Goldman Sachs Group Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Glenn Schorr - Evercore ISI - Analyst : Hi there. Thanks very much. So I liked your forward-leaning comments on the IB fee pipeline. And I think I heard you say the demand for committed acquisition financing is high. Does that infer anything about us being any closer to an inflection point in private equity related M&A, sponsor-related M&A? And then how much of an event do you think you have as being maybe the only big bank that has a full-on private credit platform, and obviously, DCM platform, and lending platform? Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 15, 2024 / 1:30PM, GS.N - Q2 2024 Goldman Sachs Group Inc Earnings Call

Question: Glenn Schorr - Evercore ISI - Analyst : I appreciate that. Maybe one quickie 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.

Question: Ebrahim Poonawala - BofA Securities - Analyst : Hey, good morning. I just wanted to spend some time on capital, 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 business as usual? So one, how does it impact the business? And second, Denis, your comments on buybacks moderating, should we think more like 1Q levels of buybacks going forward? Thanks. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 15, 2024 / 1:30PM, GS.N - Q2 2024 Goldman Sachs Group Inc Earnings Call

Question: Ebrahim Poonawala - BofA Securities - Analyst : 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.

Question: Ebrahim Poonawala - BofA Securities - Analyst : Okay. Thank you.

Question: Betsy Graseck - Morgan Stanley - Analyst : Hi, good morning. All right. 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? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 15, 2024 / 1:30PM, GS.N - Q2 2024 Goldman Sachs Group Inc Earnings Call

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

Question: Betsy Graseck - Morgan Stanley - Analyst : All right. Thank you.

Question: Brennan Hawken - UBS Investment Bank - Analyst : Hi, good morning. Thanks for taking my questions. You flagged, Denis, 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?

Question: Brennan Hawken - UBS Investment Bank - Analyst : 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. You know, when we take a step back and think about your targets and aspirations for that metric and an environment -- consider an environment that seems to be improving steadily, you know, how should we be thinking about margins on incremental revenue? You know, could you help us understand how revenue growth will continue to drive improvement in that efficiency ratio?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : 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 FICC combined. You're number one in M&A. You have record management fees. You have record assets under supervision. Your efficiency has gone from 74% to 64%, increased your dividend by 9% to signal your confidence, your CET1 ratios, 90 basis points above even the higher Fed requirements. David, you started 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 wanted to be. So where's the disconnect from what you're generating in terms of returns and where you'd like to be? Thanks.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : 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?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And then lastly, for your returns, the denominator is a big factor. So how does that work with the Fed? I know you can't say too much and reasonable 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. So how does this process work from here? Will we hear results about the SCB ahead, or is this something that's just behind closed doors?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : All right, thank you.

Question: Steven Chubak - Wolfe Research, LLC - Analyst : 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?

Question: Steven Chubak - Wolfe Research, LLC - Analyst : Understood and maybe just one more clarifying question. I know there's been a lot asked about the SCB. Really just wanted to better understand, Denis, 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 as per the press reports and even some public comments from regulators? But just want to better understand, given the uncertainty around both the SCB and Basel III Endgame, where you're comfortable running on a CET1 basis over the near to medium term?

Question: Steven Chubak - Wolfe Research, LLC - Analyst : Helpful color. Thanks for taking my questions. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 15, 2024 / 1:30PM, GS.N - Q2 2024 Goldman Sachs Group Inc Earnings Call

Question: Devin Ryan - JMP Securities LLC - Analyst : All right, great. Good morning, David and Denis. 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? And now with over $500 billion in alts AUM and obviously growing, that would seem pretty conservative. So 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 that you're seeing in AUM there?

Question: Devin Ryan - JMP Securities LLC - Analyst : Yeah, okay, thanks, Denis. 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, so kind of as a comparison and highlighted 35%-plus for alts and some of the public firms we know are obviously well above that. So I appreciate you're running the AWM segment is kind of one segment, but if alts does accelerate and we're looking at 60% of alts AUM isn't even the fee earning yet, what does that mean for segment margins relative to kind of that mid-20% target, because you're already at 23% thus far in '24. So just trying to think about the incremental margins coming from the acceleration in growth, particularly from the alts segment as well?

Question: Devin Ryan - JMP Securities LLC - Analyst : Great. Thank you.

Question: Dan Fannon - Jefferies LLC - Analyst : 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?

Question: Dan Fannon - Jefferies LLC - Analyst : Understood. And as a follow-up, just within asset and wealth, particularly on the alts side, the fundraising target raised 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 and/or maybe are a little bit smaller that have really large or increasing momentum as you think about second-half, but also as we even into next year?

Question: Matt O'Connor - Deutsche Bank AG - Analyst : 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, you know, 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. And I'm just wondering how you're seeing the competition impact you at this point?

Question: Matt O'Connor - Deutsche Bank AG - Analyst : Okay helpful and agreed. 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, where there's maybe just more uncertainty than normal, like 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.

Question: Matt O'Connor - Deutsche Bank AG - Analyst : Thank you.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Thank you. Good morning, David. Good morning, Denis. 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?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And then as a follow-up, Denis, 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 obviously you didn't have any charge-offs in the wholesale book?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Thank you.

Question: Saul Martinez - HSBC - Analyst : Hi, good morning. Thanks for taking my question. Just a follow-up on capital, I mean, it certainly is encouraging that your CET1 ratio rose 20 bps in a quarter where you bought back $3.5 billion of stock and you did have a -- I think, a [$16 billion] reduction in RWA as your presentation talks about credit RWA is falling this quarter? I guess, can you just give a little bit more color on what drove that reduction? And I guess more importantly, is there a continued room for RWA optimization from here to help manage your capital levels?

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

Question: Saul Martinez - HSBC - Analyst : Okay, great, thank you.