Goldman Sachs Group Inc (GS) — Q2 2024 Earnings Call Transcript

Thank you, operator, and good morning, everyone. Thank you all for joining us. I want to begin by addressing the horrible act of violence that occurred over the weekend, the attempted assassination of former President Trump. We are grateful that he is safe. I also want to extend my sincere condolences to the families of those who were tragically killed and severely injured. It is a sad moment for our country. There is no place in our politics for violence. I urge people to come together and to treat one another with respect, civility, and dignity, especially when we disagree. We cannot afford division and distrust to get the better of us. I truly hope this is a moment that will spur reflection and action that celebrates what unites us as citizens and as a society. Turning to our performance. Our second quarter results were solid. We delivered strong year-on-year growth in both global banking and markets and asset wealth management. I am pleased with our performance where we produced a 10.9% ROE for the second quarter and a 12.8% ROE for the first half of the year. We continue to harness our One Goldman Sachs operating approach to execute on our strategy and serve our clients in dynamic environments. In global banking and markets, we maintained our long-standing number one rank in announced completed M&A and ranked number two in equity underwriting. Our investment banking backlog is up significantly this quarter. From what we're seeing, we are in the early innings of the capital markets and M&A recovery. And while certain transaction volumes are still well below their 10-year averages, we remain very well positioned to benefit from a continued resurgence in activity. We saw solid year-over-year revenue growth across both FIC and equities as our global broad and deep franchise remained active in supporting clients' risk intermediation and financing needs. We continue to be focused on maximizing our wallet share and we have improved our standing to be in the top three with 118 of our top 150 clients. In asset wealth management, we are growing more durable management and other fees in private banking and lending revenues, which together were a record $3.2 billion for this quarter. Our Assets Under Supervision had a record of $2.9 trillion and total wealth management client assets rose to roughly $1.5 trillion. We delivered a 23% margin for the first half of the year and are making progress on improving the return profile of AWM. In alternatives, we raised $36 billion year-to-date. We completed a number of notable fund closings during the quarter, including $20 billion of total capital for private credit strategies and approximately $10 billion across real estate investing strategies. Given the stronger-than-anticipated fundraising in the first half of the year, as well as our current pipeline, we expect to exceed $50 billion in alternatives fundraising this year. This is a testament to our investment performance, track record, and intense focus on client experience. We are excited about the additional growth opportunities for our asset growth management platform. Let me turn to the operating environment, which remains top of mind for clients. On one hand, there is a high level of geopolitical instability. Elections across the globe could have significant implications for forward policy. And inflation has proven to be stickier than many had anticipated. On the other hand, the environment in the U.S. remains relatively constructive. Markets continue to forecast a soft landing as the expected economic growth trajectory improves and equity markets remain near all-time highs. I am particularly encouraged by the ongoing advancements in artificial intelligence. Recently, our Board of Directors spent a week in Silicon Valley where we spoke with the CEOs of many of the leading institutions at the cutting edge of technology and AI. We all left with a sense of optimism about the application of AI tools and the accelerating innovation in technology more broadly. The proliferation of AI in the corporate world will bring with it significant demand-related infrastructure and financing needs, which should fuel activity across our broad franchise. Before I turn it over to Dennis, I want to cover a couple of additional topics that are top of mind for me. First, our recent stress test results. The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we've made to reduce our stress loss intensity, which the Federal Reserve had recognized in our last three tests. Given this discrepancy, we are engaging with our regulators to better understand their determinations. Despite the increase in requirements, we remain very well positioned to serve our clients and will continue to be nimble with our capital. In the second quarter, we repurchased $3.5 billion of shares, which illustrates our ability to dynamically manage our resources and opportunistically return capital to shareholders. Despite the increase in our repurchase activity, our common equity Tier 1 ratio ended the quarter at 14.8% under the standardized approach, 90 basis points above our new regulatory minimum and above our ratio in the first quarter. We also announced a 9% increase in our quarterly dividend which underscores our confidence in the durability of our franchise. Since the beginning of 2019, we have more than tripled our quarterly dividend to its current level of $3 a share. I'd also like to reflect on the significant milestone we hit in the second quarter, our 25th anniversary as a public company. We went public in 1999, which is also the year I joined the firm, and it's been an eventful 25 years since then. We have persevered through a number of significant global events, including through the dot-com bubble, NASDAQ crash, September 11th, the financial crisis, and the pandemic. When I look back at how we overcame these challenges, I immediately think of our culture, one that has evolved, no doubt, but always stayed true to our core values. I know that the preservation of our culture is paramount to serving our clients with excellence, maintaining our leading market positions, growing our businesses, and continuing to attract and retain the most talented people. In closing, I'm very confident about the state of our client franchise. We are delivering on our strategy by leaning into our core strengths and effectively serving clients in what remains a complicated operating environment. Now let me turn it over to Dennis to cover our financial results in more detail.

Thank you, David, and good morning. Let's start with our results on page one of the presentation. In the second quarter, we generated net revenues of $12.7 billion and net earnings of $3 billion, resulting in earnings per share of $8.62, an ROE of 10.9%, and an ROTE of 11.6%. Now turning to performance by segment starting on page four. Global banking and markets produced revenues of $8.2 billion in the second quarter, up 14% versus last year. Advisory revenues of $688 million were up 7% versus the prior year period. Equity underwriting revenues rose 25% year-over-year to $423 million as equity capital markets have continued to reopen. However, volumes remain well below longer-term averages. Debt underwriting revenues rose 39% to $622 million amid strong leverage finance activity. We are seeing a material increase in client demand for committed acquisition financing, which we expect to continue on the back of increasing M&A activity. Our backlog rose significantly quarter-on-quarter, driven by both advisory and debt underwriting. FIC net revenues were $3.2 billion in the quarter, up 17% year-over-year. Intermediation results rose on better performance in rates and currencies. FIC financing revenues were $850 million, a near record and up 37% year-over-year. Equity's net revenues were $3.2 billion in the quarter, up 7% year-on-year as higher intermediation results were helped by better performance in derivatives. Equity's financing revenues were $1.4 billion, down modestly from a record performance last year but up 5% sequentially. Taken together, financing revenues were a record $2.2 billion for the second quarter and a record $4.4 billion for the first half of the year. Our strategic priority to grow financing across both FIC and equities continues to yield results as these activities increase the durability of our revenue base. Moving to asset wealth management on page five. Revenues of $3.9 billion were up 27% year-over-year. As David mentioned, our more durable management and other fees in private banking and lending revenues reached a new record this quarter of $3.2 billion. Management and other fees increased 3% sequentially to a record $2.5 billion, largely driven by higher average assets under supervision. Private banking and lending revenues rose 4% sequentially to $707 million. Our premier ultra-high net worth wealth management franchise has roughly $1.5 trillion in client assets. This business has been a key contributor to our success in increasing more durable revenues and provides us with a strong source of demand for our suite of alternative products. A great example of the power of this unique platform. We expect continued momentum in this business as we also deepen our lending penetration with clients and grow our advisor footprint. Our pre-tax margin for the first half was 23%, demonstrating substantial improvement versus last year and approaching our mid-20s medium-term target. Now moving to page six. Total assets under supervision ended the quarter at a record $2.9 trillion, supported by $31 billion of long-term net inflows, largely from our OCIO business, representing our 26th consecutive quarter of long-term fee-based inflows. Turning to page seven on alternatives. Alternative AUS totaled $314 billion at the end of the second quarter, driving $548 million in management and other fees. Rose third-party fundraising was $22 billion for the quarter and $36 billion for the first half of the year. In the second quarter, we further reduced our historical principal investment portfolio by $2.2 billion to $12.6 billion. On page nine, firmwide net interest income was $2.2 billion in the quarter, up sequentially from an increase in higher yielding assets and a shift towards non-interest bearing liabilities. Our total loan portfolio at quarter end was $184 billion, flat versus the prior quarter. For the second quarter, our provision for credit losses was $282 million, primarily driven by net charge-offs in our credit card portfolio and partially offset by a release of roughly $115 million related to our wholesale portfolio. Turning to expenses on page 10. Total quarterly operating expenses were $8.5 billion. Our year-to-date compensation ratio net of provisions is 33.5%. Quarterly non-compensation expenses were $4.3 billion, which included approximately $100 million of CIE impairments. Our effective tax rate for the first half of 2024 was 21.6%. For the full-year, we continue to expect a tax rate of approximately 22%. Next, capital on slide 11. In the quarter, we returned $4.4 billion to shareholders, including common stock dividends of $929 million and common stock repurchases of $3.5 billion. Given our higher than expected SCB requirement, we plan to moderate buybacks versus the levels of the second quarter. We will dynamically deploy capital to support our client franchise while targeting a prudent buffer above our new requirement. Our board also approved a 9% increase in our quarterly dividend to $3 per share beginning in the third quarter, a reflection of our priority to pay our shareholders a sustainable growing dividend and our confidence in the increasing durability of our franchise. In conclusion, we generated solid returns for the first half of 2024, which reflects the strength of our interconnected businesses and the ongoing execution of our strategy. We made strong progress in growing our more durable revenue streams, including record first-half revenues across FIC and equities financing, management and other fees, and private banking and lending. We remain confident in our ability to drive strong returns for shareholders while continuing to support our clients. With that, we'll now open up the line for questions.

Hi there. Thank you very much. I appreciated your proactive comments on the IBC pipeline, and I believe you mentioned that the demand for committed acquisition financing is high. Does that suggest we're any closer to a turning point in private equity related M&A or sponsor related M&A? Additionally, how significant do you think your position is as possibly the only major bank with a comprehensive private credit platform, along with a DCM platform and a lending platform? Thank you.

Sure, good morning Glenn, and thanks for the question. You know, we're forward leaning in our comments because we definitely see momentum picking up. But I just want to highlight something that was definitely my part of the script, and I think Dennis amplified. Despite the pickup, we're still operating at levels that are significantly below 10-year averages. For example, I think we've got kind of another 20% to go to get to 10-year averages on M&A. One of the reasons that M&A activity is running below those averages is because sponsor activity is just starting to accelerate. I think, especially given the environment that we're in, you will see over the next few quarters into 2025 kind of a reacceleration of that sponsor activity. We're seeing it in our dialogue with sponsors. It's been way below the overall M&A activity, as kind of another 20% to get to 10-year averages, but sponsor has been running below that, and we're starting to see that increase. As that increases, I think the firm is incredibly well positioned, given the breadth of both our leading position. We've been top kind of one, two, three in leverage-financed activity from a league table perspective with the sponsor community, but we combine it with a very, very powerful direct lending private credit platform. I just think we're in a very, very interesting position. The size and the scope of the companies that have to be refinanced, recapitalized, sold, or changed hands, and the sponsors continue to look to distribute proceeds to their limited partners, which I think bodes well over the course of the next three to five years.

I appreciate that. Maybe one quick follow-up on, you mentioned in the prepared remarks, in your printed prepared remarks, that real estate gains helped drive the equity investment gains in the quarter? Can you talk about how material it was and what drove real estate gains during the quarter? Thanks.

Sure, Glenn. It's Dennis. I think the important takeaway from the year-over-year performance in the equity investment line is that in the prior year period, we had significant markdowns as we were sort of an early mover in addressing some of the commercial real estate risk across our balance sheet. The results that reflect in this most recent quarter do not have the same degree of markdowns as in the prior period. So that is a large explanation for the delta.

Good morning. I just wanted to spend some time on capital, the post, the SCB increase. One, maybe just from a business standpoint, if you could update us whether the capital requirement changes anything in terms of how the firm has been leaning into the financing business. Do you need to moderate the appetite there or is it business as usual? So one, how does it impact the business? And second, Dennis, your comments on buybacks moderating, should we think more like 1Q levels of buybacks going forward? Thanks.

Sure, Ibrahim. So a couple of comments. It's important to observe that the level of capital that we're operating with at the moment is reasonably consistent with where we've been over the last several years. We feel that at this level of capital, and with the cushion that we have heading into the third quarter, which at 90 basis points is at the wider end of our historical operating range, we have lots of capacity to continue deploying into the client franchise. With what we're seeing across the client franchise with backlog up significantly, there could be attractive opportunities for us to deploy into the client franchise, whether that means new acquisition financing as David was referencing or ongoing support of our clients across the financing businesses. We have the capacity to do that, as well as to continue to invest in returning capital to shareholders. Given the $3.5 billion number in the second quarter, we thought it was advisable to indicate we would be moderating our repurchases, but we still have capital flexibility. Based on what we see developing from the client franchise, we will make that assessment, and we'll manage our capital to an appropriate buffer, but we're still certainly in a position to continue to return capital to shareholders.

Got it. So assume no change in terms of how we're thinking about the financing business. And just separately in terms of sponsor-led activity, we waited all year for things to pick up. Is it a troubling sign that the sponsors are not able to monetize assets? Does it speak to inflated valuations that they're carrying these assets on? Just would love any context there, David, if you could? Thank you.

Sure. I mean, I appreciate that. I don't think it's troubling; I wouldn't use the word troubling. But I do think that there are places where sponsors hold assets, and their ability to monetize them at the value that they currently hold them leads them to wait longer and keep the optionality to have that value compound. At the same point, there's pressure from LPs to continue turning over funds, especially longer-dated funds. As they take that optionality to wait, the pressure just builds. I think we're starting to see a bit of an unlock, and more of a forward perspective to start to move forward, accept evaluation parameters, and move forward. This is natural cycle, and you're going to see a pickup in that activity for sure. I'm just not smart enough to tell you exactly which quarter and how quickly, but we are going to go back to more normalized levels.

Thank you.

Hi, good morning.

Good morning, Betsy.

Hi, can you hear me okay? Oh, okay. Sorry.

Good morning.

Well, thanks very much. I did just want to lean in on one question regarding how you're managing the expense line as we're going through this environment because we've had this very nice pickup in revenues and comp ratio is going up a little bit, but I'm just wondering is this a signaling to hold for the rest of this year? Or is this just a one-off given that some of the puts and takes you mentioned on deal activity earlier on the call?

Sure, Betsy. If you look at the year-to-date change in our revenues net of provisions, that is tracking ahead of the year-to-date change in our compensation and benefit expense. We are following the same protocol that we always do, which is making our best estimate for what we expect to pay for on a full-year basis and doing that in a manner that reflects the performance of the firm, as well as the overall competitive market for talent. Based on what we see, we think this is the appropriate place to accrue compensation, but we'll obviously monitor that closely as the balance of the year evolves.

Okay. And as we anticipate a continued pickup here in M&A, given everything you mentioned earlier, I would think that's positive operating leverage that should be coming your way. Would you agree with that, or do I have something wrong there? Thanks.

No, so we are certainly hopeful that the business will continue to perform and that we will grow our revenues in line with what the current expectation is based on backlog. We would love to generate incremental operating leverage if we perform in line with our expectations.

Good morning. Thanks for taking my questions. You flagged, Dennis, the record financing revenue, which clearly shows momentum behind the business. And it would be my assumption that given rates have been more stable for quite some time now, it seems to reflect balance growth. So one, I want to confirm that that's fair? And could you help us understand how we should be thinking about rate sensitivity as it seems as though maybe a few rate cuts might be on the horizon?

Sure. Thank you, Brendan. We have been on a journey for several quarters and years in terms of committing ourselves to the growth of the more durable revenue streams within global banking and markets. We have our human capital and underwriting infrastructure set up in place. We have relationships with a large suite of clients that are frequent users of these products. The business is very diversified by sub-asset class, and it's a business that we are looking to grow on a disciplined basis. We've had an opportunity to deploy capital in a manner that is generating attractive risk-adjusted returns. That's something that we're going to remain mindful of, but we believe, given the breadth of that franchise, that we should be able to continue to support the secular growth that our clients are witnessing, even as various rate environments should moderate.

Okay. And then next question is really sort of a follow-on from Betsy's line of questioning. So year-to-date you've got a 64% efficiency ratio. When we take a step back and think about your targets and aspirations for that metric in an environment that seems to be improving steadily, how should we be thinking about margins on incremental revenue? Could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio?

Sure. Thank you for that question and thank you for observing the improvement that we're seeing. Our year-to-date efficiency ratio at 63.8% is nearly 10 points better on a year-over-year basis. Still not at our target of 60%, but we are making progress. As we continue to grow our revenues, we should be able to deliver better and better efficiency. Ultimately, the type of revenues that we grow and the extent to which they attract variable or volume-based expenses is a contributing factor. However, we do have visibility, as we continue to move out of some of our CIE exposures, that we should be able to reduce some of the operating expenses associated with that. We have a very granular process internally, looking at each of our expense categories on a granular basis and trying to make structural improvements to drive efficiencies over time while we simultaneously work to drive top-line revenues.

Hi. I'm just trying to reconcile all the positive comments with returns that are still quite below your target. I mean, you highlight revenue growth in global banking markets and wealth and asset management. You have record financing for equities and FIC combined. You're number one in M&A. You have record management fees and record assets under supervision. Your efficiency has gone from 74% to 64%. Increase your dividend by 9% to signal your confidence, your CET1 ratios, 90 basis points above even the higher Fed requirements. David, you start off the call saying the results are solid, but then you look at the returns and you say 11% ROE in the second quarter, that's not quite the 15% where you want it to be. So where's the disconnect from what you're generating in terms of returns and where you'd like to be? Thanks.

Yes, thanks Mike. I appreciate the question. Look, we're on a journey. Our returns for the first half of the year at 12.8%. There are a couple of things giving gets in that. One, for sure, we still have a little bit of drag from the enterprise platforms which we're working through. That will come out. At some point, as we work through that over the next 12 to 24 months, we'll continue to make progress on that for the returns in the first half of the year would be a little higher at exit. We've said repeatedly on the call and have given a bunch of information, we're still operating meaningfully below 10-year averages in terms of investment banking activity. That will come back, but I can't predict when. We've materially uplifted the returns of the firm, and we're going to continue to focus on that. The next step to the puzzle is our continued progress in AWM. You heard our comments about the fact that we've gotten the margin up to 23%, but the ROE is still around 10%. We think we can continue to grow the business. As we've said, high-single-digits, we can continue to improve the margin and ultimately bring up that AWM ROE. Looking across the firm, we will have a stronger return profile. We're making good progress, but we still have work to do for sure.

And I assume part of your expectation is a sort of multiplier effect when mergers really kick in. Can you just describe what that multiplier effect could potentially look like based on past cycles?

What I would say is one of the things that should be a tailwind for further momentum in our business is a return to average levels. I'm not sitting here saying we're going to go back to periods of time where we went well above 10-year averages, but there will be some point in the future where we run above average too, and not just below average. We have a tailwind for that. As a general matter, when there are more M&A transactions, whether with financial sponsors or big corporates, there is more financing attached to that. People need to raise capital to finance those transactions. They need to reposition balance sheets. They need to manage risks through structured transactions. There's a multiplier effect as those activities increase. We don't put a multiplier on it, but our ecosystem gets more active as transaction volumes increase on the M&A side.

And then lastly, for your returns, the denominator is a big factor. How does that work with the Fed? I know you can't say too much, and regional people can disagree, but your whole point is that you've de-risked the balance sheet and the company, and then here we have the Fed saying that maybe you haven't done so. How does this process work from here? Will we hear results about the SEB ahead, or is this something that's just behind closed doors?

As a general matter, I would say, Mike, we're supporters of stress testing. We believe it's an important component of the Fed's mandate to ensure the safety and soundness of the banking system. However, we've maintained for some time that there are elements of this process that may be distracting from these goals of safety and soundness. The stress test process, as you highlighted, is opaque. It lacks transparency. It contributes to excess volatility and the stress capital buffer requirements, which makes prudent capital management difficult for us and all our peers. We don't believe that the results reflect the significant changes we've made in our business. They're not in line with our own calculations despite the fact that the scenarios are consistent year-over-year. Despite all that, we've got the capital flexibility to serve our clients. We'll continue to work with that capital flexibility and we'll also continue to engage around this process to ensure that over time we can drive the level of capital that we have to hold in our business mix down. But we have more work to do given this result.

Hi, Good morning. So I wanted to start off with a question. Just want to start with a question on the consumer platform fees. They were down only modestly despite the absence of the Green Sky contribution. Just wanted to better understand what drove the resiliency in consumer revenues, whether the quarterly run rate of $600 million is a reasonable jumping-off point as we look at the next quarter?

So, Steve, thank you for the question. On a sequential basis, they're down, but that's because we have the absence of the Green Sky contribution. There is actually growth across the card portfolio. The level of growth has slowed as we have implemented several rounds of underwriting adjustments to the card originations, so our expectation is that on a forward basis, the period-over-period growth should be more muted.

Understood and maybe just one more clarifying question. I know there's been a lot asked about the SEB. Really just wanted to better understand, Dennis, since you noted that you're running with 90 bps of cushion, which is actually above normal. Just how you're handicapping the additional uncertainty related to Basel III endgame. There's certainly been some favorable momentum per the press reports and even some public comments from regulators? But just want to better understand, given the uncertainty around both the SEB and Basel III endgame, where you're comfortable running on a CET1 basis over the near to medium term?

Sure, thanks and I appreciate that question. There have been some changes in expectations. In highlighting that we are operating at the wider end of our range, it is to signal flexibility. Embedded in that is to address some of the uncertainty which remains with respect to Basel III endgame, both the quantum and timing of its resolution. It sounds from some of Powell's latest comments that this may not come into effect until 2025, but we are maintaining a level of cushion that is appropriate in light of what we know and don't know about the future opportunity set for Goldman Sachs. That buffer is designed to support clients and return capital to shareholders while maintaining a prudent buffer with some of the lingering uncertainty regarding future regulatory input.

All right, great. Good morning, David and Dennis. A couple questions on AWM progress. So the first one is on the alts business specifically, and you're tracking obviously well ahead of the fundraising targets relative to when you set the $1 billion medium-term target for annual incentive fees? With over $500 billion in alts AUM and obviously growing, that would seem pretty conservative. I appreciate there's a lot of work to do to generate the returns ahead here, but how should we think about the underlying assumptions for incentive fees in a more normal harvesting environment, just given the mixed shift and the growth you’re seeing in AUM there?

So Devin, I think it's a good question, and we share your expectation that that's going to be a more meaningful contributor going forward. We laid that out as one of the building blocks at our Investor Day. The contribution coming through that line since then has not been as high as we modeled from an internal medium- to longer-term perspective. We do give good disclosures that the balance of unrealized incentive fees at the end of the last quarter was $3.8 billion. You can make various assumptions as to what the timing of the recognition of those fees is. They can obviously bounce around from time to time. It is a granular vehicle-by-vehicle build-up, but given the current outlook and status of those funds, our best expectation for what level of fees could come through that line over the next several years is important. It should be an important incremental contributor and should help the return profile of asset wealth management moving forward, coupled with the success we’re having with ongoing alts fundraising.

Yes, okay, thanks, Dennis. And then follow-up, this is also kind of connected, but at a recent conference, you highlighted the margin profile of all the standalone businesses and asset and wealth management of public peers, and highlighted 35% plus for alts. Some of the public firms we know are obviously well above that. I appreciate you're running the AWM segment as one segment, but if alts does accelerate, and we're looking at 60% of alts AUM isn't even fee-earning yet, what does that mean for segment margins relative to that mid-20% target? Because you're already at 23% thus far in ‘24. Just trying to think about the incremental margins coming from the acceleration in growth, particularly from the alts segment as well?

That's a good question, Devin. It should be a significant unlock for us because despite the breadth and longevity with which we've been running our alts businesses, there is significant opportunity for us to actually improve the margin profile of the alts activities in particular relative to the overall AWM margin, particularly as we develop incremental scale by strategy. In addition to just overall growth in the segment, which should unlock margin improvements, the alts business, despite its current scale, presents a big opportunity for incremental margin contribution.

Thanks, good morning. In terms of your on-balance sheet investments, you continue to make progress in reducing that this quarter. Can you talk about the outlook for this year or any line of sight in terms of exits that we can think about?

Sure. Thank you. It's an ongoing commitment of ours to move down those on-balance sheet exposures, also part of the equity and capital story and returns in the segment. The reduction of $2.2 billion for the quarter was decent. We have a target out there to sell down the vast majority of that balance, which is now at $12.6 billion, by the end of next year. Our expectation is that we will continue to chip away at it across both the third and fourth quarters of this year and then into 2025.

Understood. And as a follow-up, just within asset and wealth, particularly on the alts side, you raised the fundraising target for the full year given the success you've had. The private credit fund closing here in the first half was big. Can you talk to some of the other strategies that have the potential to scale as you mentioned earlier or maybe are a little bit smaller that have really large or increasing momentum as you think about the second half, but also as we look into next year?

Sure. Taking a step back, you're talking about the targets that we set. It was $150 billion, then moved to $225 billion, and now it's at $287 billion. With $36 billion raised in the first half and us expecting to surpass $50 billion, that means we should be north of $300 billion by the end of this year. One of the things we find attractive about our platform is that we have opportunities to scale across multiple asset classes within alternatives, equity, credit, real estate, and infrastructure. We had notable fundraisings in private credit and real estate this quarter, but you can see contributions from other strategies like equity moving forward and a number of different strategies, both by asset class and by region. We think we have a diversified opportunity set to continue to scale the alts platform.

Good morning. I was wondering if you could just elaborate a bit on the competitive landscape specifically in banking and markets. I know it's always competitive, but some of the really big bank peers are leaning in who haven't been a few years ago. And all these regional banks that I cover are also realizing that they need broader cap and market capabilities. So you're obviously an industry leader in a lot of the areas across banking and markets. I'm just wondering how you're seeing the competition impact you at this point?

Sure, Matt, and I appreciate the question. I would say investment banking and the markets business, especially trading, have always been competitive businesses. Our integrated One Goldman Sachs approach is a very competitive offering. We can have debates, but it's one of the top two offerings out there. There's always going to be competition; there will always be people that come in and make investments in niche areas. We've had leading M&A share for 25 years. We have leading share in capital raising for an equivalent period of time. We've continued to invest in our debt franchises over more than a decade. Our trading businesses and our ability to intermediate risk have been viewed as second to none for a long time. The combination of our focus on serving our clients, giving them the right resources to accomplish their needs, and the fact that we have global scale positions us very well. There will always be competitors, but I like where our franchise sits. I don't see any reason why we shouldn't be able to continue to invest in it, strengthen it and continue operating as a leader in what's always been and will continue to be a very competitive business.

Okay, helpful, I agree. And then just separately, I hate to ask you about activity levels and stuff like that since the debate three, four weeks ago, but maybe I'll frame it. From your experience in presidential election periods like this, with maybe just more uncertainty than normal, how do both institutional and corporate clients react? Do they kind of say, well, let's wait and see the other side? Is it just noise because we've been going through it for some time here, but what are your thoughts on that? Thank you.

There are always exogenous factors that affect corporate activity and institutional client activity. I don't have a crystal ball, so I can't see what the next 100 days leading up to our election will bring, but I think we're well-positioned to serve our clients, regardless of the environment. Clients are very active at the moment, and I think they're probably going to continue to be active.

Thank you. Good morning, David. Good morning, Dennis. David, you said in your opening comments that you took the Board out to Silicon Valley and you were impressed with the artificial intelligence and what we could expect in the future and the opportunities for Goldman to be able to finance some of the infrastructure needs that may come of that? Can you share with us the artificial intelligence that you guys are implementing within Goldman and how it's making you more productive, generating maybe greater revenues or even making it more efficient?

Sure, at a high level, Gerard, we, as most companies around the world, are focused on how you can create use cases that increase your productivity. Think about our business as a professional service firm, a people business, where we have lots of very highly productive people creating tools that allow them to focus their productivity on things that advance their ability to serve clients or interact in markets; it's a very powerful tool. You can see across the scale of our business that there are many places where the capacity to use these tools can take work that's always been done on a more manual basis and allow the smart people to focus their attention on clients. In equity research, for example, there are many ways these tools can leverage your capacity to spend more time with clients. In our investment banking business, these tools can prepare thoughtful information for clients. When you look at the data sets we have across the firm and our ability to get data and information to clients, they can make better decisions about the way they position in markets. That's another obvious use case. For our engineering stack, we have close to 11,000 engineers inside the firm; the ability to increase their coding productivity is meaningful. Those are a handful. There are others. We have a broad group of people that are focused on this. This will increase our productivity; the most exciting thing is that businesses are looking at these things and looking for ways to adapt and change their business models, and that will create more activity and tailwind for us. People will need to make investments, they'll need financing, they'll need to scale, and we're excited about that broad opportunity.

Very good. And then as a follow-up, Dennis, you talked about credit, and it was impressive that you didn't have any charge-offs in the wholesale book. Can you give us some color on what you're seeing there? It seems like there must be some improvement since you didn't have any charge-offs in the wholesale book?

Sure. Thanks, Gerard. The charge-off rate for us in the wholesale is approximately 0%. What we did see in this quarter was a release, and we've been able to improve some of our models, allowing us to release some provisions in the wholesale segment. While that contributed to the net PCL of the quarter with consumer charge-offs offset by that wholesale release, that's not necessarily something that we would expect to repeat each quarter in the future. Although we manage our credit and our wholesale risk very diligently and consistently, it is more likely that we will have some degree of impairments given our size and scale and representation in the business. We're pleased that the overall credit performance in terms of charge-offs is about 0%.

Hi, good morning. Thanks for taking my question. Just a follow-up on capital; it is encouraging that your CET1 ratio rose 20 bps in a quarter where you bought back $3.5 billion of stock and, I think, a $16 billion reduction in RWA. Your presentation talks about credit RWA is falling this quarter? Can you just give a little more color on what drove that reduction? Additionally, is there continued room for RWA optimization from here to help manage your capital levels?

Sure, thanks, Saul. I appreciate that question. Capital optimization and RWA optimization are commitments we've been focused on for a long time. The reductions in credit and market risk RWAs were driven by less derivative exposure, reduced equity investment exposure, and some lower levels of volatility. We strive to maintain the right balance between deploying on behalf of client activity as well as rotating out of less productive activities, following through on our strategic plan to narrow focus and reduce balance sheet exposure. That contributed to the quarter-over-quarter benefit despite the buyback activity we executed. We will remain very focused on this given the constraints we operate under.

Thank you, that's helpful. And maybe a follow-up on financing. FIC financing is up 37%, equities; the equity financing is now close to 45% of all your equity sales and trading revenues. I guess how much more room is there, or how should we think about the size of the opportunity set, you know, to continue growing from here? How much more space is there to use financing as a mechanism to help deepen penetration with your top institutional clients?

That's a good question, Saul. On the FIC financing side, as I indicated, we think we are helping clients participate in the overall level of growth they're seeing in their businesses. Based on what we see currently, we can calibrate the extent of our growth based largely on how we assess the risk-return opportunities across the client portfolio, being disciplined with respect to our growth while also trying to support clients' growth. Clients look to us holistically across both FIC and equities to ensure that across all activities they're doing with us, we're finding some balance helpful for them. Both of those activities are interconnected, and we remain very focused on them and think we can continue to grow.