Goldman Sachs reported impressive earnings for Q3 2024, significantly surpassing analyst forecasts. The firm posted earnings per share (EPS) of $11.95, well above the expected $8.12, marking a 47% beat. Revenue also exceeded projections, reaching $13.87 billion compared to the anticipated $12.15 billion. The market reacted favorably, with shares rising 2.25% in premarket trading.
Key Takeaways
- Goldman Sachs' EPS beat expectations by 47%.
- Revenue surpassed forecasts by over $1.7 billion.
- Shares rose 2.25% in premarket trading.
- The firm maintains a strong position in wealth management and private credit.
- Forward guidance remains optimistic, with a mid-teens ROE target.
Company Performance
Goldman Sachs delivered a robust performance in Q3 2024, with net revenues increasing by 7% year-over-year to $12.7 billion. The firm's earnings per share rose by 54% compared to the previous year, demonstrating strong operational efficiency and effective cost management. Despite challenges in M&A and equity volumes, Goldman Sachs continues to lead in global banking and markets, supported by its premier M&A advisory and wealth management services.
Financial Highlights
- Revenue: $13.87 billion (↑ 7% YoY)
- Earnings per share: $11.95 (↑ 54% YoY)
- Return on Equity (ROE): 10.4%
- Return on Tangible Equity (RoTE): 11.1%
Earnings vs. Forecast
Goldman Sachs exceeded expectations with an EPS of $11.95 against a forecast of $8.12, a 47% surprise. Revenue also outperformed, reaching $13.87 billion compared to the expected $12.15 billion. This strong performance underscores the firm's resilience and strategic focus on high-growth areas.
Market Reaction
Following the earnings announcement, Goldman Sachs' stock rose 2.25% in premarket trading, reflecting investor confidence in the company's financial health and future prospects. The stock's current price remains below its 52-week high of $612.73, suggesting room for further growth.
Outlook & Guidance
Looking ahead, Goldman Sachs aims for a mid-teens ROE and expects 2024 fundraising to exceed $60 billion. The firm is focusing on expanding its wealth management advisor footprint and anticipates increased activity in M&A and IPO markets. Forward EPS forecasts for FY2025 suggest continued growth, with projections of $11.99 for Q1 and $10.47 for Q2.
Executive Commentary
CEO David Solomon emphasized the firm's strengths, stating, "We are leaning into our strength. Our client franchise is stronger than ever." CFO Dennis Coleman highlighted investment in advisors, noting, "We are making a sustained commitment to invest in advisors over multiple years."
Q&A
Analysts inquired about regulatory challenges related to Basel III, competitiveness in the trading business, and the firm's private credit strategy. Executives detailed their approach to capital allocation and reiterated their commitment to strategic investment in growth areas.
Risks and Challenges
- Regulatory challenges from Basel III could impact operations.
- M&A and equity volumes remain below historical averages.
- Market uncertainties and potential rate changes could affect future performance.
- Continued investment in electronic trading and private credit may pose execution risks.
Full transcript - Goldman Sachs Group (NYSE:GS) Q3 2024:
Katie, Conference Facilitator, Goldman Sachs: Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Third Quarter 2024 Earnings Conference Call. On behalf of Goldman Sachs, I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of the Goldman Sachs website and contains information on forward looking statements and non GAAP measures.
This audio cast is copyrighted material of The Goldman Sachs Group, Inc. And may not be duplicated, reproduced or rebroadcast without consent. This call is being recorded today, October 15, 2024. I will now turn the call over to the Chairman and Chief Executive Officer, David Solomon and Chief Financial Officer, Dennis Coleman. Thank you.
Mr. Solomon, you may begin your conference.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Thank you, operator. Good morning, everyone. Thank you all for joining us. In the Q3, we produced net revenues of $12,700,000,000 and generated earnings per share of $8.40 an ROE of 10.4 percent and an RoTE of 11.1%. Overall, I'm pleased with our performance, especially in our quarter where our results were impacted by selected items, including the narrowing of our consumer footprint, which reduced our ROE by 80 basis points.
Our performance demonstrates the strength of our world class and interconnected franchises, where we were effectively serving clients in a complex backdrop. In Global Banking and Markets, we remain the premier M and A advisor and a leading global risk intermediary. Across Investment Banking, corporates and sponsors remain actively engaged and we see significant pent up demand from our clients. Our backlog rose again this quarter driven by advisory and we expect our leading investment banking franchise to benefit from the continued resurgence in activity. In FICC, we delivered record financing revenues and facilitated our clients' risk intermediation needs, particularly as activity levels picked up towards the end of the quarter.
And in equities, we reported a very strong performance across both intermediation and financing. Overall, our global broad and deep platforms remain exceptionally well positioned to support our clients' evolving needs across products and asset classes. In Asset and Wealth Management, our position as a leading global active asset manager, a top 5 alternatives player and a premier ultra high net worth franchise affords us significant opportunities in secular growth areas. Our assets under supervision reached another record this quarter surpassing 3,000,000,000,000 and representing our 27th consecutive quarter of long term net inflows. We demonstrated further growth in more durable management other fees and private banking and lending revenues, which together were a record $3,400,000,000 this quarter and up 9% versus last year.
We remain confident in our ability to grow these more durable revenues at a high single digit pace over the coming years. In alternatives, fundraising remains strong. We raised over $50,000,000,000 year to date and now expect 2024 fundraising to exceed $60,000,000,000 as we see ongoing demand across asset classes, including private credit, private equity, secondaries and infrastructure. Wealth Management, we grew our total client assets to $1,600,000,000,000 and our ultra high net worth franchise is well positioned to continue to grow globally as we expand our advisor footprint and our leading offerings and our lending offerings to clients. Our pre tax margin in AWM is up meaningfully from last year and in line with our mid-20s target.
We remain focused on further improving the margins and returns in this business, while also investing to drive growth across wealth management, alternatives and solutions. As I look at the operating backdrop, the U. S. Economy continues to be resilient. Inflation has been coming down, the recent unemployment data is supportive and while we've seen some softness in consumer behavior, the tone of my recent conversations with clients has been quite constructive.
The beginning of the rate cut cycle has renewed optimism for a soft landing, which should spur increased economic activity. More broadly, clients remain highly focused on the trajectory of rates in jurisdictions around the world, the policy implications of global elections, particularly in the U. S. And the high levels of geopolitical instability. Against this backdrop, our leading global franchises supporting our clients as they navigate risks and position themselves for a range of outcomes.
Before I turn it over to Dennis, I want to spend a moment on capital and Basel III revision. Although we have closely followed the recent remarks from regulatory officials about the upcoming re proposal, we continue to have concerns about the overall regulatory process. There remains a lack of transparency and appreciation for the interconnectedness of capital requirements across the proposed fundamental review of the trading book, CCAR and the GSIB buffer. We recognize this is an ongoing process that will take time. But as we've said before, we need to get this right.
The final rule will have a significant impact on the growth and competitiveness of the U. S. Economy. Acquiring too much capital will increase the cost of credits for businesses large and small and will impact growth across the country. We look forward to receiving more clarity from our regulators once the re proposal is published and participating in the new comments period.
We remain very engaged both as an industry and as a firm. In closing, I feel very good about the trajectory of Goldman Sachs. We are leaning into our strength. Our client franchise is stronger than ever and we continue to harness our 1 Goldman Sachs approach. Our world class talent, execution capabilities and risk management expertise are core to who we are as a firm and allow us to provide differentiated service to our clients and outperform for shareholders through the cycle.
Let me now turn it over to Dennis to cover our financial results in more detail. Thank you, David. Good morning.
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Let's start with our results on Page 1 of the presentation. In the Q3, we generated net revenues of $12,700,000,000 up 7% year over year. Earnings per share of $8.40 up 54% year over year. Our ROE was 10.4% and ROTE of 11.1%. As David mentioned, our results were impacted by select items including agreements to transition the GM Card platform and to sell our portfolio of seller financing loans.
In aggregate, these items reduced EPS by $0.62 and our ROE by 80 basis points. Now turning to performance by segment, starting on Page 4. Global Banking and Markets produced revenues of $8,600,000,000 in the 3rd quarter. Advisory revenues of $875,000,000 were up both sequentially and versus the prior year period. We remain number 1 in the league tables for announced and completed M and A for the year to date.
Equity underwriting revenues rose 25% year over year to $385,000,000 as Equity Capital Markets have continued to reopen, though volumes are still well below longer term averages. Debt underwriting revenues rose 46% year over year to $605,000,000 amid higher leverage finance and investment grade activity. We are seeing increased client demand for committed acquisition financing, which we expect to continue on the back of increasing M and A activity. Overall, our Investment Banking backlog rose quarter on quarter driven by advisory. FIC net revenues of $3,000,000,000 in the quarter were down from a strong performance last year amid a relatively quieter summer, but we saw a meaningful pickup in activity in September.
A decline in intermediation revenues was partially offset by record FICC financing revenues of $949,000,000 which rose 30% year over year primarily on better results within mortgages and structured lending. Equities net revenues were $3,500,000,000 in the quarter, up 18% versus the prior year. Equities intermediation revenues were $2,200,000,000 up 29% year over year, primarily driven by strong performance across derivatives and cash products. Equities financing revenues of $1,300,000,000 rose versus the prior year amid higher average balances. Across FICC and Equities, financing revenues were a record $6,600,000,000 for the year to date, a direct result of the successful execution on our strategic priority to improve the durability of our revenue base.
Moving to Asset and Wealth Management on Page 5. Revenues of $3,800,000,000 were up 16% year over year. Our more durable management and other fees and private banking and lending revenues reached a new record this quarter of $3,400,000,000 Management and other fees increased 3% sequentially to a record $2,600,000,000 for the quarter $7,600,000,000 for the year to date, well on the way to achieving our $10,000,000,000 annual target for 2024. Private Banking and Lending revenues rose sequentially to $756,000,000 We are seeing positive momentum in this business and we remain focused on increasing lending penetration and expanding our loan product offerings. Incentive fees for the quarter were $85,000,000 We continue to expect to reach our annual target of $1,000,000,000 over the medium term, supported by approximately $4,000,000,000 of unrecognized incentive fees as of
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: the last quarter. Equity and
Dennis Coleman, Chief Financial Officer, Goldman Sachs: debt investments revenues totaled $294,000,000 reflecting NII in our debt portfolio and markups in our public equity portfolio. For the year to date, we generated $1,500,000,000 in combined equity and debt investments revenues. Now moving to Page 6. Total (EPA:TTEF) assets under supervision ended the quarter at a record of $3,100,000,000,000 bolstered by $37,000,000,000 of liquidity products net inflows and $29,000,000,000 of long term net inflows across asset classes. We continue to see traction in our solutions business, where we are leveraging our SMA capabilities and outsourced CIO platform to deliver customized multi asset solutions.
Turning to Page 7 on alternatives. Alternative AUS totaled $328,000,000,000 at the end of the 3rd quarter, driving $527,000,000 in management and other fees. Gross third party fundraising was $16,000,000,000 in the 3rd quarter and over $50,000,000,000 for the year to date. This brings cumulative third party fundraising to more than $300,000,000,000 since our Investor Day in 2020. We further reduced our historical principal investment portfolio by 1 point $7,000,000,000 in the Q3 to $10,900,000,000 bringing year to date reductions to $5,400,000,000 On Page 9, firm wide net interest income was $2,600,000,000 in the quarter, up versus the prior year period reflecting an increase in interest earning assets.
Our total loan portfolio at quarter end was $192,000,000,000 up year over year driven by an increase in other collateralized lending. For the Q3, our provision for credit losses was $397,000,000 primarily driven by net charge offs in our credit card portfolio and partially offset by $70,000,000 of net recoveries on previously impaired wholesale loans. Turning to expenses on Page 10. Total quarterly operating expenses were $8,300,000,000 Our year to date compensation ratio net of provisions is 33.5%. Quarterly non compensation expenses were $4,200,000,000 down 14% year over year.
We remain focused on driving efficiencies across the firm given ongoing inflationary pressures, competition for talent and our desire to invest in our engineering and technology platforms. Our effective tax rate for the 1st 9 months of 2024 was 22.6%. For the full year, we continue to expect a tax rate of approximately 22%. Next (LON:NXT), capital on Slide 11. In the quarter, we returned $2,000,000,000 to common shareholders, including dividends of $978,000,000 and stock repurchases of $1,000,000,000 Our common equity Tier 1 ratio was 14.6% at the end of the 3rd quarter under the standardized approach.
During the quarter, the Federal Reserve reduced our SCB requirement by 20 basis points to 6.2% following a successful appeal process, resulting in a standardized common equity Tier 1 ratio requirement of 13.7%, which became effective October 1. We remain very engaged with our regulators on creating a less volatile and more transparent process. Given our 90 basis point buffer, we continue to have flexibility on capital deployment and are very well positioned to serve our clients and return capital to shareholders. In conclusion, our overall performance reflected the strength of our client franchise and the improving operating environment. We are executing on our strategy where we are maintaining and strengthening our leadership positions across Global Banking and Markets and leaning into secular growth opportunities in Asset and Wealth Management.
Across both businesses, we are making strong progress in growing our more durable revenue streams. Simply put, we are playing to our strength as a firm and we remain confident in our ability to drive returns for shareholders while continuing to support our clients. With that, we'll now open up the line for questions.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We will take a moment to compile the Q and A We'll take our first question from Glenn Schorr with Evercore.
Glenn Schorr, Analyst, Evercore: Hi, thanks very much. So trading question, I mean markets business has been great, markets have been supportive. But I guess my question is to your comments on the regulatory perception perhaps of trading in general. And August looked like a spike in volatility, but looks like you did really well. This marks many quarters that you and others have done very well for years.
Do you feel the business is managed better? Do you feel like your results mean anything towards the outcome on the regulatory side? So I'm just curious on what the if the evidence matters?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: I appreciate the question, Glenn. And I mean, it's a hard question to answer. I think we've been clear on some of the advocacy we're doing around the regulatory process, but I've also been clear that regulatory environments ebb and flow and that people can be policy. And so over time you see shifts in all this and our job, I think we've done this effectively over a very long period of time is to adapt and adjust and be nimble to the different regulatory environments. With respect to the business of markets, which includes FICC intermediation and FICC financing and Equities Intermediation and Equities Financing, I think we have an extraordinary leading franchise that we've invested in over a long period of time.
We have deep, deep client relationships, clients who rely on us for a package of services and that's not going away. And certainly in this environment, this is an environment that's filled with uncertainty, their need to constantly be engaging and repositioning and reshaping continues to make them very, very active on a broad global scale. I think that we've done a number of things to evolve the way we run the business over time that I think have made the business more durable. Certainly, our focus and our emphasis on financing and the way we've grown and managed the financing businesses puts a level of durability into the business that's different than when the businesses were predominantly intermediation businesses. But intermediation continues to be an important service.
And when you really step back and you step out of quarter to quarter and you look more year to year or year over year, these are very broad franchises across numerous silos and they tend to be more resilient and more consistent than one might see when you look quarter to quarter. So we feel good about the way the franchise is positioned. We'll continue to invest in it and grow it. I think one of the things that people forget is that these businesses are correlated to growth in the world, they're correlated to market cap growth in the world. And as long as you believe over the medium and long term, those trends will continue with our capital generation, we have the ability to invest in those franchises and grow those franchises over time.
And we continue to see attractive return opportunities to do that. How the regulators respond to that over time, I really think is a separate question. And we'll continue to be actively engaged as we said to you, we are to ensure that we can manage that appropriately.
Glenn Schorr, Analyst, Evercore: I appreciate that. This one will be a short follow-up. With HPI was weak, but that'll happen on any given quarter. I think if you look over a long period of time, you've earned good returns on your historical principal investments. But as that book shrinks, the $10,900,000,000 that's left, the $4,000,000,000 attributed to it.
If I take a should I is it okay to take a historical ROE ish on that capital to think about the lower revenue corresponding to the lower book going forward on HPI?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: So Glenn, it's Dennis. I guess what I would suggest you take a look at, we have obviously a commitment to reducing the balance of the historical principal investments. And as we continue to have success doing that, there will be less revenue associated with the positions that have now been moved off of the balance sheet. But you will still see revenue generation associated with some of the co invest positions that we retain as a piece of driving our overall growth of our 3rd party fund management business. As to guidance on future projected returns on that portfolio, I don't think I have a good answer as to exactly what future returns will be relative to prior returns.
But I would suggest to you that we have a very diversified portfolio of exposures and a long standing track record of delivering good returns for our clients.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll take our next question from Ebrahim Poonawala with Bank of America (NYSE:BAC).
Ebrahim Poonawala, Analyst, Bank of America: Good morning. I just had a follow-up first on trading and maybe David would appreciate your perspective around when we read about non bank trading venues getting into fixed income markets, potentially sort of disrupting the business for the incumbents. Comment on that if you could in terms of other parallels to the equity business that we should draw And how much of a competitive threat are the non banknon regulated entities, especially given your comments around the regulatory backdrop and kind of the Basel Endgame re proposal and the opaqueness around that? Thank you.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Yes. Sure, Ebrahim. And I appreciate the question. And this gets a lot of attention, particularly in the press. But I think there are a couple of things when you stand back that are important to think about.
And look, the equities journey is a relatively good journey. There's been lots of first of all, there's lots of competition in all these businesses. There's always been competition, but there are very few platforms that offer the leading capital allocators and asset managers in the world the scale and the breadth across all the services that they need in an integrated basis. And that's very, very important to those clients when you go out and you talk to those clients. There can always be competition and there always will be competition.
I just highlight, our equity business is as large and as scaled and as profitable as ever, even though over the last 25 years, there's been enormous competition in the equity business. There's been digitization, there's been change. There are now a handful by a handful, I'd say less than a handful, there are 1 or 2 players that are trying to compete in some of the credit spaces, etcetera. And will they compete and will they win business? Of course, they'll win business.
But these are big, big markets. We offer scaled solutions that are integrated for our clients and we continue to be enormous liquidity provider, financier of those clients, which by the way is very, very important to them for the way their overall ecosystem works. So while these businesses always will be competitive and they continue to be competitive, again, we feel very good about the way our franchise is positioned and continue to be a leading player for our clients in these spaces.
Ebrahim Poonawala, Analyst, Bank of America: Understood. And just a follow-up on back to ROE and conversation with investors around you all have done a good job over the last year or 2, performance has been strong, stocks reflected that. As we think about the journey here from a 12%, 13% ROE to something that's maybe 15% plus, what are the building blocks? One could argue that the market backdrop, not the best, but not the worst. What needs to happen for Goldman to get to a point where we are registering a 15% type ROE on a more recurring basis?
Thank you.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Well, I appreciate the question. And we've been very clear, we have a mid teens target, and that we believe we are on the journey of executing toward it. I think the first thing that has to happen is we need to continue to execute over a period of time to deliver on that. And again, I think it's a pretty simple building block of a story. First, we have a global banking and markets business and you can go look at the performance over the last 5 years of that business and the returns that that business has delivered.
I would say that I still believe we have some tailwind dynamics around the Investment Banking activity and I'd just highlight that while Investment Banking revenues have improved and we've made progress, we are still not operating at 10 year averages in M and A and Equity volumes. M and A volumes year to date are 13% below 10 year averages. Now that's better than the 25% below 10 year averages that they were for the 1st 9 months of last year and equity volumes are 27% below 10 year averages. Now that's better than the 34% to 35% that they were below 10 year averages for the 1st 9 months last year. But there's no reason why we're not going to get back to 10 year averages and that's a tailwind.
But you can look at the performance in banking and markets and that's one building block and the foundation for mid teens returns. The second is our continued progress, which requires more time and more execution on our part around asset and wealth management. And while we've improved the margins, we still have work to do on the margins and also the returns, and we continue to be very focused. But we are confident over the course of the next few years that we can bring the returns of our Asset Wealth Management franchise into the mid teens. The next building block or the last building block is we continue to narrow our consumer footprint and the drag associated with the platform business that will get to a point where it basically becomes negligible.
It's getting closer to that. And so if you put those building blocks together, Global Banking and Markets, its actual performance was a little bit more of a tailwind, which obviously it benefits from continued progress on asset wealth management. That is our business and we should be able to deliver those returns. We're focused on it. We have more work to do, but that is the path and I think it's pretty clear.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll take our next question from Christian Beaulieu with Autonomous Research.
Ebrahim Poonawala, Analyst, Bank of America: Good
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: morning. Can you hear me? Good morning. Thank you.
Christian Beaulieu, Analyst, Autonomous Research: Hey. Just another question on the trading business and the competitive landscape. How are you thinking about the maybe the broader competitive landscape with the other banks? Your market share seem to peak in 2022. It's been a bit choppy since then as a market share.
Just curious, are you seeing signs of competitors coming back, increasing competition from anywhere? I just be curious on your thoughts there.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: When you have leading market shares, Global Banking and Markets franchise, you bounce around at different levels based on short term activity. But what I'd say is if you step back and you look over the last 5 years, we took a step function up in our market shares broadly across the plot. And so from quarter to quarter, you'll see variability. But I still think those market shares are positioned in a leading position and we're zealously focused on them. We're zealously focused on the top 150 clients, which obviously make a huge contribution to the markets business.
We're obviously always focused on our overall banking footprint and the opportunities there. And obviously in a better M and A environment where there's more large cap M and A, you do see some movement in our market shares and that's a market share tailwind for us. They've always been competitive businesses, Christian. Again, we think we're very well positioned with our clients and have deep trusting long term relationships and through our 1 Goldman Sachs operating ethos, a history of delivering for them through the cycle. There's always going to be competition, but we like the way our business is positioned.
And I don't see anything that fundamentally changes that. But I've operated in these businesses. We've operated in these businesses for a long time. They're always going to be competitive businesses.
Christian Beaulieu, Analyst, Autonomous Research: Okay. Thank you. On Private Banking, just another set of very strong results there. I think revenue growth up 10%. And if I'm doing my math correctly, organic flows are in the high single digit range, which would put you, I think, best in class.
So just remind us again, like what's driving strength there? And then maybe any key initiatives for growth over the next couple of years that should help sustain this growth?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Sure. I'll start and I don't know if Dennis might have something to add. But at a high level, this is a strategic decision that we had this big ultra high net worth platform and we were under invested in lending to those clients. And there's still a lot of historical reasons why that's the case, starting with the fact that 15 years ago, we won a bank. And so we really didn't look at the world that way.
But lending into an ultra high net worth franchise is a very good business and it's a very important part of the business. And we understand and we've learned and we've seen it through investment banking and we've seen it through markets that when you holistically look at the integration of services that you provide to your clients including lending, you improve your market share position. So when you look at our wealth franchise versus other wealth franchises, we've been under penetrated the lending to those wealth clients and we put in place resources, a leadership team, a focused effort to increase that activity to these clients. And while we've moved the needle, we're still underweighted versus other competitors like JPMorgan (NYSE:JPM). And I would expect that we have a relatively good growth trajectory to continue to invest in that capability for our clients.
And Dennis, I don't know if there's anything you want to add
Dennis Coleman, Chief Financial Officer, Goldman Sachs: around that? The only thing I'd amplify, which I think we've mentioned before, we feel like we've run this play before. So we worked on a strategy to holistically cover clients in banking by integrating lending as part of the holistic suite of services we provided them, improved our market share position with those clients. We've implemented the same thing across the GBM public businesses of FIC and Equities. We stand underpenetrated relative to peers today and we believe that by taking the same holistic approach to the clients in the Wealth business that we can improve our market shares and the nature of our relationship with those clients.
David said, we are allocating incremental resources, more specialist capabilities and giving our advisors the confidence to offer a competitive product to their clients to improve the overall relationship they have with their clients.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Mike Mayo with Wells Fargo (NYSE:WFC) Securities.
Mike Mayo, Analyst, Wells Fargo Securities: Hi. The first question relates to why do you still have platform Solutions as a business line and what's happening with the Apple (NASDAQ:AAPL) Card and do you plan to exit that and take charges for that and kind of what's going on with that? Again, 2 thirds of the firms grow banking market, 1 third is Wealth and Asset Management and then you have this kind of extra business there?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Yes. Thanks, Mike. I mean, I know there's a lot of focus on that. I think we've been pretty clear in our messaging that we are continuing to narrow our consumer footprint. I don't have a lot more to say about where we are with Apple Card other than we're running it, improving it.
And that's really all that I have to say. But I think the direction of travel at this point is pretty clear.
Mike Mayo, Analyst, Wells Fargo Securities: Well, back to the core business then, you said M and A is still 13% below 10 year averages. To what degree are 10 year averages less relevant because of the sponsor activity? You guys have said it seems like everyone has a different number, whether it's $1,000,000,000,000 or $3,000,000,000,000 of dry powder out there by sponsors that are ready, willing and able to pursue acquisitions. And I don't think you've ever had that level of dry powder before. So could this be an M and A super cycle because all that money gets put to work?
And if so, how would you change that 10 year average to adjust for that?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Well, if I mean, one, I think there are long term secular trends around M and A and market cap, which by the way are also meaningfully below trend. I think that's more driven by the current regulatory environment and the fact that there has not been a lot of large cap M and A with the market cap expansion, especially around tech, that might be permanent, it might not. But my guess is that will ebb and flow from time to time. But your sponsor point, Mike, is a very, very good point. And the bottom line is the sponsors have been slower to turn on than I would have expected, but they will turn on.
By the way, if that all that dry powder is deployed, okay, M and A volumes versus 10 year the 10 year averages will go up. By the way, if we were sitting here 5 years ago, the 10 year average was lower 5 years ago than it is today because the 10 year average is definitely correlated to market cap growth and economic growth. So I do think we'll operate at 10 year averages. I do think over time by the end of the decade, the 10 year average will actually be higher than it's been with a historical lens. But I will say to your sponsor point, lower to deploy than we would have expected, but we see more activity.
Some of that is indicative of the growth in our backlog that we've highlighted. And I do think that sponsor activity will continue to accelerate over the next 6, 12, 24 months.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Betsy Graseck with Morgan Stanley (NYSE:MS).
Betsy Graseck, Analyst, Morgan Stanley: Hi, good morning.
Mike Mayo, Analyst, Wells Fargo Securities: Good morning, Betsy.
Katie, Conference Facilitator, Goldman Sachs: Yes. Okay, great.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: We can, Betsy. Thank you.
Betsy Graseck, Analyst, Morgan Stanley: Yes. Okay. Super. Yes, totally agree. We've been calling for capital markets rebound.
It's really nice to see it coming through. Two questions. 1 on the expanding loan offerings that you mentioned earlier and I know we touched on it briefly in the Q and A just a few questions ago. What I wanted to make sure I understood is when you think about the RWA impact of reducing the private investments that you're doing, reducing that portfolio and then increasing the expanded loan offerings into Asset and Wealth Management. Do you see that as RWA neutral?
RWA is the density of the loan offerings higher or lower than the investment, the private equity investments that you've got?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure, Betsy. Very good question. So generally speaking, the density of the HPI that we have left to sell down is high and the density of private wealth loans is low. So migrating RWA deployment towards the lending businesses improves the durability, the predictability, the recurring nature of it. It brings forth the holistic access to the clients all of their wealth management needs and it is more capital efficient for us.
So that is an underpinning component of the strategy as well.
Betsy Graseck, Analyst, Morgan Stanley: Okay, super. Right, because it's collateralized heavily, right? Okay. Then the other question I had was just on the GM card. I wanted to make sure I understood this.
So as far as I can tell, it's signed but not closed yet. So can you give us a sense as to when you think it's going to close? And are there any trailers in your P and L once it does close? For example, anything we should be aware of it with regard to either payments to on the contract to GM or is there like a loss cap that you have to be involved in? I'm just trying to make sure I understand how to model this as we go forward.
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure, Betsy. So in terms of timing, it's signed but not closed. There has to be a conversion to the new issuer and then ultimately a closing of the platform transfer. Expectations we're targeting Q3 of 2025. So that's sort of timing from a modeling perspective.
And I guess what I would tell you, we obviously have responsibility for operating the platform up until that point in time. So we will continue to incur call it the run rate operating losses associated with that business. As a guide, I'd point you to where we were in Q1 and Q2 of this year or something on the order of negative $50,000,000 or $60,000,000 per quarter just to give you a sense for how that rolls forward from here till closing.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Brennan Hawken with UBS.
Brennan Hawken, Analyst, UBS: Good morning. Thanks for taking my question. I wanted to follow-up a little bit on the Investment Banking backlog commentary. I know you said that advisory drove a lot of the growth in the backlog, but we did see some sponsors recently come to the IPO market with some success. And so curious about what you're seeing on the ECM and IPO side, particularly as we see early signs of sponsors reengaging with that distribution channel?
Thanks.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: So thanks for the question, Brandon. I mean there's no question equity activity picked up. But as I highlighted a few moments ago, volumes are still running 25% below 10 year averages. And IPO is running even more significantly below 10 year averages. I do think the sponsors again, some of this is sponsor monetization and because sponsors have had their portfolios marked a little bit higher, they've been slow and they're kind of waiting for growth to bring up some of the values.
But I do see an acceleration of activity and I expect it to continue. And there's no fundamental reason why equity volumes ultimately shouldn't run at 10 year averages. And that those averages will grow over time with the growth in market cap and a growth in the deployment of sponsor capital.
Brennan Hawken, Analyst, UBS: Great. Thanks for that color, David. And then we've seen several partnerships and some innovation getting announced in the private credit world recently. And given your heritage in that business, how do you plan to approach and prosecute that opportunity?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Sure. We have a very broad and interesting credit platform that is integrated in a OneGS way to some degree, differentiated way than many of the people we compete with. We obviously as a credit originator in our Investment Banking business one of the leading credit originators is at a leading position in leverage loans and high yield debt for quite some time and a leading position with sponsors and the origination of that. We obviously we originate and distribute. We also in our asset management business, we are a leading player in private credit with $140,000,000,000 of private credit assets and growing and investing in that.
I think one of the things that's interesting when you look at the discussion and the integration of this around the street, there is plenty of capital that is interesting and deploying into private credit. The valuable part of the ecosystem is origination channels and there are obviously some private credit players that have interesting origination channels and platforms. But I would say when you look across Goldman Sachs, our origination ecosystem across both our Global Banking and Networks business and also in our Asset and Wealth Management business is unique and differentiated and something that I think will continue to differentiate the firm as we continue to lean into and grow our private credit platform.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Steven Chubak with Wolfe Research.
Steven Chubak, Analyst, Wolfe Research: Hi, good morning. So I wanted to spend some time just looking at or unpacking some of the self help levers, recognizing that the business is still burdened by capital consumption from some of the non core assets, whether it's in consumer or equity investments. Dennis, I believe in your prepared remarks you alluded to an 80 bps drag on ROE from consumer. I was hoping you could maybe provide a more holistic picture, just frame the drag on returns from various non core activities today. And are there any remaining self help levers that could bolster returns which may still be on the come?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. I think the 80 basis point drag is the simplest way to understand the impact of those items which we have identified as the selected items which we have announced we are in the process of disposing of. Obviously, if we complete if we were to completely exit all consumer related activities, there would be more associated capital relief potential. And we can obviously across the AWM franchise move down the vast majority of the HPI exposure that currently has a little over $4,000,000,000 of attributed equity associated with it. So you have the dynamic of sort of reducing the P and L components and then over time we will remove the capital.
So removing the capital associated with HPI and then ultimately removing the capital associated with the consumer businesses that will provide incremental tailwinds to us over time.
Steven Chubak, Analyst, Wolfe Research: That's great. And just for a follow-up on buybacks, just the SKOC is currently trading at 1.6 times book. Does suggest some expectation in the market for returns to get closer to that mid teens ROE target. Just wanted to hear your perspective on price sensitivity to buyback at current valuation levels And in anticipation at least of David's response citing prioritization of organic growth, where do you see the most attractive opportunities to deploy capital organically today?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. So I think, our capital deployment philosophy unchanged. I think if you take some of our comments in the prepared remarks about the outlook that we have, some of the engagement we're seeing from clients, potential opportunities for the capital markets reopening to take the next step forward and see capital committed acquisition financing. That is an activity that's very core to Goldman Sachs. We have a historical leading market share position there given knitting up our advisory franchise and our underwriting capabilities.
And so that would be an attractive place for us to deploy incremental capital, continuing to drive the recurring revenue streams across wealth and the financing business in public is an attractive place to deploy capital. And that is our priority as we sit here today with our 90 basis point buffer heading into the Q4. But we also remain very committed as we've said before to sustainably growing our dividend. That's a core part of our philosophy. And we do believe it's important to also continue to return capital to shareholders.
We do have a higher valuation. We do think about that. We are sensitive to that. But I don't believe that our current valuation is such that we shouldn't be also returning capital to shareholders.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Devin Ryan with Citizens JMP.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs0: Thanks so much. Good morning, David and Dennis. Question on just the alternative asset management fundraising and looking at the fee rates. So the largest cost bucket, corporate equity has seen a declining fee rate since the end of seen a declining fee rate since the end of 2022. I know there are some legacy funds in there that are sunsetting.
But it would just be great to get an update on the outlook for the fee rates, just given all that fundraising that you've done in alts in recent years. And just when we should think about the inflection occurring as recently raised AUM moves into fee earning? And then how we should think about kind of the right steady state? Because it would seem like there's a lot of upside there.
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. Thank you. Appreciate the question. Obviously, we put that disclosure out there, so you can track it and follow it over time. It's obviously very much mix dependent in terms of the nature of the particular alts, assets that are coming in.
One thing, which is a strategic initiative that is very valuable to growth of our asset management franchise and important to a lot of our investment banking and other clients are the services we provide through our OCIO offerings. But in certain of those portfolios, we do bring on board some ALTS assets and the effective fee associated with that is lower than call it a Goldman Sachs Fund generated alternative fee. So we have a multi channel asset accumulation strategy that we're deploying to grow the overall scale and scope of that business. And for us having scale is an important contributor ultimately to driving margins, efficiencies and returns in the business, but not each of the channels comes with the same exact effective fee. So you may see some slight variation in that over time.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs0: Okay. Thanks, Dennis. And then just a follow-up on the trading business. Obviously, results have been incredibly resilient and the firm has gained market share. So I want to get a little bit of a flavor, if you can, just around how much of trading revenue today is driven by your electronic trading capabilities and how that's evolved over the past handful of years?
I know there's been a lot of investment there and you guys have some pretty differentiated offerings. So just love to get a little bit of sense of that and then how that plays into the story of market share from here just as you become more relevant with clients? Thanks.
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. Thank you. Thanks for the question. I mean, when we look at equity and frankly even FICC trading activities, the strategy facing clients is multi channel again. So we have voice, we have high touch voice and we have electronic and increasingly we're finding ways to integrate those activities to optimize ultimately the way that we can make markets and deliver solutions for clients.
So we have both run rate more plain vanilla intermediation activities. Now we have the capacity to either take on board more interesting structured or complicated trades with or without deployment of risk capital in the process. And the approach is to have a distributed set of channels across the public side trading businesses.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Dan Fannon with Jefferies.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs1: Thanks. Good morning. Dennis, I want to come back to a comment you made about reiterating the $1,000,000,000 goal for performance fees. And I think you said $4,000,000,000 of unrecognized gains. You're obviously run rating well below that here year to date.
Can you talk about the time period you think to get to that $1,000,000,000 And is there seasonality with certain maybe liquid products that are typically more recognized in the Q4 or is this something that should be more pro rata?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: So the $4,000,000,000 is versus the stock of outstanding funds that are in process of deploying, completing, harvesting and migrating their way to the end of their investment cycle. Given a lot of the other commentary that we've been discussing about level of activity strategically, openness of capital markets, in particular equity capital markets, sponsor monetization activity, etcetera, as it relates to our portfolio where we own some balance sheet investments and we own investments in funds, we have not had as much monetization in line with where the market has been generally. So as activity improves, we will also see more monetization and we expect that over the next several years, we will move towards those medium term targets of a run rate $1,000,000,000 worth of incentive fees. But I can't tell you exactly the rate at which that comes in. That will be dependent on how ultimately these funds harvest and when we're in a position to ultimately pay carry to investors and recognize our own incentive fees.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs1: Got it. And then just a follow-up on wealth management, understanding the strategy of growing lending. But can you talk about the growth overall of the advisor base and how you're thinking about that over the next kind of 1 to 2 years in terms of net recruiting, hires and ultimately investment in that business beyond just diversifying the revenue streams?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. So I think we have made a strategic decision that the investment in advisors needs to be a strategic and sustained investment program. So rather than having it sort of ebb and flow across different market environments or based on what the firm's perceived capacity to invest may or may not have been at different years in the past, I think part of the strategy of investing in what is really outstanding business at Goldman Sachs where we're the premier ultra high net worth firm, we are making a sustained commitment to invest in advisors over multiple years. And so that is sort of a foundational underpinning of how we're looking to invest in that business. And when David makes comments about our ability to drive growth and returns across AWM and that we are focused not just on margins and returns, but investing to grow, one of the places that we think is an attractive place to invest and grow is actually in the advisor footprint.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll go next to Gerard Cassidy with RBC.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs2: Hi, Dennis. Hi, David. Can you guys share with us Goldman is in a unique position I think to be able to share with investors the benefits of private credit. I think David you mentioned you have $140,000,000,000 in private credit assets. And when you see your clients choosing a channel to access monies from you, whether it's private credit or just lending, can you share with us the advantages that you see through private credit or the regular loan portfolio that your customers may benefit from?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: So I appreciate the question, Gerard. I think one of the things that's interesting about this is this gets framed in very binary ways. And obviously, private credit is a broad term and it refers to a lot of things. It certainly refers to a lot of investment grade lending, a lot of which is on insurance company balance sheets. It can refer to direct lending in the below investment grade business, which by the way is a component of our syndication activity and origination activity, particularly with sponsors.
It can be direct lending for small and medium sized enterprises. So there's a wide range of things. When I listen to your question, what I pull away is you're asking in particular about leverage finance activity and how our clients choose channels in terms of where to get capital. And I'd say they don't go in with a full bias, they're actually looking for a capital structure that works for their particular solution. And I think that one of the things that positions us well is we are a unique player that we have an ability to either syndicate and underwrite and distribute.
We have an ability to direct lend. We have an ability to show clients alternatives that can best meet their needs and their needs might be different in different transactional situations. So we like our positioning there. I do say that I believe from a secular perspective, there'll be continued growth in private credit, particularly in the leverage finance space. And so we're looking to capture that.
But it's more complicated. There are different channels, there's different origination efforts than sometimes the way this is all portrayed. But we feel like we're well positioned across the spectrum to be a significant participant in the space.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs2: And David, just a quick follow-up on that, that was very thorough. Who do you find as your primary competitors? Again, you're in a unique position, I think, to be able to benefit from this. Who do you bump into the most?
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs: Well, it depends what you're doing. So it goes back to exactly what I said. It depends what you're doing. If you're in the leverage finance market and you're looking at a syndicated capital structure and you're competing for that, you're going to bump into JPMorgan, for example. If on the other hand, you're looking at direct lenders, then you're going to bump into a bunch of people that play a leading role in that space, which can include people like HPS or Ares or other direct platforms.
If you're looking at investment grade insurance company balance sheet, you might run into Apollo. I mean, it really depends on who the client is, what their need is and what the activity is. And it's actually quite a broad and complicated space.
Dennis Coleman, Chief Financial Officer, Goldman Sachs: I mean, and the only thing I'd add to it, Gerard, if you just think about it, I think David has laid this out really well. If you think about where Goldman Sachs is positioned against this opportunity set, we have capacity to lend to alternatives clients, for example, who are deploying into the private credit space. We have the capacity to underwrite and distribute different types of investment grade and non investment grade capital structures. And we have the capacity to offer investment opportunities to clients who want to get exposure to this asset class. And while we compete with all of those different parties that David enumerated, I'm hard pressed to find many people that have the breadth of exposure to each aspect of this ecosystem relative to us.
So we really like our position in terms of the secular trends there and how we can support clients in each and every aspect of the continuum.
Katie, Conference Facilitator, Goldman Sachs: Thank you. We'll take our next question from Saul Martinez with HSBC.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs1: Hi, good morning. I wanted to ask about the margin trajectory in Asset and Wealth Management. Year to date, you're at you've got a 24% pretax margin. You've already essentially reached the mid-twenty medium term target. I know you've talked about that margin expanding beyond the mid-20s.
But how do we think about where it can ultimately land in the time horizon around it? Obviously, you're growing your Alt business. You have $4,000,000,000 of unrecognized incentive fees, you talked about the private banking and lending platform. Just can you get to a pretax margin of above 30% like your peers? And again, how do we think about the glide path in here and the time horizon around that?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Sure. Thank you, Saul. So obviously, we've just arrived at our mid-20s target. I think it's important that we consolidate our position there. We think there are plenty of opportunities to continue to drive that margin higher as we scale top line, as we improve the mix of alternatives across our platform and we look to drive other operating efficiencies across the business segment.
There are plenty of competitors that have margins as you cite that are 30% or higher. So our commitment is to continue to improve the margins, but we're also thinking increasingly about opportunities that we have to scale and create value for the long term. So we are going to try and find the balance between incremental margin improvement and making the right investment decisions that unlock long term value in this segment. But for the time being, we think that both can be achieved.
David Solomon, Chairman and Chief Executive Officer, Goldman Sachs1: Okay, got it. Thanks. That's helpful. And then maybe if I could follow-up on capital and just how you're thinking I know you talked about your capital strategy a bit, but how are you thinking about just capital allocation and buybacks given the uncertainty around Basel? We have the proposal, we have the speech outlining the re proposal, we have an agency that seemingly one of the agencies obviously resisting seemingly the re proposal.
We have an election that could play a big role in terms of influencing whatever outcome happens. So just I mean, how are you thinking about your capital? And why do you think a 90 basis point buffer is the right buffer given all that uncertainty?
Dennis Coleman, Chief Financial Officer, Goldman Sachs: Okay. Thank you. Look, what I would say for the last period of quarters and years, we've been operating in an environment with a bunch of regulatory uncertainty. There's also been operating uncertainty as well. I think the economic trajectory outlook and client franchise is coming more into focus.
Frankly that presents opportunities. So we run a buffer so that we have pent up capacity to support incoming client opportunities, but we also run the buffer given other uncertainties in the world, which include regulatory. As to when we will have the next bit of clarity and be able to interpret exactly what that means for our capital position, I couldn't tell you right now. But we have a long history of making adjustments to our activities when we get that regulatory feedback. From everything we know, there are generally timelines associated with those rules coming into effect.
And we feel like this is the right place to run our capital to support the client franchise and be prepared for other unexpected developments, including regulatory.
Katie, Conference Facilitator, Goldman Sachs: Thank you. At this time, there are no additional questions. Ladies and gentlemen, this concludes the Goldman Sachs Third Quarter 2024 earnings conference call. Thank you for your participation. You may now disconnect.
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