Investment Banking Outlook
Q: How is the investment banking pipeline and outlook?
A: CEO David Solomon expressed optimism about improving investment banking activity, noting that capital markets and M&A levels have been depressed but saw real improvement in the second half of the year. The M&A backlog had a strong replenishment in Q4, with $1 billion of M&A revenue replaced plus growth. He expects more meaningful IPOs in 2024 and increased activity across debt and equity issuance. Despite being cautious due to global uncertainties, he feels the firm is well-leveraged to this pickup. -

Reducing On-Balance Sheet Investments
Q: Why is balance sheet reduction of investments slower?
A: David Solomon acknowledged significant progress in reducing on-balance sheet investments last year, including pulling forward some monetizations into 2023. The firm aims to get these investments to zero as quickly as possible, with a clear target over the next three years, but managing expectations appropriately. He believes they have a good shot at executing this quicker than planned. -

FICC Trading Outlook
Q: Are FICC revenues at trough levels?
A: Solomon noted that FICC revenues were quiet in Q4, especially in the back half, with intermediation activity down as clients were less active. He doesn't expect this subdued level to continue and mentioned that the first few weeks of the new year are showing more activity. Overall, he believes the environment in 2024 feels better for their mix of businesses than in 2023. - -

Exit from Apple Partnership Impact
Q: What is the impact of exiting the Apple relationship?
A: David Solomon stated they have no updates on the credit card partnerships beyond prior statements. They continue to work with Apple to serve customers and reduce the drag from the partnership. The drag in 2024 will be materially less. -

Deposit Platform Strategy
Q: How are Marcus deposit betas and strategy?
A: Denis Coleman emphasized that the Marcus deposit platform has been a strategic advantage for firm-wide funding. They have maintained pricing at the higher end to sustain and grow balances. They haven't adjusted their strategy and saw good growth, with overall deposits up over $40 billion in the year. They continue to focus on driving growth across strategic channels while being mindful of the overall funding mix. -

ROE Improvement Targets
Q: How will you reach 15% ROE from 10%?
A: David Solomon attributed the lower ROE to a challenging environment, particularly low investment banking activity. He expects improvement as investment banking normalizes. The banking and markets business had a 12% ROE on a fully allocated basis in this environment and aims for mid-teens through the cycle. They continue to reduce the balance sheet in Asset & Wealth Management, which will drive ROE higher. Reduction of other drags, such as platforms, will also contribute to ROE improvement over the next three to five years. -

Impact of Basel III Endgame
Q: How will Basel Endgame affect ROTCE targets?
A: Solomon expressed significant concerns with the proposed rules, believing they should be withdrawn and reproposed. He stated it's premature to speculate on the impact, but the firm has capital flexibility and can adjust businesses or pricing to adapt. They will continue to be highly engaged with regulators. -

Expense Management and Efficiency Ratios
Q: What is the outlook for expense growth and efficiency?
A: Denis Coleman stated they are laser-focused on achieving a 60% efficiency ratio. They have implemented structured processes to manage non-compensation expenses, reviewing each category for efficiency. They acknowledge the impact of inflation and will mitigate it through process improvements. Compensation expense is performance-based and variable, and they will maintain a pay-for-performance orientation. - -

Private Credit Growth Strategy
Q: What is the strategy for growing in private credit?
A: David Solomon highlighted that they surpassed fundraising targets in alternatives and plan to raise another $40–$50 billion in 2024. They focus on private credit, already managing over $110 billion. They see opportunities to grow given their platform and origination connection with their banking business, providing a unique competitive advantage. They plan to continue investing in partnerships with capital allocators worldwide. -

Capital Allocation Priorities
Q: How are you thinking about capital allocation?
A: David Solomon stated that their primary focus is allocating capital to support clients. They have increased capital allocated to client franchises over the last five years. They generate a lot of capital from earnings and will return excess capital to shareholders if they don't see deployment opportunities. They are taking a conservative posture given uncertainties around Basel III Endgame but have proven nimble in capital deployment. They plan to continue growing the dividend. -

Commercial Real Estate Exposure
Q: What's the status of commercial real estate exposure?
A: Denis Coleman noted significant progress in reducing CRE positions over 2023, with office exposures marked down to roughly 50%. They believe the portfolio sits at the right place after impairments and marks. In 2024, they expect further dispositions but will be thoughtful to support client relationships and maintain franchise value. -

Wealth Management Alternatives Inflows
Q: Is the 40% wealth channel inflow sustainable?
A: David Solomon explained that historically, a higher percentage of alternative fundraising came from Private Wealth. As they invest in broad institutional partnerships, the percentage from wealth may decrease. The economics are attractive across channels but may vary slightly. They have margin targets and see opportunities as they build distribution channels for their Asset & Wealth Management platform. -

Competition in Financing & Client Relationships
Q: What drives success in FICC & Equities financing?
A: Solomon attributed success to the firm's scale and the One GS ethos, promoting an integrated approach in serving clients. They have increased financing activities with clients, leading to strengthened relationships and increased wallet share. Taking a long-term view and being there for clients, even in less economically attractive activities, has also contributed to growth. -

Compensation Expenses and Margins
Q: How will comp expenses grow with revenues?
A: Denis Coleman emphasized their focus on driving operating leverage and scale while maintaining a pay-for-performance culture. The ultimate compensation payout will depend on business mix and the appropriate amount to retain talent and serve clients while delivering results for shareholders. They aim to balance talent retention with operating leverage. -

Investment Banking Activity by Geography
Q: Where are you seeing the best IB potential?
A: David Solomon mentioned that the Americas is the largest part of activity, with significant pickup due to U.S. economic resilience. Europe is seeing increased strategic dialogue. Asia, particularly China, remains slower in both M&A and capital markets due to economic conditions. -

Lead Independent Director Transition
Q: What's the plan for the Lead Independent Director?
A: David Solomon acknowledged that Bayo Ogunlesi sold his business to BlackRock, which will create a transition in the Lead Director position. The deal won't close until the third or fourth quarter. They have a governance process in place, and at the appropriate time, they will announce the transition. Currently, Bayo remains the Lead Director. -