The Goldman Sachs Group, Inc. (NYSE:GS) Q1 2024 Earnings Call Transcript

The Goldman Sachs Group, Inc. (NYSE:GS) Q1 2024 Earnings Call Transcript April 15, 2024

The Goldman Sachs Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Katie and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs’ First 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 audiocast 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, April 15th, 2024. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon; and Chief Financial Officer, Dennis Coleman. Thank you. Mr. Solomon, you may begin your conference.

David Solomon: Thank you, Operator, and good morning, everyone. Thank you all for joining us. We feel very good about our first quarter results, which reflect the strength of our world-class and interconnected franchises and the earnings power of our firm. This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths. As you can see, we are delivering on our strategy and we are pleased with the returns we generated this quarter. As laid out in January, we have three strategic objectives, to harness One Goldman Sachs to serve our clients with excellence; to run world-class differentiated and durable businesses; and to invest to operate at-scale. Across the firm, we are effectively serving clients in what remains a complex operating environment.

Looking back on the last year or so, one of the most common questions clients and investors have asked is around the timing of a broader reopening of the capital markets. I’ve said before that the historically depressed levels of activity wouldn’t last forever. CEOs need to make strategic decisions for their firms, companies of all sizes need to raise capital, and financial sponsors need to transact to generate returns for their investors. Where we stand today, it’s clear that we’re in the early stages of a reopening of the capital markets, with the first few months of 2024 seen an reinvigoration in new issue market access. For example, there were a number of large IPOs across geographies and the strong reception across transactions, including the IPOs for Galderma, Reddit, and Rank is the latest sign that investors’ risk appetite is growing.

In debt capital markets, tighter spreads have contributed to a constructive issuance environment and investment grades with volumes hitting a record for the first three months of the year. Additionally, refinancing was a major theme with robust high-yield and institutional loan refinancing volumes. Given a more accommodative issuance backdrop as well as the potential for increased acquisition financing, alongside higher M&A activity, we expect solid levels of debt underwriting activity to continue this year. With our long-standing leadership positions across the global capital markets, we have been at the forefront in helping our clients access the markets and our firm stands to benefit further as transaction volumes rise from the 10-year lows.

It’s important to note that alongside the reopening, we are seeing in capital markets, our intermediation businesses continue to be active in supporting our clients’ needs. And we’re growing financing revenues across FICC and Equities, which together were a record this quarter and rose 18% sequentially. All-in, our top-tier intermediation franchise, and more durable financing results are helping raise the floor in global banking and markets. In Asset & Wealth Management, assets under supervision rose to a new record of $2.8 trillion this quarter, which represented our 25th consecutive quarter of long-term fee-based net inflows. We have a diversified platform across public and private markets and are delivering solid performance across asset classes, and we continue to invest resources in growing this business, particularly across Wealth Management, Alternatives, and Solutions.

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Q&A Session

In Wealth Management, we saw significant strength this quarter with total client assets ending at $1.5 trillion. In Alternatives, we raised $14 billion in commitments despite a more difficult fundraising environment. And in Solutions, we continued — we saw continued demand for our outsourced CIO and SMA offerings. These are all areas in which we still see significant opportunities and we have a proven track record and demonstrated right to win. I also want to touch on a topic coming up in virtually every client conversation I have, Artificial Intelligence. While there is broad consensus about the transforming potential of AI, there is an enormous appetite for perspectives on how certain aspects may play out, including the timeline for commercial impact, shape of potential regulations, impact on jobs, and where value will accrue in the ecosystem.

Today, we are proud to be at the forefront of advising clients on these topics and how to think about potential use cases in their operations. As we look longer-term, to the extent that this technology develops in line with expectations, there will be significant demand for AI-related infrastructure and as a result, financing, which will be a tailwind to our business. For our own operations, we have a leading team of engineers dedicated to exploring and applying machine learning and artificial intelligence applications. We are focused on enhancing productivity, particularly for our developers, and increasing operating efficiency while maintaining a high bar for quality, security, and controls. Like with any emerging technology, a thoughtful approach and keen eye on risk management will be crucial.

Turning to the macro-environment, we continue to be constructive on the health of the US economy. The Fed most recently telegraphed three rate cuts in 2024, but last week’s CPI print has lowered market expectations. This will continue to evolve and be highly data-dependent. I am also mindful that US equity markets are hovering near-record levels at a time when we see — when we continue to see headwinds, including concerns around inflation, the commercial real estate market, and escalating geopolitical tensions around the world. This combination could slow growth. But that said, the US economy has proven to be resilient, supported by a number of factors, including government spending as well as labor force growth driven by above-trend levels of immigration.

So, while the environment is constructive and markets expect a soft landing, the trajectory is still uncertain. Nonetheless, I’m very confident about the state of our client franchise, the caliber of our people, and our culture of collaboration and excellence. Every day as I interact with the people of Goldman Sachs around the world, I am consistently impressed by their talent, capabilities, and how tirelessly they work to serve our clients. The quality of our people reinforces my conviction in the long-term opportunity set for Goldman Sachs and our ability to deliver for clients and shareholders. I will now turn it over to Dennis to cover our financial results for the quarter.

Denis Coleman: Thank you, David. Good morning. Let’s start with our results on Page 1 of the presentation. In the first quarter, we generated net revenues of $14.2 billion and net earnings of $4.1 billion, resulting in earnings per share of $11.58, an ROE of 14.8%, and an ROTE of 15.9%. We provide details on the financial impact of selected items in the bottom table, the aggregate of which was immaterial this quarter. Let’s turn to performance by segment, starting on Page 3. Global Banking & Markets produced revenues of $9.7 billion in the first quarter and generated an 18% ROE on a fully allocated basis. Turning to Page 4. Advisory revenues of $1 billion were up versus a year ago amid higher completed transactions. We remain number one in the league tables for both announced and completed M&A.

Equity underwriting revenues of $370 million and debt underwriting revenues of $699 million, both rose significantly year-over-year amid an increase in industry volumes. Our backlog fell quarter-on-quarter as we successfully brought transactions to market, though client engagement and dialogues remain robust. FICC net revenues were $4.3 billion in the quarter, up from a strong performance last year as our global scaled franchise continued to serve clients amid a dynamic operating environment. Intermediation results were driven by better performance in mortgages, credit, and currencies. Our long history of risk-taking acumen enabled us to effectively make markets across a number of different geographies and asset classes. We produced record FICC financing revenues of $852 million, which rose sequentially primarily on better results in repo.

We remain confident in our ability to continue to grow balances and drive growth in this business over time. Equities net revenues were $3.3 billion in the quarter. Equities intermediation revenues of $2 billion rose 14% year-over-year on better performance in derivatives. Equities financing revenues of $1.3 billion were modestly higher year-over-year as record average prime balances during the quarter were only partially offset by lower financing spreads. Moving to Asset & Wealth Management on Page 5. Revenues of $3.8 billion were 18% higher year-over-year. Record management and other fees were up 7% year-over-year to $2.5 billion. As a reminder, we closed the sale of Personal Financial Management in November of last year, which contributed approximately $60 million in fees in the year-ago period.

Incentive fees for the quarter were $88 million, up sequentially and year-over-year. Based on our bottoms-up analysis, we expect to reach our target of $1 billion in annual incentive fees over the medium term, supported by an estimated $3.8 billion of unrecognized incentive fees as of year-end. Private banking and lending revenues were $682 million, up substantially as revenues in the prior year period were negatively impacted by the partial sale of our Marcus loan portfolio. Equity investments and debt investments revenues totaled $567 million. In equity investments, we saw improved performance year-over-year in our private portfolio that was largely offset by a markdown on a large public position. Now moving to Page 6. Total assets under supervision ended the quarter at a record $2.8 trillion.