Q1 2024 Earnings Summary
- Strong growth in Asset & Wealth Management business: Goldman Sachs reported record assets under supervision of $2.8 trillion and had $24 billion of long-term net inflows, marking the 25th consecutive quarter of long-term fee-based net inflows. The Wealth Management division saw $17 billion of inflows, equating to approximately 9% organic growth, which is considered best-in-class. The firm is focused on ultra-high-net-worth clients and sees significant room for further expansion in this fragmented market. ,
- Well-positioned to benefit from the transformative potential of AI: Goldman Sachs sees significant demand for AI-related infrastructure and financing, which will be a tailwind for its business. The firm is at the forefront of advising clients on AI topics and expects AI to create a constructive runway of opportunity over the next 5 to 10 years. Additionally, GS anticipates enormous opportunities for productivity gains and efficiency in its own operations through AI.
- Anticipated increase in M&A activity among financial sponsors: Engagement with financial sponsors has meaningfully improved, and Goldman Sachs expects M&A activity to pick up, particularly among sponsors. This increase in deal activity would be a significant tailwind for GS's business across banking and markets, and the firm is well-positioned to capitalize on this opportunity.
- The high Return on Equity (ROE) of 18% in Global Banking & Markets in Q1 2024 may not be sustainable, as management indicated this performance was strong but not expected to be an average quarter, with future returns expected to be in the mid-teens through the cycle. ,
- Potential regulatory uncertainties, including the impact of Basel III proposals, may challenge Goldman Sachs' financing business by affecting their ability to grow financing revenues and possibly requiring adjustments to pricing or the business mix, which could impact profitability. ,
- Despite narrowing their strategic focus, Goldman Sachs still faces losses from previous consumer initiatives, with Platform Solutions recording a pretax net loss of $117 million in Q1 2024 and not expected to reach profitability until 2025, indicating ongoing challenges in these areas. ,
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GBM ROE Sustainability
Q: Is the 18% ROE in GBM sustainable?
A: Management described the 18% ROE in Global Banking & Markets as a strong quarter but not the expected average. They target mid-teens returns through the cycle and noted that this quarter was higher due to client activity and market opportunities. They emphasized that while they capture opportunities when available, they do not expect this elevated level every quarter. -
Capital Management & Buybacks
Q: Can we expect increased buybacks given capital flexibility?
A: Management acknowledged increased capital flexibility due to favorable developments in Basel III proposals but reiterated their capital deployment hierarchy. They prioritize supporting client activities and maintaining a sustainable and growing dividend, and will consider buybacks after these needs. They conducted $1.5 billion in buybacks this quarter and will adjust based on client activity and capital requirements. -
AI Impact on Business
Q: How will AI affect Goldman Sachs and its efficiency?
A: Management sees AI as offering enormous opportunities for productivity gains and efficiency. They focus on using AI to enhance productivity, allowing employees to spend more time with clients and deliver value-added services, rather than solely seeking cost reductions. They believe AI will help scale their smartest people and improve client experiences. -
Asset Management Growth Strategy
Q: Is inorganic growth part of the asset management strategy?
A: While emphasizing progress on organic execution, management did not rule out inorganic growth in asset management. They are focused on high single-digit growth with margin improvement and less capital density over time. Management is open to opportunities that could accelerate growth but currently concentrates on executing existing plans. -
M&A Activity Outlook
Q: When will sponsor M&A activity ramp up?
A: Management noted that sponsor activity remains muted but is picking up, with increased engagement in the first quarter compared to 2023. They expect activity to increase in coming quarters as sponsors face pressure to return capital to investors. An uptick in sponsor M&A would be a significant tailwind for their business. -
Wallet Share and Market Position
Q: Where can you still improve wallet share in trading?
A: Management highlighted progress in serving the top 150 clients, aiming to be top 3 with a larger percentage of them. They recognize opportunities to improve rankings where they are currently third and continue to focus on expanding share across all products by enhancing client experiences and addressing feedback. -
Non-Comp Expense Sustainability
Q: Are lower non-comp expenses sustainable going forward?
A: Management is focused on containing non-comp expenses, acknowledging inflationary pressures but pleased with the sequential and year-over-year decreases. They consider this quarter's expenses more normalized after prior periods with non-recurring items and plan to manage expenses in a disciplined fashion. -
Transaction Banking Strategy
Q: Are you pulling back ambitions in transaction banking?
A: Management remains committed to transaction banking but has narrowed ambitions to ensure profitable growth. They've adjusted their global footprint due to execution costs and regulatory changes, focusing on the U.S. and Europe. They aim to deliver profitability and integrate transaction banking with their client offerings. -
Wealth Management Growth
Q: Can you sustain high organic growth in wealth management?
A: Management attributes strong growth in wealth management, with $17 billion in inflows equating to 9% organic growth, to focusing on the ultra-high-net-worth segment and offering a differentiated, open architecture platform. They believe there's room for continued growth due to wealth accumulation globally and their unique client offerings. -
Equity Investments Performance
Q: What is a normal revenue expectation for equity investments?
A: Management indicated that the equity investments line is stabilizing, with performance in the private portfolio aligning with expectations. They referenced a medium-term guidance of about $2 billion in annual revenue from equity and debt investments, or roughly $500 million per quarter, acknowledging market conditions will influence results. -
Alts Revenue and AUS Trends
Q: Why is alts revenue down and AUS growth modest despite fundraising?
A: Management explained that while they've had success fundraising, not all capital raised becomes Assets Under Supervision immediately due to deployment timing. The sequential decrease in alts revenue was partly due to lower placement fees from third-party funds compared to the previous quarter. They expect AUS to grow as capital is deployed.