision and firm-wide management and other fees. Total AUS increased to a record $2.2 trillion during the quarter, up over $380 billion versus a year ago. The sequential increase of $59 billion was driven by $37 billion of long-term inflows and $23 billion of liquidity inflows. Our total firm-wide management and other fees grew by 11% versus the first quarter of 2020 to $1.8 billion. On page 11, we address net interest income and our lending portfolio across all segments. Total firm-wide NII was $1.5 billion for the first quarter, higher versus year-ago, reflecting an increase in interest earning assets and lower funding costs. Next, let’s review loan growth and credit performance across the firm. Our total loan portfolio at quarter-end was $121 billion, up $5 billion sequentially, driven by residential real estate warehouse and wealth management lending. In the first quarter, provision for credit losses reflected a net benefit of $70 million. This includes a reserve reduction driven by improvements in the broader economic backdrop and loss expectations, partially offset by portfolio growth, including approximately $180 million in provisions related to the pending acquisition of loan receivables as part of our credit card partnership with General Motors expected to launch by year-end. Next, let’s turn to expenses on page 12. Our total quarterly operating expenses were $9.4 billion. While our ratio of compensation to revenues net of provisions fell to 34% from 41% in the first quarter of last year, compensation expense increased, reflecting strong performance. Non-compensation expenses were up only 5% versus last year as increases in transaction-based and technology expenses were largely offset by a decline in litigation, and travel and entertainment expenses, as well as lower expenses related to our consolidated investment entities. Overall, our efficiency ratio for the quarter was 53.3%, reflecting the operating leverage in our business. We remain focused on our expense discipline in a pay-for-performance culture, as well as our expense initiatives where we continue to evaluate additional opportunities for further savings. Our effective tax rate in the quarter was 18%, primarily reflecting the impact of equity-based compensation of approximately $175 million. As noted previously, we expect our tax rate under the current tax regime to be approximately 21%. I should note that we continue to monitor the impact of various proposals being made in the U.S. on the federal and state level. Turning to our capital levels on slide 13. Our common equity Tier 1 ratio was 14.3% at the end of the first quarter under the standardized approach, down 40 basis points sequentially. The decline was driven by increased lending and higher market RWAs as we stepped in to serve clients, partially offset by strong earnings. In the quarter, we returned a total of $3.15 billion to shareholders, including common stock repurchases of $2.7 billion and approximately $450 million in common stock dividends. Our book value per share rose to a record $250.81. While the Federal Reserve has extended the limitations in place on share repurchases and dividend increases, we nonetheless expect to continue our repurchase plans in the second quarter, close to the levels of the first quarter. And we’ll evaluate an increase to the dividend as permitted. Turning to the balance sheet, total assets ended the quarter at $1.3 trillion, 12% higher versus last quarter as we supported client activity. We maintained high liquidity levels with our global core liquid assets averaging nearly $300 billion. On the liability side, our total deposits rose to $286 billion, up $26 billion versus last quarter. Notably, consumer deposits surpassed $100 billion during the quarter. Our long-term debt rose by $6 billion, driven by $20 billion of benchmark issuance, given the growth in our balance sheet outside of bank entities, particularly due to accretive deployment opportunities in our prime business. We now expect benchmark issuances to be modestly higher than maturities and redemptions this year. In conclusion, our first quarter results reflect the diversification and strength of our client franchise. We remain confident that execution of our strategic priorities will continue to drive a better client experience, more durable revenues, and strong returns for shareholders. With that, we’ll now open up the line for questions.

Hi. Thank you very much. I appreciate your comments on the capital released from equity investment sales. My question is that I noticed many of those sales came from older vintages, which is positive. However, with most or all of the current portfolio being six years or younger, does that affect the monetization process? You mentioned visibility on an additional $3 billion. Could you elaborate on how much capital is expected with that $3 billion and discuss the pipeline for raising third-party capital for the remainder of the year?

Sure, Glenn. Thanks for the question. So, let me just go through the numbers, so we’re all level set. In the quarter, we closed on about $1.5 billion of balance sheet reduction producing about $852 million of AE relief. And as I noted in the prepared remarks, since our Investor Day, we’ve disposed of balance sheet positions totaling $4.7 billion that produced about $2.3 billion of relief as well. In terms of line of sight, as I said, we have a view into about $3 billion of balance sheet reduction. My view is that the capital attachment associated with that $3 billion would be, I would say, well in excess of about $1 billion, probably close to $1.4 billion in terms of AE relief there. As to the profile vintage and otherwise, I think it’s important to recognize that in pursuing the strategy of migrating to more third-party funds, we’re going to look across the portfolio, regardless of vintage of opportunities, particularly in this market, to advance. It’s not only in the pursuit of course of that strategy, but equally it reduces the capital density of that business and holds the promise of reduced capital that the firm would be required to hold overall, and so two components in the context of what we’re trying to achieve strategically. If you look at what we’ve done, just on the last part of your question in terms of fundraising, you’ll remember that through 2020, we noted that we had raised funds approximating $40 billion. Taking that and extending it through the first quarter, we’re up just north of about $52 billion and are looking to deploy that now where obviously management fees get paid on deployment and investment of that fundraising. And so, the roster of ambition of what we’re going to do this year is quite real. We’re confident in our ability to achieve it. And this is all obviously part and parcel of meeting what I was talking about, which is as we see the harvest of positions now and take that revenue in, we will see compensation for that, if you will, in the context of management fees as we grow and deploy capital in the alternative space.

I definitely appreciate all that color. Thank you. Maybe a quick follow-up, just quickly on the composition of that pipeline that you talked about. I think, I heard in your remarks that M&A is pretty darn good, but underwriting actually is not bad also. I guess, my question is, how dependent is fulfilment of that pipeline on getting past this current SPAC indigestion here that we have? Just looking for a little more color on fulfilment of that pipeline?

Well, if you look at our overall backlog, which as I noted is at record levels, I would say that notwithstanding very high levels of revenue recognition certainly in the investment banking segment, we’re nonetheless seeing the backlog replenishment at extraordinarily high levels. And so, that’s really the sort of best picture forward, if you will, in terms of what our clients are engaged in doing. I think, on the forward, as it relates, for example, to global markets, there it’s difficult to say. As I noted in the comment and David did as well, it’s hard to know what the market opportunity will be. The comparative set of results, second and third quarter last year versus this will be challenging just given the volatility we saw last year in those quarters. I think, the confidence we’re taking in terms of sustainability of results lies in our market share, and we have picked up market share across global markets, across investment banking both in financial advisory and equity capital markets, and we will rely on that to capture kind of our fair share or better of the opportunity set presented.

Good morning, David and Stephen. I want to start by expressing my appreciation for Heather. She has been truly outstanding in her role in investor relations and will be greatly missed. Moving on to my questions, the first one pertains to the trading businesses. Following up on what you mentioned regarding market share gains, it appears that these gains are actually accelerating in trading. I'm interested in understanding more about what is specifically driving EBITDA gains this quarter or over the past year. Additionally, I know both of you have discussed the sustainability of trading trends, but it seems like those trends are slowing a bit as we enter April and move into summer. I'd like to hear your thoughts on what might support continued strength for the remainder of the year.

Thank you for the question, Christian. I will begin with a high-level overview, and then Stephen will provide more detailed information. Over the past 2.5 years, we have prioritized client centricity, focusing on how clients experience our services as a whole. Our One GS approach emphasizes our ability to integrate the organization to better serve our clients. I have consistently heard from clients that there has been a significant improvement in the quality of service they receive, including our focus on their needs and the resources we provide. This client-centric culture has contributed to our gains in market share. We have previously shared our strategy regarding the top 100 accounts in global markets and our progress in achieving a top 3 position among those accounts. We made strides last year and are dedicated to continuing our improvement this year. Additionally, market activity has played a role in these gains, allowing us to benefit from increased market share. On your second question with respect to kind of activity looking forward, what I’d say was the first quarter was an extraordinary quarter. I don’t think that the expectation should be that activity will continue at that pace through the second quarter, third quarter, and fourth quarter. But I will say that activity levels continue to be elevated from what I would say was a pre-COVID activity level by a meaningful amount. And I think, as we said in the script that the environment, the monetary and fiscal stimulus, and in addition the economic recovery, continues to paint a relatively constructive background. But, I don’t think the expectation should be for it to continue at the pace we saw in the first quarter.

So, Christian, building on David's comments, which reflect our focus on client centricity, I want to highlight a clear consolidation of market share within a select number of U.S. banks, of which we are a part. We've observed elevated prime levels, contributing to a significant increase in equity financing. In my previous comments, I mentioned that in 2020, we gained about 120 basis points of wallet share across global markets. Regarding our FICC businesses, the mortgage sector has shifted from traditional market-making to focus on financing and loan origination, enabling us to serve more clients and grow this area. In credit, we've gained substantial market share in both cash and loans. Additionally, our development of platforms has enhanced client engagement, with portfolio trading in credit experiencing considerable growth, underscoring our commitment to client centricity and meeting clients' needs where they choose to execute.

Shifting to expenses and expense management looking forward, I believe the opportunities across nearly all your businesses are significantly larger than when you established some of those expense targets at Investor Day in early 2020. I'm curious about how you plan to balance the pursuit of those expense targets with the revenue opportunities that lie ahead.

Sure. So the way I would think about expenses is the following. First of all, in non-comp expense more broadly, there should be no doubt that we have a very keen focus on controlling our expense base. I’m saying that independent of the efficiencies that we laid out at Investor Day, which I’ll come on to. But our as-reported, non-comp expense was up 5%; ex litigation, up 9%. And within that, literally the totality of the increase in expenses were related to transaction-based expenses, so BC&E relating to elevated levels in global markets and our technology spend. And so, I think on the forward, you should expect that where transaction activity is high, where we’re meeting our clients, where market opportunity is large, that variable expense will continue to fluctuate, consistent with the market and will carry us there. The second piece I’ll comment on is just the $1.3 billion of expense initiative. Again, independent of the day-to-day focus on non-comp expense. And there we continue to make progress in all of the areas that we had talked about, including our real estate footprint as we just announced that we’re opening up offices in Birmingham. We did that as it relates to Hyderabad. All of that is a component piece of what we’re trying to achieve in the $1.3 billion of expenses. The last piece I’d say is the operating leverage that exists with compensation. As we’ve said many, many times, we pay for performance. And so, that lever is always available to us as and to the extent we see revenue turn down relative to the kind of performance we’ve otherwise seen in this quarter.

So, I wanted to start with a question on capital. Now, how does the Fed decision not to extend SLR relief inform your capital management priorities? And maybe just give us a sense as to where you’re comfortable running on that measure? Since some of the areas where you noted some gains, like prime are clearly going to be impacted by the prospect of potentially SLR being binding. And then just on risk-based ratios as well, if you could just speak to how you’re thinking about the RWA trajectory as you continue to execute on the planned equity investment sales?

Sure. So, first on SLR, just to be clear, that has not been and is not a binding constraint on us, just to be clear about it. Obviously, 5% at the holdco is 6% at the bank. We stand higher than both of the minimums and don’t find that to be a binding constraint to us. And so, I would say that at both levels, we have ample growth capacity in terms of balance sheet growth before that comes on to the horizon as being an issue for us. So, SLR is not the issue that it is for some of the other commercial banks. In terms of RWA growth, I think that you’ll see that commensurate with the nature and level of activity that’s there. The one thing I do want to point out is that risk control and risk calibration remains unchanged. It is as disciplined as you would expect it to be, notwithstanding RWA growth. The opportunities we have are prompting us to expand our balance sheet and increase risk-weighted assets accordingly, while still ensuring we maintain our risk levels. As we've discussed, the firm is experiencing growth and our balance sheet is expanding in service of our clients, all while keeping resource input steady to safeguard our risk profile. We currently hold over $300 billion in liquidity at GCLA and are in a strong capital position, which is notably heightened by the minimum requirements. We are in an offensive position with a buffer ready to engage with our clients.

A question here just on kind of the M&A environment, obviously a lot of activity going on in financials and fintech right now. So, I’d love to maybe just get some perspective on what you guys are seeing within Goldman specifically in terms of opportunities and what the appetite is, and also whether anything has changed? Clearly, the stock is at kind of a new level here. It’s up 30% year-to-date, still only maybe 10x earnings, but we’re at levels that you haven’t been at. So, I’d just love to maybe get some context on the backdrop overall and then maybe how the appetite might be evolving.

I appreciate the question, Devin. On the backdrop overall, I assume by the backdrop overall, you’re just talking about broad M&A activity. There’s been a meaningful pickup as confidence in the forward has increased. And the comments that Stephen made about backlog broadly and the constructive nature of this environment is obviously leading to clients being extremely engaged around strategic objectives that allow them to drive their businesses forward. Really in all businesses everywhere, we continue to see consolidation of those in a strong position. Because all businesses continue in the digital world we’re in with further digitization require more tech investment, more scale, more global. And so, in that context, obviously leaders are continuing to consolidate their strong positions. With respect to our space broadly and how we think about this, I’m going to repeat verbatim what I said last quarter, and what I’ve said before. We spend a lot of time looking at opportunities to accelerate the growth of our franchise. In particular as we look at businesses like asset management and wealth, if we could find something that we felt would accelerate our strategic growth objectives, we would certainly consider it. But the bar for anything significant is high. It has to be the right industrial logic more than the fact that we have a currency because the stock is higher. And so, we continue to think about ways that we could accelerate our growth, but the bar to do it is high. Prices are high. It’s a competitive environment. And we feel good about our plan, but we’ll continue to do the work and be diligent about looking for opportunities where we can accelerate the growth of the firm. Okay, terrific. And then, just a follow-up here, we’ve received some investor questions just over some of the recent press reports around some management movement or departures even in some of the newer businesses. And I think the question is more, clearly Goldman has a deep bench and is a large organization, so sometimes I think the context gets lost. But, the question is more around whether there’s any implication of a strategy evolution or shifts from at least what some of the press is picking up. I’d love to just get a comment if you can on that. Sure. We feel very, very good about our team that’s in place. We have a very, very deep bench. And I think we’re in a great position with the leaders that are in place. One of the things I just observe broadly, and it’s consistent with our performance, it’s consistent with stock market values and prices, it’s consistent with the environment that we’re in, there is a lot of activity in the world. There’s a lot of liquidity in the world. And the world is very, very competitive for great talent. We’ve always been a developer of strong talent, and we’ve always been a place where people come to look for great talent. There’s nothing about any of the attrition this year that looks extraordinary when you look back over a multiyear basis. And I think we’re very well positioned, but there are a lot of opportunities out there. And at times as I said in my script, people will go choose other things because they have bigger opportunities, and we welcome that. Often, they become clients when they make these moves. We rarely lose people to competitors. So, I feel good about where we sit from a talent perspective. I feel good about the interest that we’re finding people have in coming to be a part of Goldman Sachs and join the journey that we’re on to continue to grow the firm.

Can you guys give us a little more color? I think you touched on when you’re permitted to increase the dividend, which I would assume would be third quarter when we go to the stress capital buffer construct, that that might be an opportunity for the Board to take up a dividend increase. But, in terms of just with your CET1 ratio, I believe at Investor Day I think you guys said the medium-term target was 13% to 13.5%. Could you share with us how you expect to manage to that number with share repurchases, once we get into the stress capital buffer construct?

Well, I think the way to think about it is that share repurchase is going to follow kind of a longstanding philosophy where we look at opportunities across the firm to deploy capital and where those returns are attractive as they have been this past quarter, we’ll continue to do that. Where we don’t, we will look to return capital back in the form of share repurchase, with the dividend obviously being a reflection, as I commented earlier, of greater confidence and a more durable set of revenues and that net dividend increase to reflect it. On the achievement of the 13% to 13.5%, I would say that the lever is honestly less about share repurchase and more about what we’re doing to alter the capital consumptive density of the firm. So, key among those initiatives sits in asset management, where the pivot from on-balance sheet to third-party fund is as much about creating a durable, more predictable revenue stream as it is lowering the capital density of that business, and therefore of the firm. And to the extent that happens, we will be doing ourselves the favor of reducing capital intensity. But my expectation is that the Fed will recognize it equally and subsequent CCAR exams will reflect it as lowering of the requirement that we ultimately will have. And it’s on top of that that we’ll maintain what I view, we view, as an offensive buffer to deploy capital for clients. So, less about share repurchase, more about fundamental shifts in change that we’re bringing to the business, both to help ourselves and frankly speaking, to enable the Fed to come to a realization of the lower capital consumption profile of the business.

Well, since there are no more questions, I’d like to take a moment to thank everyone for joining the call. On behalf of our senior management team, we look forward to speaking with many of you in the coming weeks and months. If additional questions arise in the meantime, please don’t hesitate to reach out to Carey and the IR team. Otherwise, please stay safe, and we look forward to speaking with you on our second quarter call in July. Thank you.