Goldman Sachs Group Inc Q3 2024 Earnings Call Transcript

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

Question: Glenn Schorr - Evercore - Analyst : Hi, thanks very much. So the 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 it 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? I'm just curious on what the if the evidence matters. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 1:30PM, GS.N - Q3 2024 Goldman Sachs Group Inc Earnings Call

Question: Glenn Schorr - Evercore - Analyst : I appreciate that. This one will be a short follow-up. With HPI was weak, but that will 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 $10.9 billion that's left, the $4 billion 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?

Question: Ebrahim Poonawala - Bank of America - Analyst : Good morning. I just had a follow-up first on trading. And maybe David would appreciate your perspective around when we read about nonbank 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-bank/non-regulated entities especially given your comments around the regulatory backdrop and kind of the Basel game reproposal and the opaqueness around that? Thank you.

Question: Ebrahim Poonawala - Bank of America - Analyst : Understood. And just a follow-up on back to ROE and conversations with investors around. You have done a good job over the last year or two, 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.

Question: Christian Bolu - Autonomous Research - Analyst : Morning. Can you hear me? I just have a question on the trading business and the competitive landscape. How are you thinking about the maybe the broader competitive landscape with the with other banks. Your market share seemed 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'm just curious on your thoughts there.

Question: Christian Bolu - Autonomous Research - Analyst : Okay. 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.

Question: Mike Mayo - Wells Fargo Securities - Analyst : The first question relates to why do you still have platform solution as a business line? And what's happening with the Apple Card? And do you plan to exit that and take charges for that? And kind of what's going on with that? Again, two-third of the firm's global banking & market, one-third is wealth and asset management, and then you have this kind of extra business there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 1:30PM, GS.N - Q3 2024 Goldman Sachs Group Inc Earnings Call

Question: Mike Mayo - Wells Fargo Securities - Analyst : Well, back to the core business then, you said M&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 trillion or $3 trillion 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&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?

Question: Betsy Graseck - Morgan Stanley - Analyst : Can you hear me okay? Okay, super. Yes, I totally agree. We've been calling for capital markets rebound. It's really nice to see it coming through. Two questions. One on the expanding loan offerings that you mentioned earlier. And I know we touched on it briefly in the Q&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 & Wealth Management. Do you see that as RWA neutral? Is the density of the loan offerings higher or lower than the investment, the private equity investments that you've got? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 1:30PM, GS.N - Q3 2024 Goldman Sachs Group Inc Earnings Call

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, super. Right, because it's collateralized heavily, right? Okay. Then the other question I had was just on the GM credit 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&L when it does close, for example, anything we should be aware of with regard to either payments 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.

Question: Brennan Hawken - UBS - Analyst : 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?

Question: Brennan Hawken - UBS - Analyst : Great. 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?

Question: Steven Chubak - Wolfe Research - Analyst : 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 noncore assets, whether it's in consumer or equity investments. Denis, I believe in your prepared remarks, you alluded to an 80 bps drag on ROE from consumer. And I was hoping you could maybe provide a more holistic picture, just frame the drag on returns from various noncore activities today. And are there any remaining self-help levers that could bolster returns which may still be on the come?

Question: Steven Chubak - Wolfe Research - Analyst : That's great. And just for a follow-up on buybacks. Just stock is currently trading at 1.6 times book. It does suggest some expectation in the market for returns to get closer to mid-teens ROE target. Just wanted to hear your perspective on price sensitivity to buy back 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?

Question: Devin Ryan - Citizens JMP Securities - Analyst : Thanks so much. Good morning, David and Denis. Question on just the alternative asset management fundraising and looking at the fee rates. So the largest alt bucket, corporate equity, has seen a declining fee rate since the end of 2022. I know there were some legacy funds in there that are sun-setting, 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 earnings 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.

Question: Devin Ryan - Citizens JMP Securities - Analyst : Okay. And then just a follow-up on the trading business, obviously, results have been incredibly resilient and the firm is gaining market share. So, wanted 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 offering. So I just wanted 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.

Question: Dan Fannon - Jefferies - Analyst : Thanks. Good morning. Denis, I want to come back to a comment you made about reiterating the $1 billion goal for performance fees. And I think you said $4 billion 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 billion? And is there seasonality with certain maybe liquid products that are typically more recognized in the fourth quarter? Or is this something that should be more pro rata?

Question: Dan Fannon - Jefferies - Analyst : 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 adviser base and how you're thinking about that over the next kind of one to two years in terms of net recruiting, hires and ultimately, investment in that business beyond just diversifying the revenue streams?

Question: Gerard Cassidy - RBC - Analyst : 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 billion 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?

Question: Gerard Cassidy - RBC - Analyst : And David, just a quick follow-up on that. That was very thorough. Who do you find is 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?

Question: Saul Martinez - HSBC - Analyst : Hi, good morning. I wanted to ask about the margin trajectory in Asset & Wealth Management. Year-to-date, you're at you got a 24% pretax margin. You've already essentially reached the mid-20s medium-term target. I know you've talked about that margin expanding beyond mid-20s. But how do we think about where it can ultimately land in the time horizon around it? Obviously, you're growing your all business, you have $4 billion 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 from here and the time horizon around that?

Question: Saul Martinez - HSBC - Analyst : Okay. Got it. 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 a proposal, we have the speech outlining the reproposal. We have an agency that seemingly one of the agencies, obviously, resisting seemingly the reproposal. We have an election that could play a big role in terms of influencing whatever outcome happens. So just 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?