Goldman Sachs Group Inc (GS) — Q1 2024 Earnings Call Transcript

Thank you, Operator, and good morning, everyone. Thank you all for joining us. We feel very good about our first quarter results, which reflect the strength of our world-class and interconnected franchises and the earnings power of our firm. This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths. As you can see, we are delivering on our strategy and we are pleased with the returns we generated this quarter. As laid out in January, we have three strategic objectives: to harness One Goldman Sachs to serve our clients with excellence, to run world-class differentiated and durable businesses, and to invest to operate at scale. Across the firm, we are effectively serving clients in what remains a complex operating environment. Looking back on the last year or so, one of the most common questions clients and investors have asked is about the timing of a broader reopening of the capital markets. I've said before that the historically depressed levels of activity wouldn't last forever. CEOs need to make strategic decisions for their firms, companies of all sizes need to raise capital, and financial sponsors need to transact to generate returns for their investors. Where we stand today, it's clear that we're in the early stages of a reopening of the capital markets, with the first few months of 2024 seeing a reinvigoration in new issue market access. For example, there were a number of large IPOs across geographies and the strong reception across transactions, including the IPOs for Galderma, Reddit, and Rank is the latest sign that investors' risk appetite is growing. In debt capital markets, tighter spreads have contributed to a constructive issuance environment, and investment grade volumes have hit a record for the first three months of the year. Additionally, refinancing was a major theme with robust high-yield and institutional loan refinancing volumes. Given a more accommodative issuance backdrop as well as the potential for increased acquisition financing, alongside higher M&A activity, we expect solid levels of debt underwriting activity to continue this year. With our long-standing leadership positions across the global capital markets, we have been at the forefront in helping our clients access the markets and our firm stands to benefit further as transaction volumes rise from the 10-year lows. It's important to note that alongside the reopening we are seeing in capital markets, our intermediation businesses continue to be active in supporting our clients' needs. We're growing financing revenues across FICC and Equities, which together reached a record this quarter and rose 18% sequentially. Our top-tier intermediation franchise and more durable financing results are helping raise the floor in global banking and markets. In Asset & Wealth Management, assets under supervision rose to a new record of $2.8 trillion this quarter, marking our 25th consecutive quarter of long-term fee-based net inflows. We have a diversified platform across public and private markets, delivering strong performance across asset classes, and we continue to invest resources in growing this business, especially in Wealth Management, Alternatives, and Solutions. In Wealth Management, we saw significant strength this quarter with total client assets ending at $1.5 trillion. In Alternatives, we raised $14 billion in commitments despite a more challenging fundraising environment. In Solutions, we noted continued demand for our outsourced CIO and SMA offerings. These are all areas where we see substantial opportunities, and we have a proven track record and demonstrated right to win. I also want to address a topic that comes up in nearly every client conversation: Artificial Intelligence. While there is broad agreement on the transformative potential of AI, there is significant curiosity regarding how certain aspects may unfold, including the timeline for commercial impact, potential regulations, effects on jobs, and where value will accumulate in the ecosystem. We are proud to be at the forefront of advising clients on these topics and how to consider potential applications in their operations. Long-term, if this technology develops as expected, there will be considerable demand for AI-related infrastructure and, consequently, financing, which will be advantageous for our business. For our own operations, we have a leading team of engineers exploring and implementing machine learning and AI applications. We are focusing on enhancing productivity, particularly for our developers, and boosting operational efficiency while upholding high standards for quality, security, and controls. As with any emerging technology, a careful approach with a strong emphasis on risk management will be essential. Regarding the macro-environment, we remain optimistic about the health of the US economy. The Fed recently signaled three rate cuts in 2024, but last week's CPI report has tempered market expectations. This situation will continue to develop and remains highly data-dependent. I am also aware that US equity markets are hovering near record levels, while we continue to face challenges, including inflation concerns, the commercial real estate market, and rising geopolitical tensions globally. This combination could hinder growth. However, the US economy has demonstrated resilience, supported by various factors such as government spending and labor force growth driven by elevated levels of immigration. While the environment is encouraging and markets are anticipating a soft landing, the path forward is still uncertain. That said, I am very confident about the state of our client franchise, the caliber of our people, and our culture of collaboration and excellence. Every day, as I engage with the Goldman Sachs team worldwide, I am consistently impressed by their talent, capabilities, and dedication to serving our clients. The quality of our people strengthens my belief in the long-term opportunities for Goldman Sachs and our ability to deliver results for clients and shareholders. I will now turn it over to Dennis to discuss our financial results for the quarter.

Thank you, David. Good morning. Let's start with our results on Page 1 of the presentation. In the first quarter, we generated net revenues of $14.2 billion and net earnings of $4.1 billion, resulting in earnings per share of $11.58, an ROE of 14.8%, and an ROTE of 15.9%. We provide details on the financial impact of selected items in the bottom table, the aggregate of which was immaterial this quarter. Let's turn to performance by segment, starting on Page 3. Global Banking & Markets produced revenues of $9.7 billion in the first quarter and generated an 18% ROE on a fully allocated basis. Turning to Page 4. Advisory revenues of $1 billion were up versus a year ago amid higher completed transactions. We remain number one in the league tables for both announced and completed M&A. Equity underwriting revenues of $370 million and debt underwriting revenues of $699 million, both rose significantly year-over-year amid an increase in industry volumes. Our backlog fell quarter-on-quarter as we successfully brought transactions to market, though client engagement and dialogues remain robust. FICC net revenues were $4.3 billion in the quarter, up from a strong performance last year as our global scaled franchise continued to serve clients amid a dynamic operating environment. Intermediation results were driven by better performance in mortgages, credit, and currencies. We produced record FICC financing revenues of $852 million, which rose sequentially primarily on better results in repo. We remain confident in our ability to continue to grow balances and drive growth in this business over time. Equities net revenues were $3.3 billion in the quarter. Equities intermediation revenues of $2 billion rose 14% year-over-year on better performance in derivatives. Equities financing revenues of $1.3 billion were modestly higher year-over-year as record average prime balances during the quarter were only partially offset by lower financing spreads. Moving to Asset & Wealth Management on Page 5. Revenues of $3.8 billion were 18% higher year-over-year. Record management and other fees were up 7% year-over-year to $2.5 billion. As a reminder, we closed the sale of Personal Financial Management in November of last year, which contributed approximately $60 million in fees in the year-ago period. Incentive fees for the quarter were $88 million, up sequentially and year-over-year. Based on our bottoms-up analysis, we expect to reach our target of $1 billion in annual incentive fees over the medium term, supported by an estimated $3.8 billion of unrecognized incentive fees as of year-end. Private banking and lending revenues were $682 million, up substantially as revenues in the prior year period were negatively impacted by the partial sale of our Marcus loan portfolio. Equity investments and debt investments revenues totaled $567 million. In equity investments, we saw improved performance year-over-year in our private portfolio that was largely offset by a markdown on a large public position. Now moving to Page 6. Total assets under supervision ended the quarter at a record $2.8 trillion. We had $24 billion of long-term net inflows, largely in fixed income, representing our 25th consecutive quarter of long-term fee-based inflows. Turning to Page 7, on Alternatives. Alternative assets under supervision totaled $296 billion at the end of the first quarter, driving $486 million in management and other fees. Gross third-party fundraising was $14 billion in the quarter. We continue to expect to raise between $40 billion and $50 billion in Alternatives across private equity and other strategies this year. More broadly, we are leveraging our long-standing leadership position in private credit to capitalize on this secular growth opportunity and expect to grow our assets from roughly $130 billion to $300 billion over the next five years. On-balance sheet Alternative investments totaled approximately $44 billion. In the first quarter, we reduced our historical principal investment portfolio by $1.5 billion to $14.8 billion. We expect reductions at roughly this pace for the rest of 2024 and expect to sell down the vast majority of our HPI portfolio by the end of 2026 consistent with our target. Next, Platform Solutions on Page 8. Revenues were $698 million. Overall, segment profitability has improved with a pre-tax net loss of $117 million for the quarter. In line with our target, we expect to drive this business to pre-tax breakeven next year. On Page 9, firm-wide net interest income was $1.6 billion in the first quarter, up sequentially on an increase in interest-earning assets. Our total loan portfolio at quarter-end was $184 billion, roughly in line with the fourth quarter, as an increase in other collateralized lending was partially offset by the sale of the remaining GreenSky portfolio. Our provision for credit losses was $318 million, which reflected net charge-offs in our credit card lending portfolio. Within our wholesale portfolio, impairments trended modestly lower versus the levels in the last few quarters. Turning to Page 10. We continue to provide additional information detailing our CRE exposure. As you know, we moved early in actively risk managing our CRE exposure and currently have $26 billion in loans, $4 billion in AWM alternative equity and debt securities, and $2 billion in equity at-risk related to CIEs. Turning to expenses on Page 11. Total quarterly operating expenses were $8.7 billion, resulting in an efficiency ratio of 60.9%. Our compensation ratio net of provisions was 33%, reflecting improved operating performance for the firm. Non-compensation expenses were $4.1 billion. These costs declined year-on-year, even inclusive of a $78 million FDIC special assessment charge, and were down sharply versus the fourth quarter. Our effective tax rate for the quarter was 21.1% and for the full year, we expect a tax rate of approximately 22%. Now on to Slide 12. Our Common Equity Tier-1 ratio was 14.7% at the end of the first quarter under the standardized approach. In the quarter, we returned $2.4 billion to shareholders, including common stock repurchases of $1.5 billion and common stock dividends of $929 million. We are currently running with a 170 basis point buffer above our capital requirements. Given expectations for significant modifications to the Basel III proposed rule, we should have materially more flexibility on capital deployment. We also remain committed to paying our shareholders a sustainable and growing dividend. In conclusion, our first quarter results reflect the strength of our leading global banking and markets franchise and our growing Asset & Wealth Management business. Simply put, we are delivering on the things we said we would do. We are focused on our strategic objectives and the execution focus areas for 2024 that we laid out in January, which will help our businesses produce mid-teens returns through the cycle. We are confident in our ability to deliver for shareholders while continuing to support our clients and remain optimistic about the future opportunity set for Goldman Sachs.

Hi. Thanks very much. It's a tough one because you are definitely executing on a lot of the objectives you laid out. And of course, the sustainability of banking is what it is. I noticed your lower pipeline. But the real question I have is, the sustainability of the whole package, meaning, you just had really strong revenue across the board on everything. Comp was up with that normally, but non-comp is down, the provision is down and RWA didn't increase even though you were growing your financing. So I'm giving you a softball here and just saying, what of that package can continue to stick?

Well, I appreciate it, Glenn. And I think there are a bunch of things that continue to stick because one of the things you know that we've been focused on is building a more durable business and that there are a handful of things when you look across the whole package. We've made significant progress over the course of the last five years. Certainly, building our financing business in our markets business is something that's more durable and more sustainable. We still think there's lots of room to grow. And look, the world is growing and when the world grows and our clients grow, they need us to finance them. We've got the capital to deploy as long as we can drive attractive returns with that client base. And so we stay focused on that. We've doubled our management fees on our Asset & Wealth Management business over the last five years and we continue to be very focused on fundraising, our ability to deliver on that. Those are more durable revenues. And there's operating leverage around that business that we still think we have yet to achieve. You've seen the margin improvement obviously in that business, but that business still has a higher capital density than we'd like that business to have and we continue to focus on our historical principal investments and making progress there. Overall, I think, we've meaningfully improved the client franchise and taken wallet share, and we're just very, very focused on our relative participation in the market opportunity that exists with our big institutional clients. And we've said over the course of the last few years and there have been lots of questions on it, are those wallet shares sticky? I think the wallet shares are. What I can't tell you for sure is what the opportunity set is on every quarter-to-quarter. But when you look at the breadth, the leadership position, the global nature of these businesses and you look at the whole package, these are durable businesses that produce accretive returns where we're very well-positioned. And we continue to focus on executing and enhancing that position.

I appreciate that. Could we follow up on the non-compensation aspect? There were significant decreases in amortization, depreciation, and marketing. Are those now at sustainable levels moving forward? That was a pleasant surprise.

Good morning, Glenn. It's Dennis. As we've said over the last number of quarters, we've been very, very focused on non-comp and containing the growth of non-comp. There clearly are inflationary pressures that impact a number of items in our non-comp expense. The sharp decrease sequentially we're pleased with, as well as the year-over-year decrease, but there were a number of items over the course of last year that we didn't necessarily expect to repeat. And so it's good to get on to a more normalized operating trajectory with respect to our non-comp expense base, but it's something we're going to remain very, very focused on managing in a disciplined fashion. But I think this quarter is a much more normal quarter than some of the preceding quarters.

Good morning. I wanted to follow up, David. You mentioned AI, and it can be challenging for us to distinguish between what's hype and what's real. Could you elaborate on your comments about the current state of AI in comparison to the dotcom bubble and the potential impact this could have on capital markets and investment banking not just for this year but also in the future? Additionally, do you see any opportunities for Goldman to enhance its efficiency through AI? Thank you.

Sure. In a broad sense, while I don't consider myself a stock expert, I won't comment on comparisons to the Internet boom of 1999 to 2001. There's a significant market capitalization influenced by major platforms that have a considerable competitive edge in scaling these technologies. These technologies necessitate infrastructure and power, which in turn requires financing to scale effectively, enabling businesses to remain competitive. This creates a vibrant ecosystem in our investment banking and markets division reminiscent of past significant shifts or macro expansions over extended periods. I believe there is substantial opportunity for us with clients as they realign their businesses, particularly as we discuss levels of scale that are unprecedented. This is a long-term opportunity, looking over the next five to ten years, and we are wholly engaged in it. It's not just corporations but also governments that are making large investments in local infrastructure, and we are strategically focused on all of this. Specifically regarding Goldman Sachs, we see vast opportunities for productivity improvements as well as efficiency gains. Our use cases that we are testing and implementing concentrate on these areas. However, I prefer to emphasize productivity and the capacity for our top talent to achieve more for our clients rather than merely pursuing cost efficiencies. The success of our firm hinges on the time our team dedicates to client service and execution, and these tools are enhancing our productivity. Furthermore, when we analyze our internal datasets, we can provide a value-added package of insights that we believe sets us apart. We remain committed to the productivity aspect while also addressing the efficiency in our traditional systems and processes as we assess our overall cost structure.

That's helpful information. Thank you. Separately, regarding Goldman stock, there's considerable emphasis from an investor perspective on how quickly we can increase our share in Asset Management. You've mentioned the decline in HPIs and the rise in alternative assets. How else should shareholders and potential investors consider our strategy for growing Asset Management revenues? Is there any aspect of inorganic growth included in management's current thinking? Thank you.

In January, we indicated our expectation for high single-digit growth alongside margin improvement and reduced capital density over time. We are actively pursuing that goal. Currently, our emphasis is on executing our organic strategies. The firm generates significant capital, and there may be opportunities in the future that could enhance our overall mix. For now, we are concentrating on the tasks at hand and are making solid progress. We shared several metrics, including our top-line growth and our ongoing fundraising capabilities. We highlighted $15 billion in fundraising within Alternatives during the first quarter and anticipate raising between $40 billion and $50 billion this year. The $15 billion positions us well to reach our yearly target. This doesn't conclude our efforts for this year; we believe we have a robust fundraising capability that will continue for several years ahead. Our attention remains on critical aspects of Asset Management, specifically performance and client experience, and we are diligently working to leverage our global scale and extensive resources to execute effectively.

Good morning, everyone. I'd like to ask Glenn's question from a different perspective. The 18% return on equity for the Global Bank and Markets business stands out to me. How would you describe this quarter's performance? Does it seem normal to you, or perhaps at a peak? I’m trying to understand if that 18% return on equity is sustainable for that business.

It was a strong quarter for Global Banking and Markets. While I can reference previous quarters with higher returns, I wouldn’t categorize this as an average quarter for the segment. We've indicated that we view this as a mid-teens business over time. This quarter’s performance exceeded that, especially considering last year's was significantly lower. The key takeaway, Christian, is that we expect mid-teens returns over the cycle. The client activity and opportunities available to us this quarter were notable, and we emphasize that when we see client opportunities, we can capture market opportunities effectively for our shareholders. Even in tougher environments, this business proves to be more durable and sustainable than previously perceived. Overall, I see this as a very strong quarter for Global Banking and Markets, but not as a benchmark for our average expectations.

Okay. That's very helpful. Maybe on to private wealth, if I'm reading Slide 9 correctly, you had something like $17 billion of inflows into Wealth Management AUS. So that would equate to something like 9% organic growth, which is well above peers, I would call it best-in-class. So can you give more color on what's driving that growth? Maybe any color by regions or products as to what's resonating with clients? And again, longer-term, how are you thinking about sustainability of that level of organic growth?

Yes. This really comes down to our focus, and we have made some intentional decisions. We have discussed broadening our Wealth platform to encompass a wider range of high net-worth Wealth Management services. Following the sale of United Capital, we are continuing to concentrate on our ultra-high net-worth platform, which is exceptional and I believe it is a best-in-class offering. The ultra-high net-worth sector remains quite fragmented. Although we hold a leading share, that share is still only a single-digit percentage on a global scale. There is significant wealth in the world, and it continues to accumulate. We are in a strong position to take advantage of this ongoing trend, and our business is performing exceptionally well. Our alternative investments franchise is distinct, allowing us to effectively deliver alternative products to our wealth clients, providing us with a valuable tailwind. We are also increasing our private banking activities, an area we have not prioritized previously, which is further enhancing our standing as a wealth manager. There is significant potential for growth in this business, which I consider to be a best-in-class franchise with opportunities to expand. You can see it performing well, and we are highly focused on it. I think the strategic decisions we have made regarding our business focus are yielding positive results at this time.

Hi. Good morning. Can you hear me okay?

Good morning, Betsy.

Good morning.

Okay. All right. Great. Just want to make sure.

We can hear you fine. Thank you.

Thank you. I have two follow-up questions. First, I appreciate the insights provided regarding how the first quarter's performance is slightly better than the average run rate over time. However, it's important to note that the first quarter was exceptionally strong. I would like to know if there were any specific factors influencing the revenues in equities and fixed income this quarter. My inquiry stems from the fact that the VaR efficiency was notably high, leading to strong trading revenues despite VaR remaining relatively unchanged on a quarter-over-quarter basis, showing slight variations depending on the asset class. So, when you referred to increased client activity and opportunities, was there anything distinctive about those opportunities that allowed for this performance without significantly impacting VaR?

Sure. So, Betsy, it's Denis. Nice to hear from you. Look, to give you some color on that, I wouldn't point to any particular discrete item. I would say the revenue generation, the activity was broad-based. But in addition to the consequence of the focus on market share and wallet share that we've made across the client franchise over time, we also did see good opportunities to risk intermediate on behalf of clients across geographies, across asset classes. And I would observe that over the course of the quarter, it was just a very benign operating environment. Credit spreads were tightening, equity valuations were going up, and that provides a tailwind to our performance across portions of our Global Banking and Markets business as well. The first quarter is obviously often seasonally strong as well. So we think we really captured a lot of the opportunity that was presented by both the environment and our client engagement. And as David said, that may not necessarily be the case each and every quarter, particularly in FICC and Equities. So, when we talk about like a Global Banking and Markets segment overall, clearly more upside across banking, but a strong performance across both FICC and Equities in Q1.

Super. That's really helpful. Thanks for the incremental color there. Just one other follow-up. David, you mentioned you're able to deliver alts in a unique way to the Wealth platform that you've got. Could you just give us a little more color as to what you're thinking about there that we should understand? Thanks so much.

Sure. I think one of the things that our Wealth Management franchise finds very attractive is, we want an open platform. And so when it comes to alts, we obviously have a very, very broad, very, very deep, very, very unique offering as one of the top five or six alts providers on an integrated basis in the world with our own products, what we're manufacturing out of our Asset Management business. But in addition, we want an open platform where we deliver them access to alternative solutions and products from all different world-class managers around the world across the spectrum. And so I think that's a very, very unique offering that very, very affluent people who wealth manage at Goldman Sachs find super attractive and super differentiated.

Good morning. Thanks for taking my question. So I wanted to ask one on your M&A franchise. So the recovery in announced M&A has been really impressive, but really kind of dominated by strategic, and given your strong franchise among sponsors, I'm curious to get an update about what you're seeing among that cohort and maybe when you might expect we will see a ramp in announcements from the sponsor side.

Yes, I appreciate your question and your keen observation. Sponsor activity is still relatively low, but it is starting to increase. Engagement with sponsors has significantly improved this quarter. As I've mentioned before, sponsors generate profits for themselves and their investors through buying and selling transactions. Currently, the level of activity remains quite subdued. The limited partners are exerting considerable pressure on the financial sponsor community to return more capital and speed up capital returns. I believe we will see increased activity in the upcoming quarters. The engagement in the first quarter has been better than throughout 2023, although it is still below typical levels. There is considerable potential for our business, as it closely correlates with a rise in sponsor activity. An increase would serve as a significant boost for our operations across banking and markets. Our leveraged finance deals remain at historically low levels, and we feel fortunate to have capital flexibility available for deployment, which is an appealing business opportunity. While we haven't seen acceleration yet, I believe it is on the way. The sustained level we've experienced over the past 12 to 18 months is not viable long-term; it will improve, and it's just a matter of timing. This presents a potential advantage for our business in the coming quarters.

Great. Thanks. Thanks for that color, David. I appreciate it. And then another question on alts. So, fundraising looks really good. I know there can be some noise in the revenue. So, just curious about the alts revenue down year-over-year and the AUS only up sort of marginally sequentially. Could you give some color around what was happening in those lines and maybe any potential noise?

Sure. Brennan, it's Denis. So, a couple of things. Obviously, the movement in AUS is a function of how we fundraise, how we deploy, and overall levels. We have had a lot of success fundraising, not just in the last quarter at $14 billion, but now with the whole $265 billion-plus since the original Investor Day. But there is a lag in terms of when some of that capital is put to use and actually moves into AUS. Not all of our funds that are raised are AUS-ing immediately. So I think that is something you can look out for in future periods. And then in terms of some of the sequentials on alts, as David was walking through our platform, our Wealth platform in terms of having Goldman Sachs proprietary funds, also open architecture, and third-party platform, some of the alts fees we generate in raising capital for other managers on our platform, and if we look over the sequential period, we had less by way of placement fees associated with those capital raises in the first quarter than we did in the fourth quarter last year.

Hi, David, you reiterated the desire for Goldman to have a more narrow strategic focus, but you still have some cleanup from the past charges this quarter for GreenSky, the GM Card, Platform Solutions still lost $117 million. So I'm just trying to figure out in this context where transaction banking stands. I mean, you had 8% year-over-year growth. So, that's decent. But three years ago, March 1st, you guys said transaction banking, you're building global payments around the world. And then March 8th of this year on Bloomberg, it says that you're closed in Japan and now you're focusing on the US and Europe. So on the one hand, are you simply pulling back your ambitions? On the other hand, maybe you have more financial discipline. You're making sure these adjacent activities are generating profits instead of just growth.

I think you summarized it well, Mike. I agree with many of the points you made. We are very committed to transaction banking. We have strong technology and a solid platform that we believe we can grow and scale over time. However, we are focused on executing properly, ensuring that our growth is not just in terms of revenue but also contributes to profitability. This initiative is integral to our client franchise and expands the services we provide to our clients. Some of our previous ambitions may have been too broad regarding our immediate execution capabilities, so we have refined our focus, but we remain dedicated and are progressing. This is a medium- to long-term endeavor that we are committed to delivering on. Although it's a small effort, we believe we are on the right path. We've made a strategic hire to enhance our leadership expertise and are advancing with our strategy. Regarding the cleanup, we are actively narrowing our focus. The after-tax loss from our platforms was below $100 million, and we are confident we can reach breakeven or profitability by 2025, and we are diligently working towards that goal.

Just to follow up on the transaction banking. You said some ambitions were too broad. Again, it's better to have profitable growth than just growth. So, point acknowledged. But what happened? I mean, where were you kind of underestimating expenses or the build-out costs or what was more difficult than you had anticipated?

Well, I think there were a number of things, Mike, that came together. I think when you're building new businesses, you give authority to the people that are building those businesses and you create metrics and you hold people accountable as you advance. And I think there were things where we thought we could do more globally and candidly when we really looked at the cost of executing and delivering, there was more friction in that context. And so we've chosen to narrow some of that in terms of the global footprint of that. That doesn't mean later there might not be opportunity to do it, but we think for now, that's the right action. I'd say secondarily, the regulatory environment changed massively and has also raised the bar and created headwinds in a different lens with which we look at the expansion of these kinds of activities. And so that's something else that went into the mix. And so look, I think one of the things that we try to do is to look at everything with facts, with data, with information to be unemotional and to be willing to say, okay, this isn't exactly right. So we're going to adjust. And I think we're showing that we're willing to adjust and make adjustments always with a goal of growing the firm and delivering for shareholders, driving profitable businesses that deliver accretive returns for shareholders. We'll get some things right, we'll get some things wrong. But when we look at the information of the data and it's not exactly perfect, we'll adjust.

Hey, good morning. I wanted to follow up, David, on...

Good morning.

Good morning.

Good morning, guys. Wanted to follow up, David, with the earlier discussion just on sponsor-related activity. Private credit fundraising remains robust, but the syndicated markets are also reopening. Just wanted to better understand what you're seeing in terms of competition in syndicated versus private markets, how it's impacting your IB&O franchises. And just given some of the recent price coverage, maybe just speak to your growth ambitions in the private credit space more broadly.

Sure. I will make a couple of comments and then ask Denis to share his insights as he has managed these businesses for us for a significant time. Firstly, I believe that the idea of this being solely about the syndicated market compared to the private market is an oversimplification. As transaction volumes, especially within the sponsor community, increase, the output from the syndicated market will also rise significantly. We are well-positioned for that, being one of the largest players in this space, which is currently at cyclical lows but remains a crucial component of capital formation. The growth of private credit will persist, and we are well-positioned there too, with around $130 billion in private credit assets, making us one of the major players. I have publicly stated our aspirations to continue investing and growing in this area, as we see several opportunities ahead. It's also essential to note that we haven't experienced a credit cycle in quite some time. While many private credit players continue to expand, it's uncertain how these platforms will react when we enter a credit cycle, which we inevitably will. Strategically, we have a unique advantage as we can combine our capabilities in both the syndicated and private credit markets for our clients. For example, in recent months, we executed a transaction that exemplifies this. It was not only in credit but in equity as well, such as the Endeavor transaction, highlighting our ability to act as both a syndicated lender and a capital provider across the capital structure for our investors, showcasing how our franchise and platform stand out. Denis, would you like to add anything to that?

Sure. I believe this topic has been thoroughly discussed. Over the past year, there has been a significant debate regarding private credit versus syndicated alternatives, but the fact is that the syndicated alternative was essentially nonexistent. Thus, the discussion was mainly centered around private credit. Now, with the activity levels seen in the first quarter, we have a viable and functioning syndicated loan market. Most of the activity involved refinancing, particularly refinancing private credit capital structures to take advantage of the more favorable pricing found in the broader syndicated market. Ultimately, these are various forms of credit accessible to different borrowers. I anticipate that as time goes on, there will be a more balanced mix with both underwritten and directly lent solutions, sometimes even within the same capital structure. We are now in a healthier environment, which is beneficial for Goldman Sachs because the data from the leveraged lending market makes it easier to observe the sponsor's estimated weighted-average cost of capital. This clarity should enable sponsors to price and assemble transactions, which may lead to increased sponsor-related change of control activities. The coexistence of these two markets is promising for activity and bodes well for the future of Goldman Sachs.

Really helpful color. And for my follow-up, just on capital management. CET1 continues to build, you're well in excess of the regulatory minimums, the direction of travel on Basel III in terms of expectations around the proposal is certainly more favorable. At the same time, it now looks like you might be more constrained by the SLR, which declined to 5.4%. I know that's never intended to be the binding constraint, but I was hoping you could just speak to how you're managing to leverage constraint, which at least appears to be binding at the moment, and what we should expect in terms of the pace of buyback and whether that actually informs your expectation there.

Sure. Yes, you're right on all counts. Obviously, we have a variety of both capital and liquidity ratios that we manage to over time. The SLR is a slower-moving ratio as you know, but our bindingness can move back and forth between various ratios over time. And we have a bunch of levers that we can pull with respect to our activities to manage that. But I appreciate the question.

Great. Thanks so much. The first question just on kind of maybe a bigger picture on the wallet share in Markets. I know this has really been ongoing work for the firm and obviously, not just the quarter, but really the past few years, this has been pretty consistent story. So, if we kind of move aside financing, love to maybe just drill down on some of the individual products that are accelerating in Equities and FICC and where you're most pleased with the execution that has occurred over the last several years and then still where you see the biggest room to close any gaps that are maybe still there. Thanks.

Well, at a high level, and this was one of the things that we observed and I think we got right over a period of time, that we started with the top 100, we're now focused on the top 150 clients in this business. The top 150 clients provide a very significant portion of all the activity in this franchise. And so your share with them and managing the share with them has a big impact on your wallet shares. I think the thing that we've done well and that we see is really the case is that they all operate across all products and all activities and all silos and the ability to create a very seamless experience for them across the firm is a big change for us versus where we might have been a decade ago. And so it's something we're very focused on. There are times when there's more activity in commodities, there's time when there's more activity in credit, there's time when there's more activity in mortgages. It moves and it ebbs and flows, but what we're really trying to do is to make sure we have the full package to serve them in the most effective way and we've made real progress in that over the course of the last couple of years. I think the opportunity for us to continue to make progress comes from the fact that in the top 150, I think we stand at slightly under top three with 117 of them, don't hold me to that number exactly. It's probably, okay, 117 of them. So, obviously, we have progress to make because there's no reason why Goldman Sachs shouldn't be top three with the overwhelming majority much closer to 90% of those 150. And also when you look at top three, there are also clients where we're third, where we absolutely should be first or second. And so we continue to drill down. We continue to go, talk to our clients, listen to our clients, get feedback on how we can do a better job serving them. And that discipline and that rigor, I think is helping us execute for them, but there's more work to do and we don't take our position for granted. We try to create the right culture of focus and intensity that allows us to continue to deliver and execute both.

Yes. Okay. Great. Thanks, David. Maybe a quick follow-up here for Denis. Just on the equity investments line, not a great quarter there, not a drag either. It feels like it's been some time since we've seen maybe a more normal quarter without big puts and takes. And so just given the reconstitution of that book, how would you frame what a more normal quarter should look like from a revenue perspective? And then how the private portfolio is positioned if we are moving into a better exit environment. Obviously, it's been tough there as well. Thanks.

Sure. There are a few points to consider regarding the sequential progress in the equity investments line. Just as a reminder, in Q4 when we sold Personal Financial Management, we recorded a gain of approximately $350 million in equity investments, which did not recur. This provides some insight into the sequential trends. Year-over-year, the performance in the private portfolio aligns with expectations, although we did note a markdown in the public portfolio that affected the overall equity investment results. Additionally, we have focused on reducing some of our historical principal investments. The overall performance will be influenced by the remaining notional amount in our portfolio and current market conditions. Looking ahead, our medium-term guidance suggests that, across both equity and debt investments, we anticipate generating around $2 billion annually, translating to about $500 million per quarter. Those are some insights I wanted to share.

Good morning. Actually, just to follow up on the last question and comment, the run-off of the historical principal investment from the $15 billion here, the $2 billion that you just referenced, is that the run-off that you expect, or was that alluding to the revenues per year?

Sure. Thanks. Let me clarify. I was making a comment with respect to revenue and then separately as it relates to the rundown of that portfolio, I guess the way to think of it, picking up questions from last earnings and/or this one. The progress that we made in the first quarter of roughly $1.5 billion, we think that's decent assumption for the pace over the course of this year. And then we just reiterated our commitment to selling down substantially all of it in line with our target.

Hi. Thanks for taking my questions. I wanted to ask about your financing business in Markets. And obviously, there's uncertainty about the Basel end-game proposal. As you mentioned, the direction of travel seems to be for it to be materially lightened or even re-proposed. But one of the areas where it is very punitive versus other jurisdictions is in securities financing, the risk weightings for unlisted entities. And if that part of the proposal isn't materially altered, it doesn't seem like it necessarily is a focus, does that impact your ability to grow your financing revenues? Is it a threat? Is it not a big deal? Can you offset it through pricing, product design? Just curious if you can provide a little color on that.

Sure. So, obviously, where Basel III ends up and which components of the rule actually are put in place and how they're drafted and how they're calculated, et cetera, will be highly determinative. But I'd say the breadth of our financing activities across both FICC and Equity are much broader than that particular component. And we expect that the underlying demand from our clients for financing across both FICC and Equities will remain high. We have leading market shares and capabilities there. So we'll expect to be able to deliver in that regard. And depending on where various pieces of regulation end up, we'll make whatever adjustments we need, either to pricing or the mix of our businesses or look for other ways to serve our clients.

Thanks for the information. I wanted to follow up on the impact of the softer Basel regulations. Denis, you mentioned increased flexibility in capital deployment based on the direction of Basel. How should we consider buyback activities moving forward? You executed $1.5 billion in buybacks. Do you see an opportunity to boost that amount and potentially align your payout ratio closer to 100% of earnings?

Sure. I appreciate the question. We were deliberate in our script remarks about the degree of capital flexibility that we expected, but also pick up on something that David said earlier on the call, which is that we remain very committed to our capital deployment hierarchy, which starts with our client franchise. And some of the activities where historically we've been able to deploy capital have been less active. And so we have a good amount of cushion and flexibility at this point in time. As our clients become more active, the first place that we're going to look to deploy our capital is to support our clients and their activities. And after that, we would, of course, as you note, continue to be focused on a sustainable and growing dividend. And only after that would we think about return of capital.