Goldman Sachs Group Inc. GS Q3 2020 Earnings Call Transcript

Dennis: (00:00) Good morning. My name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Third Quarter 2020 Earnings Conference Call. This call is being recorded today, October 14, 2020. Thank you. Ms. Miner, you may begin your conference. Heather Kennedy Miner: (00:17) Good morning. This is Heather Kennedy Miner, Head of Investor Relations at Goldman Sachs. Welcome to our third quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. Note information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. Today, I'm joined by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Stephen Scherr. David will start by reviewing third quarter and year-to-date performance. He will also provide an update on our client franchise, the macroeconomic backdrop and our progress on returning to office. Stephen will then discuss our third quarter results in detail. David and Stephen will be happy to take your questions following their remarks. I'll now pass the call over to David. David? David Soloman: (01:19) Thanks, Heather, and thank you to everyone for joining us this morning. I'd like to start by saying that all of us at Goldman Sachs hope that you, your friends and family remain healthy amid the continuing challenges with COVID-19. Let me begin on page one of the presentation with a summary of our financial results. In the third quarter, we produced net revenues of $10.8 billion, up 30% versus a year ago. The strength and breadth of our client franchise continue to be evident this quarter as we delivered net earnings of $3.6 billion, record quarterly earnings of $9.68 per share, and return on equity of 17.5% and return on tangible equity of 18.6%. Our third quarter results contributed to strong year-to-date revenues of $33 billion and an ROE of 8%. Litigation costs burdened our year-to-date returns by over 500 basis points. David Soloman: (02:16) Returns were also impacted by higher reserve build for credit losses in the first half. The third quarter continued to demonstrate the strength of our diversified business. We benefited from an improving market backdrop, high levels of client engagement, continued countercyclical performance in market-making and positive momentum across our strategic initiatives. We maintained our leading global position in M&A as announcements increased in the quarter from a relatively dormant period earlier in the year. We maintained strong lead table positions in underwriting including a number one ranking in equity underwriting and a top three ranking in high yield with both markets very active during the quarter. We again delivered robust performance in global markets in both FICC and Equities on solid client activity across our global platform reinforced by recent market share gains across asset classes in the first half of 2020. David Soloman: (03:12) In asset management, we recognized strong gains from our public and private equity positions. We also generated strong investment performance and positive net interest income in our credit portfolio, and we continue to have success with our West Street Strategic Solutions Fund were on track for $14 billion of total commitments. We are delivering our full spectrum of alternatives capabilities and have launched marketing on new funds in private equity, growth equity and real estate. In wealth management, we continue to provide valuable advice to our ultrahigh-net-worth PWM clients. We also made progress integrating our new personal financial management business to provide our high-net-worth clients with a broader set of capabilities and we've been pleased to see synergies between both groups, which have resulted in 700 referrals this year representing over $2.5 billion of an asset opportunity. David Soloman: (04:07) In consumer, we continue to have success expanding our platform to serve individuals digitally both directly and through partnerships. During the quarter we launched markets insights integrating Clarity Money's capabilities into the markets' app to give consumers a more comprehensive view of their finances, and we continued to make progress building checking and investment capabilities, which we'll launch next year. On the partnership side, we launched seller financing with Walmart, expanded on our June platform launch with Amazon. Additionally, our partnership with Apple continues to grow and we look forward to leveraging our credit card platform for additional partnerships over time. David Soloman: (04:47) Turning to the operating environment on page 2, we continue to navigate an uncertain backdrop brought on by COVID-19, which has an unclear trajectory. From a macroeconomic perspective, the markets continue to benefit from the unprecedented monetary and fiscal support by central banks and governments globally. In the third quarter, the Federal Reserve announced its new approach to average inflation targeting and forecasted that short-term rates would remain locked near zero for the next several years. In that same vein, in the UK, where the economy is expected to contract by over 9% this year, the Bank of England opened the door to negative rates as a potential policy tool. Meanwhile, U.S. labor markets continue to show headline improvement with the unemployment rate declining to 7.9% in September, down nearly 50% from peak levels in April reflecting approximately 13 million people out of work. David Soloman: (05:42) That said, according to the latest jobs report, those improvements were largely driven by reversals of temporary layoffs while permanent job losses have risen to nearly four million people, reflecting some of the deeper challenges in our economy. Additionally, there continues to be enormous uncertainty globally in the trajectory of the virus, which may impact the pace of the economic recovery as we head into the fall and winter. In particular, we see continued challenges in a number of impacted industries including restaurants, hospitality and oil and gas. Despite these uncertainties, since our July earnings call, our economists' expectations for 2020 U.S. GDP improved by 120 basis points to an expected contraction of 3.4%, while global growth estimates slipped 50 basis points to an expected 3.9% contraction. David Soloman: (06:35) Looking at the next year, estimates have strengthened with expected growth of nearly 6% in the U.S. and 7% globally. In spite of the ongoing challenges, we are seeing higher global equity markets and tighter credit spreads perhaps as a reflection of the speed of economic recovery. During the third quarter, the S&P 500 rallied by 8% touching new highs in September and leaving the index up 4% for the year. This yearly gain however was concentrated in the top five tech companies, which rose 42% while the remaining 495 names in the index declined by 2%. Equity market volatility also remains elevated, with the average VIX this quarter more than 60% higher than the third quarter a year ago, though well below levels seen in March and April. On the credit front, U.S. investment grade spreads tightened by roughly 20 basis points and high-yield spreads tightened by almost 90 basis points during this quarter. David Soloman: (07:34) As we go forward, we remain vigilant about risks in the markets and potential weakness in the broader economy. Given the uncertain macro environment, we are focused on serving our clients to help them navigate this evolving backdrop. Before turning to Stephen, I'd like to spend a moment on our approach to return to office. We've employed a number of new protocols to operate as safely as possible around the world. We do this as public and private healthcare organizations worked tirelessly to develop therapies and vaccines, which I fully believe, in time, will allow all of us to return to a more normalized environment. We are focused on helping our people come back safely as being together enables greater collaboration, which is key to our culture. David Soloman: (08:19) We continue to employ an adaptable approach, which considers individual circumstances and local health recommendations to give our people the flexibility and the tools they need to return to the office safely. We continue to make measured progress. In Hong Kong and Tokyo, we have around 60% of our people working from the office. In most of Europe, we're at around 50%, and in the UK, we're at nearly 30%. In New York, we've seen a gradual uptick since Labor Day with roughly 2,000 people working in office as of last week, and we currently have 30% of our people rotating through New York office on a weekly basis. That said, we will continue to be nimble and remain in close contact with the relevant authorities in cities where we operate and are ready to shift gears if the evolving situation with COVID-19 warrants. David Soloman: (09:09) Under all circumstances, we continue to keep the health and safety of our people as the top priority. In closing, I would like to thank the people of Goldman Sachs who've remained dedicated to serving our clients while managing the firm's risk, liquidity, and capital to ensure our ongoing financial strength and operational resiliency. While 2020 has been a difficult year in many ways, I'm incredibly pleased with the state of our client franchise and progress we've made in executing on our strategic priorities. And I look forward to providing a more comprehensive update on our Investor Day goals at our fourth quarter earnings call in January. With that, I'll turn it over to Stephen. Stephen Scherr: (09:49) Stephen Thank you, David, and good morning. Let me begin with our summary results on page 3. During the third quarter, the firm performed well across all four of our business segments. In investment banking, our corporate clients remained very active in raising debt and equity capital. We also saw an increase in strategic dialogue following a more dormant period for M&A activity earlier in the year. In global markets, client engagement remained high as we gained share during the year and enabled clients to manage risks across asset classes. In asset management, strong growth was driven by higher management and other fees, as well as gains from our long-term equity and credit investments, following a more challenged first half of the year. We also saw double-digit revenue growth in our consumer and wealth management segment as we expand our service offering to individuals across the wealth spectrum. Stephen Scherr: (10:43) With those headlines, let me now turn to our specific business performance on page four, beginning with investment banking. Investment banking produced third quarter net revenues of nearly $2 billion, up 7% versus a year ago. Financial Advisory revenues of $507 million declined 27% versus last year on fewer transaction closings in the quarter, reflecting the lower level of client activity in the first half of the year. Nevertheless, year-to-date we participated in over $630 billion of announced transactions and closed approximately 225 deals for $810 billion of deal volume. We maintained our number one position in both announced and completed M&A league tables by a meaningful margin. Stephen Scherr: (11:31) Importantly, the pace of M&A announcements has picked up considerably in recent months. Our announced deal volume in the third quarter was up more than fivefold versus the second quarter, and our investment banking client dialogues remain active. The bigger headline in investment banking again in the third quarter was equity underwriting where we regenerated $856 million in revenues, more than double the levels seen a year ago, marking our second highest quarter ever. We rank number one globally in equity underwriting as our year-to-date volumes climbed to $80 billion across 436 deals, including 77 initial public offerings. In Global IPOs, we rank number one and picked up approximately 180 basis points of market share versus last year. Stephen Scherr: (12:21) We also saw strong activity this quarter in follow-on's and new products, including our participation in 21 private transactions, a high-profile direct listing and a number of SPAC IPOs, providing clients advice and access to capital in various forms. In debt underwriting, net revenues were $571 million, up 9% from a year ago. Though volumes normalized from the record pace seen in the second quarter, the high yield market, in particular, saw healthy levels of new issue activity. Our activity also included a number of novel structured transactions, particularly among industries most impacted by COVID-19, such as airlines, where we uniquely enabled clients to leverage a broader collateral base to access capital. As a result, we've been able to support our clients and grow our market share, generating a solid number four ranking in global debt underwriting year-to-date. Stephen Scherr: (13:19) This performance reflects our long-term strategic focus on this business as well as the velocity of underwriting commitments on our balance sheet. Looking forward, our investment banking backlog increased significantly versus the second quarter. Growth was supported by a ramp in M&A activity as I noted earlier, as well as replenishment from equity and debt underwriting transactions. In particular, new M&A announcements are creating a pipeline for acquisition financing in the coming quarters. We are optimistic on activity across a broad set of sectors including TMT, FIG, Consumer, Healthcare and Industrials. Revenues from corporate lending were $35 million, reflecting lower results in relationship lending, which included the impact of tighter credit spreads on hedges. As I've noted before, for risk management purposes, we maintain single name hedges on certain larger lending commitments. Given the significant credit spread tightening over the last two quarters, we have now reversed the vast majority of the $375 million in hedge gains we saw in the first quarter. Also of note, in relationship lending, we've seen material pay downs versus the first half. Total notional drawn on revolvers is now down 60% from the peak and nearing normalized levels. Stephen Scherr: (14:42) Moving to global markets on page five, where our businesses continued their strong performance. Net revenues were $4.6 billion in the third quarter, up 29% versus a year ago amid attractive bid offer spreads, a supportive market-making backdrop and continued elevated client activity. We expanded our market share this year as our focus and commitment to serve clients during this volatile period drove results across asset classes and geographies. During the first half, McKinsey reported that Goldman Sachs Global Markets delivered the best institutional client performance among our global peers. Our strength was aided by number one rankings in both G-10 rates and credit and the number one global ranking in equities, which included the number one position in EMEA and ties for number one in Asia and Japan. Stephen Scherr: (15:36) Turning to FICC on page six, third quarter net revenues were $2.5 billion, up 49% versus the third quarter of '19. Growth versus last year was driven by a 65% increase in intermediation, which more than offset a 9% decrease in financing revenues. In FICC intermediation we had solid client flows and grew revenues in four out of five businesses versus last year, leveraging our balance sheet to intermediate risk in a disciplined way. In credit, performance was supported by strong client activity in the U.S. and tighter investment-grade and high-yield credit spreads. We also saw sustained volumes across our automated bond pricing engine. In rates, revenues rose amid stronger risk management, while client activity was solid, particularly around global central bank actions during the quarter. In commodities, strong performance was driven by our metals business and oil products amid persistent global supply imbalances. In mortgages, revenues rose amid higher levels of client activity in agency products bolstered by solid risk management and tighter spreads. In currencies, revenues were stable as we continued to serve our global client franchise with contributions across both G-10 and emerging markets. Lastly, in FICC financing, we saw lower revenues in repo and structured finance. Stephen Scherr: (17:07) Turning to equities, net revenues for the third quarter were $2.1 billion, up 10% versus a year ago. Equities intermediation net revenues of $1.5 billion rose 36%, aided by higher client volumes across derivatives and cash, reflecting the scale and breadth of our client franchise. In derivatives, we saw solid activity in flow, structured and corporate transactions across both the U.S. and Europe. In cash, we helped clients execute across both high and low touch channels. Equities financing revenues of $585 million declined 25% year-over-year due to higher net funding costs including the impact of lower yields on our liquidity pool. Importantly, average client balances rose to near record levels. Stephen Scherr: (17:59) Across global markets, we continued to invest in technology platforms to enhance client experience, build on our strength in risk management and drive resource efficiencies. Like digital trends across many industries, COVID-19 has accelerated client adoption and onboarding across our automated platforms. While it remains difficult to predict client activity and we do not have insight into the forward opportunity, we take confidence in the market share gains experienced by the business through a deepening set of client relationships, which has been a priority for the Global Markets leadership team. This progress should support revenue sustainability as we go forward. We also believe the upcoming U.S. election, the variability of economic growth outlook, and the 2021 global LIBOR transition may bolster client activity across markets. Additionally, to the extent that sustained low interest rates have their intended effect of stimulating economic growth and recovery, client activity may be further invigorated. Stephen Scherr: (19:04) Moving to asset management on page seven; in the third quarter, we generated segment revenues of $2.8 billion, up over 70% versus a year ago. Our third quarter revenues were driven by the continued market rebound, event-driven activity and positive corporate performance of our portfolio of companies. Management and other fees totaled $728 million, up 10% versus a year ago, driven by higher average assets under supervision, partially offset by a lower fee rate due to mix shift, given growth in liquidity and fixed income products. Equity investments produced $1.4 billion of net gains, aided by appreciation in our public investments and valuation marks related to event-driven activity across our private equity portfolio. More specifically, on our $3 billion public equity portfolio, we generated nearly $ 800 million in gains from investments, including ... Stephen Scherr: (20:03) $800 million in gains from investments, including BigCommerce, Avantor, Sprout and HeadHunter. And on our $16 billion private equity portfolio we generated gains of more than $400 million from various positions with the majority driven by events, including corporate actions such as fundraisings, capital markets activities, and outright sales. Additionally, we had operating revenues of $230 million related to our portfolio of consolidated investment entities. Finally, net revenues from lending and debt investment activities in asset management were $589 million on revenues from NII and gains on fair value debt, securities and loans. This reflected modestly tighter credit spreads on our portfolio of corporate and real estate investments, which continued to rebound from the broader market sell off in the first quarter. Let me now turn to page eight, where we continue to provide transparency on the composition and diversification of our asset management balance sheet. On the left side of this slide is our equity investment portfolio by sector, geography, and vintage. Stephen Scherr: (21:12) Our private portfolio remains highly diversified with over 800 positions where, excluding Global Atlantic, given its announced sale, none are larger than $425 million. We also provide insight into our $21 billion portfolio of CIEs, primarily comprised of real estate investments of which $12 billion are financed predominantly by non-recourse debt. The portfolio remains diversified by geography and real estate sector. On the right side of the slide we show our $31 billion in lending and debt investments in the portfolio within the asset management segment, which includes $14 billion of debt investments and $17 billion of loans that are largely secured. I'll now turn to consumer and wealth management on page nine. In this segment, we produced $1.5 billion of revenues in the third quarter, up 13% versus a year ago, driven by higher wealth management AUS and higher consumer banking revenues. Wealth management and other fees of $957 million rose 9% versus last year, reflecting increased client transaction activity and higher assets under supervision, which rose 8% to $575 billion, including 24 billion of positive net inflows over the past 12 months. Stephen Scherr: (22:38) Consumer banking revenues were a record $326 million in the third quarter, jumping 50% versus last year, reflecting net interest income from credit card lending, strong year over year deposit growth, and lower deposit rates. Consumer deposits totaled $96 billion, reflecting $4 billion of growth in the quarter. This slower pace was expected as we continued to limit UK new account growth in light of regulatory caps and reduced the rate on our us markets savings accounts given the lower interest rate environment. While we exhibited improving beta in our deposit book, we saw very limited outflows of deposits, consistent with our expectations despite two rate cuts during the quarter. Funded consumer loan balances remained stable at $7 billion, of which approximately $4 billion were from Marcus loans and $3 billion from Apple Card. We continue to prudently risk manage these portfolios and have moderated growth relative to initial budget estimates. While we remain attentive to the embedded risk, we continue to be pleased with the credit performance of these portfolios. Stephen Scherr: (23:51) Next let's turn to page 10 for our firm-wide assets under supervision. Total AUS decreased slightly to $2 trillion during the quarter but are up approximately $275 billion versus a year ago. Our sequential decline was driven by $90 billion of liquidity outflows, following strong inflows in the first half, that offset by $51 billion of market appreciation and $18 billion of long-term inflows. On page 11 we address net interest income and our lending portfolio across all segments. Total firm-wide NII was $1.1 billion for the third quarter, up versus a year ago, primarily reflecting growth in the firm's balance sheet, particularly in global markets as well as the benefit from deposit growth and repricing in consumer and wealth management. Importantly, as I have noted in the past, our overall results are less sensitive to lower interest rates than many traditional banks. Our balance sheet is modestly asset sensitive given our mix of high turnover or floating rate assets and predominantly hedged or floating rate liabilities. Stephen Scherr: (25:04) Nevertheless, even if interest rates remain low, we expect NII to gradually expand over time given our ability to prudently grow loans and further reprice consumer deposits. Next, let's review loan growth and credit performance across the firm. Our total loan portfolio at quarter end was $112 billion, down $5 billion sequentially driven by a $7 billion decrease in corporate loans from pay-downs in relationship lending and a $1 billion reduction in Marcus installment loans, offset by modest growth in wealth management and credit card loans. Our provision for credit losses in the third quarter was $278 million, meaningfully lower than the $1.59 billion taken last quarter and down 4% versus a year ago. This lower provision versus the second reflects relative stability in our portfolio and improvements in the broader economic backdrop, which is the dominant driver of inputs to our modeling of pool reserves. At quarter end our allowance for credit losses for both loans and commitments stood at $4.3 billion, including $3.7 billion for funded loans. Stephen Scherr: (26:19) Our allowance for funded loans was stable versus last quarter at 3.7% for our $100 billion accrual portfolio, including an allowance for wholesale loans of 2.8% and for consumer loans of 16.1%. the provision of $278 million includes wholesale impairments of approximately $230 million, primarily relating to select credits in the TMT, industrials, and natural resources sectors. During the quarter, we recognized firm-wide net charge-offs of $340 million resulting in an annualized net charge-off ratio of 1.3%, up 40 basis points versus last quarter. Next, let's turn to expenses on page 12. Our total quarterly operating expenses of $6 billion increased 6% versus last year with compensation expenses up 14% year over year. Amidst higher revenue growth, net of provisions, and non-compensation expenses down 2%. Higher compensation expense reflected year over year growth in revenue, net of credit provisions. Our non-comp expenses were slightly lower versus last year as we continue to invest in new businesses, including transaction banking and credit card, as well as the United Capital acquisition, now rebranded Personal Financial Management. Stephen Scherr: (27:46) While we've benefited from lower expenses of approximately $100 million from the temporary reduction in travel, entertainment, and advertising expenses due to COVID-19, we also saw an approximately $90 million reduction in litigation and professional fees and a roughly $50 million reduction in double occupancy-related costs from our new facilities in London and Bengaluru. These were offset by a roughly $60 million increase in activity-related expense from brokerage, clearing, and exchange fees as well as a roughly $85 million increase related to technology investments across the firm. Our reported year to date efficiency ratio was 69. 6%, which was burdened by nearly 10 percentage points of litigation expense. We continue to make progress on our expense savings initiatives as set forth at Investor Day, and will continue to assess our ability to go further than what we outlined in January. Finally, our reported tax rate was 28% for the year to date, reflecting the impact of non-deductible expenses. Stephen Scherr: (28:54) As noted previously, we expect our tax rate under the current tax regime to be approximately 21% over the next few years. Turning to our capital levels on slide 13. Our common equity tier one ratio improved to 14.5% at the end of the third quarter under the standardized approach, up 120 basis points, sequentially. The improvement was driven primarily by earnings as well as lower market RWAs reflecting reduced market volatility and lower credit RWAs. Our ratio under the advanced approach increased 110 basis points to 13%, also on earnings and RWA reductions from lower market volatility. We are confident in our capital position, now 90 basis points above our 13.6% stress capital buffer requirement. Looking forward, we continue to believe that the 13% to 13.5% standardized CET1 target range provided at Investor Day is appropriate for our firm on a medium term basis as we execute our strategic initiatives, build more durable fee-based revenues, and reduce the stress loss intensity of our business. Stephen Scherr: (30:09) To that end, we will continue asset harvesting, including our announced sale of Global Atlantic. While our capital ratio will likely remain elevated near term given continued regulatory restrictions on share repurchases, we would expect our management buffer to decline over time, particularly as markets express less volatility. Importantly, we stand ready to commit capital and balance sheet to support our clients and we expect to resume share repurchases once permitted, consistent with our longstanding capital management policy. Turning to the balance sheet, total assets ended the quarter at $1.1 trillion, roughly flat versus last quarter. We maintained very high liquidity levels with our global core liquid assets averaging $302 billion, up modestly versus last quarter, reflecting the current backdrop. We expect our GCLA will evolve in the context of client demand for our balance sheet and overall market conditions. On the liabilities side, our total deposits decreased to $261 billion, down $8 billion versus last quarter, driven by planned roll off of higher costs, brokered deposits, and more modest growth in retail deposits. Stephen Scherr: (31:26) Our long-term debt declined by $9 billion during the quarter, driven by maturities. We expect issuance to remain relatively low for the remainder of the year, although we may consider pre-funding some planned first quarter 2021 issuances. In conclusion, our strong third quarter results reflect the diversification of our client franchise, resilience of our business model, and flexibility in our highly liquid balance sheet. Despite the continued overhang from COVID-19 and challenges from the work from home environment, we continue to leverage our technology platforms and intellectual capital to support our clients. Stephen Scherr: (32:06) During this difficult time, we remain dedicated to executing our strategy in our core business and driving forward the new initiatives and operating efficiency programs we laid out in January. Importantly, we have been proud to see our dedicated client engagement efforts continue to pay off, resulting in gains in mind share and market share, as we help clients navigate this volatile environment. On the forward, our risk managers will remain in a conservative posture, given the uncertain trajectory of the virus and early stages of the recovery to ensure we are well-positioned to proactively support our clients. While our path to our medium term targets will inevitably not be a straight line, we remain confident that execution of our strategic plan will drive better client experience, more durable revenues, and higher returns for shareholders over time. With that, thank you again for dialing in, and we'll now open the line for questions. Speaker 1: (33:05) Ladies and gentlemen, we will now take a moment to compile the Q&A roster. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. If you were asking a question and you are on a hands-free unit or speakerphone, we would like to ask that you use the handset when asking your question. Please limit yourself to one question and one followup question. Our first question is from the line of Glenn Schorr with Evercore. Please go ahead. Glen Schorr: (33:46) Hi. Thanks very much. Stephen Scherr: (33:49) Hey, Glenn. Glen Schorr: (33:49) Hello. So obviously great trading results. I'm curious if you could characterize how you think about any incremental risks you'd take to execute all that, and if there's any impact on future stress tests. I'm just looking to balance client franchise with any list associated with it. Thanks. Stephen Scherr: (34:17) Sure, Glenn. Thanks. I would say the performance of the trading businesses in the third quarter, frankly, like it was throughout most of the first part of the year, was really done with an eye toward high velocity turn on balance sheet. That is, we were very well prepared to commit capital to facilitate intermediation, but saw our mission equally as moving and trading on that risk very efficiently, and so we could see the kind of turnover that we needed. We didn't see dramatic pickup in risk occasioned by that pattern and that strategy, and I think that leaves us in a good position with respect to what we will submit as part of the second version of CCAR, and I don't see our risk as being unusually elevated in the context of producing these kinds of results. Glen Schorr: (35:15) God bless. That's great. And then I missed it. I don't know if you gave us the realized versus unrealized split. I think I wrote down everything you said on the equity, I'm talking equity investment line. I couldn't tell how much of it was actually realized. And the follow-on to that is, have you considered monetizing more with markets at all time highs? You have a pretty seasoned portfolio with 2/3 in the four to eight years old plus range. So I'm looking to see how you'd balance the capital intensity of those investments with the earnings power and what your capital deployment options are right now. Thanks. Stephen Scherr: (35:58) Sure, no problem. So let me just go through the breakdown in equity. Of the $1.4 billion in revenue, our public portfolio generated $781 million in revenue and the private part of the equity portfolio generated $642 million. Now, importantly, when you look at the private portfolio, $284 million of that $642 was generated on events. So that's sales, monetizations, IPO's, and the like. And only $52 million was non-event driven. That is looking at the baseline performance of the underlying company and making a judgment about where value is appropriately pegged. And so event being the dominant component of the private portfolio. The balance, I should point out, of $306 million relates to CIEs. Stephen Scherr: (36:54) As it relates to the public portfolio, we observe the market no differently than you do. Obviously there's a certain component of that public portfolio that remains restricted. A decent amount of it remains unrestricted and we will look for opportunities as we have been to monetize those stakes. By the way, I say that not just simply in the context of an attractive market valuation in which to sell, but equally in the context of the broader strategic mission we've been on, which is to lower the balance sheet intensity and capital intensity of that as we shift to more third-party investing itself. And so that gives you a bit of the lay of the land as to the two components to your question. Glen Schorr: (37:40) Thanks so much. Appreciate it. Stephen Scherr: (37:41) Sure. Speaker 1: (37:42) This one's from the line of Christian Bolu with Autonomous. Please go ahead. Christian Bolu: (37:49) Good morning, David and Stephen. Maybe sticking with the trading question. Stephen, you gave some pretty interesting color on why you think trading revenues could be sustainable into 2021. Can you expand on those a bit? I'm particularly interested in your point around LIBOR transition. Just give us more detail there and why you think Goldman is well-pleased capitalize. Stephen: (38:14) Sure. Why don't I start with trading? I think at the core, our view on sustainability is not with a crystal ball and a forward forecast as to what the opportunity set will be. It is more rooted in the fact that over the course of the year and looking at data through the first half we have picked up meaningful market share in and among various client sets across all of the businesses in our trading business. And this was a very concerted effort on the part of the leadership of that business to go at finding ourselves, moving up the ladder in the top 1000 clients that matter to the trading division. So the sustainability of our performance, for me, is rooted more in the fact that we've picked up share gains, we were there for clients, particularly during the most volatile moments of the second quarter, across all asset classes without withdrawing. Stephen: (39:14) And I think it sets us up to capture whatever the opportunity set is on the forward. My comments in the prepared remarks is that, as I look forward to the fourth quarter, we can count on any number of issues to be the source of some volatility, whether that's US election, LIBOR transition, the trajectory of COVID, any one of those. And part of the reason that we are at capital levels we are, part of the reason we've maintained higher liquidity than we ordinarily would is such that we can serve clients should that volatility occur without putting ourselves offsides on any one of those metrics. And I think that's part of the color I'd give you both in terms of what's sustainable and equally why we feel confident that we've put our financial resources in a proper... Stephen: (40:03) We feel confident that we've put our financial resources in a proper frame to sort of play on the volatility itself. Just lastly, on your question about Libor transition, we've had a dedicated team. I mean, people who are 100% dedicated to this effort from the beginning, we've put ourselves in a position where we've done issuance. We have prepared ourselves in terms of counterparty contracts and the like, and I think we're very well-prepared. Obviously we don't skew in ways in which commercial banks do with Libor based elements in mortgages and the like, but in the scope of what is our business, we feel quite well-prepared for that onset. Christian: (40:44) Great. Thank you. Maybe switching to acquisitions again, maybe David, this one's for you, given the frenzy at Morgan Stanley on deals. Just curious how you're thinking about M&A? Maybe what businesses or initiatives would benefit from at acquisition. And then if you could just touch on how you think your relative currency and sort of capital position places you to do a transformative deal. David: (41:11) So, Christian, I appreciate the question. And of course we laid out a medium term plan with a set of goals and you and others continue to ask us about this. We're on a journey to continue to strengthen our returns and broaden our business to create a more diverse business with more sustainable revenues over time. We now have the business we think fully set up and organized after we resegmented last year and made some changes internally so that the platforms that we think we can really operate from are well positioned to grow. And this includes our two more traditional platforms that everybody's always focused on, investment banking and global markets, which really, for lack of a better term is a corporate investment bank. David: (41:55) We have a big asset management platform, which is global, broad, deep multi product all over the world. And we think there are opportunities to continue to grow that organically, for sure. But certainly we'd consider inorganic opportunities to grow that if we thought that they were enhancing. And then we obviously are building a broader consumer wealth platform to serve individuals. And we certainly think there can be opportunities to accelerate the growth of that. In fact, last year, we made an acquisition in the United Capital that we think accelerated our expansion into high net worth wealth in a meaningful way. And we've now been integrating that quite successfully. David: (42:35) So we continue to look broadly at things that can extend our strategy and accelerate the pace. It's clear, if you look at the actions of others, that the market has been tolerant of tangible book value dilution in the context of something they think is on strategy and advances the trajectory of the business. So we'll continue to look and see if there are opportunities, but other than that, it would be hard for me to say anything more at this point. Christian: (43:02) Okay. That's helpful. Thank you, David. Speaker 2: (43:08) From the line of Mike Carrier with Bank of America, please go ahead. Michael: (43:14) All right, good morning, and thanks for taking the question. First one, just on the efficiency ratio. You guys beat the 60% this quarter and year to date extra legal, you're at the 60%. I guess the big takeaway is the operating leverage clearly works in the model, but can you provide some color maybe where you're at in the investment and efficiency in a three-year timeline? And most of it's just to help with the expense trendline and the efficiency ratio throughout, depending on how the revenue backdrop plays out ahead. David: (43:44) Well, I'll start. Stephen: (43:44) Yeah, go ahead. David: (43:46) And Steven might give some more granular detail, but I'd say at a high level, Michael, and appreciate the question, there's no question that our efficiencies benefited from an environment which has allowed us an opportunity in some of our businesses to capture more revenues. And some of that, as Steven highlighted, is really due to market share gains, and we think that we'll be more sticky. Some of it is due to the environment. There's no question as we looked at our kind of three-year trajectory and thinking about our desire to run the firm more efficiently, that this environment and the crisis slowed down some of the actions we might've taken during this year. We've now begun to deal with some things from an efficiency perspective that we might've dealt with earlier in the year. And we then have two more years to go through and execute that plan. David: (44:35) We continue to be very committed to that plan. We continue to be very comfortable with that plan. We actually think there might be things that we've seen or we've learned that may create more opportunities for us to advance from that plan. But at this point, our intention is to give you a more detailed, granular update when we review our plan in January of the next earnings call. I mean, Steven, is there anything you'd want to add to that? Stephen: (45:00) Mike, the only thing I would add to David's comment is that I think that on the forward, we're going to continue to look at strategic value locations as areas where we can grow and develop a number of different businesses, particularly the newer ones. I would say automation continues to be a priority for us across the whole of the firm, automating what goes on in risk and the various control functions and equally automating platforms that have captured the attention of client sets. Stephen: (45:34) I'd also say that look, it's hard to look at one quarter as a spot for efficiency. Obviously it's important to look out the whole year, but equally this is a medium term journey that we're on. And I think some of the items that I mentioned, that David mentioned, will bear fruit in terms of creating greater operating leverage. The last thing I'd say is that we have said on prior earnings calls, that it's important to look at operating expenses in totality because as we continue to build businesses like transaction banking, like the consumer business, they will be less human intensive, they will be more automated. And therefore we move away from the compensation intensity associated with those businesses as a general matter. So I think there are a number of levers to pull over the medium term. Speaker 3: (46:28) All right. That's helpful. And just to follow up on Glen's aforementioned question, one of the things we've seen in some of the private companies is they've been slower to rebound given the economic backdrop. So any insight you can provide on the private portfolio companies, either those facing more COVID related pressure or those that aren't and if that will have an impact beyond the pace of monetization. Stephen: (46:50) Sure. So as we looked across the portfolio and we did it in the first quarter, did it in the second and again, did it in third. We look at those that are most acutely impacted by COVID, their circumstance in some sense hasn't changed. And they remain kind of untouched from the downward mark pressure and valuation that we saw in the first and second quarter. There are others that have turned the corner as being affected by COVID. And that is as much a function of where the market is moving, where consumers are moving and the like. And then there are others that historically have been untouched by this. Stephen: (47:31) And so I would say we continue to look at it through the frame of COVID impact and equally we look obviously at the underlying performance of the business and not exclusively as against public market comparables or in the like. And by the way, this is of course for that part of the private portfolio, not otherwise marked given other events that are going on. And so that frame remains the same in terms of how we look at their portfolio itself. Speaker 2: (48:04) Your next question is from the line of Betsy Graseck with Morgan Stanley. Please go ahead. Manon Grasalio: (48:11) Hi, good morning. This is [Manon Grasalio 00:48:15] on for Betsy Graseck. I wanted to ask on your capital levels, I know you said you expect to manage to about a 13 to 13 and a half percent CET1 ratio over time, but can you speak to where you expect to maintain capital in the near term, at least until the 2021 stress test? Do you expect to maintain the same buffer over your required minimum as you did this quarter or I know you mentioned that you could see strong activity in the market and 4Q with the elections and the market rebound. Is there more room to be a little more nimble and maybe increase exposure and market RWS in the fourth quarter? Stephen: (48:50) Sure. So I think we've brought our CET1 ratio to 14.5, really to sort of fix ourselves in a competitive position in anticipation, as I said, of the potential for volatility and higher trading over the course of the fourth quarter. We've said before, and I'll say again, that we run roughly with a 50 to 100 basis point buffer. Where within that range we stand, obviously at the higher end now, is equally a function of volatility from a risk management point of view. That is, we're in a market that is more likely to express higher, not lower. As into the extent that that volatility subsides, we will see the buffer come down and we'll adjust again consistent with where we are. Stephen: (49:39) On the longer term trend over the medium to term, the reinforcement of 13 to 13 and a half is more a reflection, I think as I've said in the comments, of a forward direction to create, and as David noted, lower stress loss impact in the overall composition of the business. Meaning as we continue to pursue certain of our strategic initiatives, which create more durable fee-based revenue, lower capital intensity, lower balance sheet intensity, we'll be in a position where I think the requirement of us will come down and therefore over the immediate term, will move more in that direction. Manon Grasalio: (50:21) Great. Thank you. And can you talk a little bit about what you're seeing on the M&A advisory front? We're seeing the announcements come through, both your own and the industry M&A announcement has been pretty strong in the third quarter. Can you give us some more color on what you're hearing from corporate and sponsors and how long do you think this increase in announcement can persist into next year? David: (50:46) So there's no question that earlier in the year, given the dramatic nature of the start of the pandemic and the uncertainty that persisted, M&A activity came to a screeching halt. And really, through the second quarter, new announcements and activity levels were quite low. Steven made comments with respect to the pickup in our backlog. We've seen an increase in activity. I think we see an increase in activity and announcements, but also an increased dialogue. And I would say that CEO confidence has improved meaningfully in the quarter. It's still not at the high elevated levels it might've been at the beginning of the year, but CEO confidence and the dialogues we're having is certainly improved. David: (51:31) Against that backdrop, I would expect to see numerous companies trying to take advantage of the opportunity to consolidate and strengthen position. I think one of the things that's going on in the crisis is people are seeing that there continues to be efficiency and scale. As the world continues to digitize, it requires greater investment and that obviously advantages companies with scale. So our base case based on what we're seeing is that this increase in activity will continue through the rest of the year into 2021. But I would say that you've got to be flexible and understand that if for some reason, the course of the pandemic or the economic trajectory changed some of that confidence that's currently building, that could slow down. But at the moment, activity levels appear quite good. Speaker 2: (52:17) Your next question is from the line of Brennan Hawkin with UBS. Please go ahead. Brennan Hawken: (52:23) Good morning and thanks for taking my questions. David, you referenced that you'll be providing an update to the strategic goals and targets that you laid out on the fourth quarter call and you said you were committed. You remained committed to those goals, so that's encouraging and certainly in light of some of the stories we've seen in the press which were a little confusing. But I wanted to, number one, confirm that's a refute of the press reports that you all are considering backing away from the targets. And also here, how loan and deposit growth experience through 2020 has compared to your pre pandemic expectations. And how long should we think about a headwind from the liquidity, the excess liquidity that you guys are holding as a hindrance to NII? How temporary is that likely to be? Thanks. David: (53:29) Okay. So a couple of things first, and I just want to be very clear about it. It's one article. I saw the article. The article was wrong, it was incorrect. We've never considered changing our targets. There's been no discussion about it. And so we're committed to our targets and we're making progress on our targets. And so I don't have anything really else to say about the article other than it was incorrect. David: (53:53) With respect to the second part of your question, and I'm sorry, I'm now on the third part of your question where you were asking about deposits. It was something in the middle, right? Brennan Hawken: (54:04) About loans. David: (54:04) Oh, about... Brennan Hawken: (54:05) Lending. Stephen: (54:07) Just on the question of lending versus our expectations before the... David: (54:11) Sure. So when you look at deposits, that's right, deposit growth and loan growth. When you look at deposit growth, what I'd say, and we talked about this in last quarter's call, deposit growth and the acceleration of our ability to attract digital deposits definitely accelerated during this year because of the pandemic, faster than we had expected. We've obviously been managing that flow and you saw in this quarter based on actions we took, that we slowed down the growth and that deposit rate because we had well exceeded what we expected to do from the year. At the same point in time when you look at the consumer business, which still remains very, very small, as we entered the pandemic, we had the ability to be more controlled on the growth of that portfolio. David: (54:51) We remain committed to the targets we set out in our Investor Day in January, but it didn't seem as we were entering the pandemic and there was such uncertainty during the bulk of this year, that we should be leaning in toward driving those targets. My expectation would be if the economic environment continues to improve, you'll see an improvement in that long growth as we head into 2021, but we'll continue to monitor that appropriately and cautiously. Brennan Hawken: (55:20) That's clear, thanks. And then when we think about the expense side, comp clearly had a big benefit here this quarter. Is the best way to look at that year to date? I know the fourth quarter is an important one for when you guys true up the pool and consider competitive dynamics and the like, but any additional color you can provide there? And when we think about comp ratio, should we think about it net of provision or gross? I think Steven, you referred to it net of provision in your prepared remarks, but in prior times, it was referred to as gross. So just wanted to try to square that a bit. Thank you. David: (56:05) At a high level, so Brennan, at a high level and Steven may comment on this too, but at a high level, as we develop different businesses, and Steven pointed to this, we're developing businesses that have a different component of people costs than some of our businesses had had historically. And so we always, when we set a comp ratio, we are always thinking based on the information we have at the time, what do we think is necessary to pay our people competitively and protect our franchise? PCLs are a cost of doing business. It's a reflection of the capital that's embedded in the business. And it obviously affects that judgment. David: (56:46) In a year where there were very, very low PCLs, the difference between those two ratios is very little. In a year where there are very significant PCLs, given the nature of the time we're on the cycle, obviously there's a big difference and that will weigh more heavily in those years. But we continue to see real operating leverage in our business as we execute on our strategy, as things continue to digitize and we continue to automate. But in addition, we have excellent people in a number of businesses that need to be paid when people perform and we'll stay very, very focused on making sure that we're competitively and well-positioned, but you're seeing some of the operating leverage come through on the business. Stephen: (57:26) I mean, Brennan, and I would just point out that through three quarters, when you look at comp as a percentage of revenue net of provisions, we are spot on to where we were last year. And so there's obviously no change in philosophy. I think David gave you all the reasons why it's important that we take stock of provisions in the context of looking at that. I would say though, more generally, it's important to focus on the efficiency ratio of the firm over an extended period of time because as I said earlier, comp will be inevitably but one component of a set of operating expenses by which the firm is carrying itself. And so I think efficiency ratio will be a better indicator of the firm's ability to manage, but that's not to ignore the focus and the view into comp as an expense. And so I think part of what David and I have told you gives you a sense of how we're looking at it relative to provisions and where it sits on a year to date basis. Speaker 2: (58:29) Your next question is from the line of Devin Ryan with JMP Securities. Please go ahead. Devin Ryan: (58:34) Great, good morning. Thanks for taking the questions. First question, just want to touch on the stock for a moment. Just looking at the stock, the price is down $20 year to date. Book value is up about $10. You've put one MDB behind you, get a record EPS quarter today, and so just want to think a little bit about how you guys talk about the stock price internally. You essentially have laid out a transparent plan for the business. You've set long-term initiatives that apply a business shift towards high multiple areas. And so I'm just curious if the mentality is that as you execute on the plan over time, the price will just take care of itself or we maybe getting to a point where it makes sense to take more of a stand around the stock, just given that it has implications for how you run the business. David: (59:27) Well, I think Devin, you've laid this out very well. We've put out a plan. We believe we're executing. We've got a lot more work to do. If we execute, I assume the stock will follow and we're focused on shareholder value. We're focused on the medium to the longer term. And I feel good, we feel good as a leadership team, as to how we're progressing. But there's more work to do and our assumption is if we continue to deliver consistently over the medium and longer term, shareholders will benefit and the stock price will perform. Devin Ryan: (01:00:01) Okay. Thanks, David. And then just- Speaker 4: (01:00:03) Okay, thanks David. And then just a follow up here on the consumer business, and there was several changes to leadership in consumer and wealth during the quarter. I'm just curious if that implies any focus in shift in the business, or just any all around implications there to strategy, or how the business is run? David: (01:00:25) There's no focus in strategy or how the business should be run. One of the things that I believed very strongly and that we've been driving toward as a management team, since we took over as a management team two years ago, was getting the way we talk about the business to be set up in a way where we can transparently talk about our different big business platforms, and to have those businesses aligned with the way we were running the business internally. That is not something that traditionally we had. We had external segments, we had different divisions internally. We made segment shifts at the end of last year to set up the platforms the way we expected to run them. And the announcements we made now get people who are driving the strategy and moving those platforms forward, aligned with the way we talk about the businesses to you, to the investing community, to our shareholders, and we feel that's an important step forward. David: (01:01:17) And so there is no change, but rather just a continuation of the journey we've been on to get the firm lined up and set up now with these four big platforms that we really think we can drive growth over time. Stephen: (01:01:29) Kevin, the only thing I would add, just to touch on the specifics of performance within the consumer business. So overall, the market's unsecured loans closed the quarter at a lower balance than where it began the year, and Apple card balances were higher than where we ended the year. Both of those very purposeful in the context of managing through a young portfolio in an uncertain moment, with respect to the consumer. I would also say that the loss behavior, if you will, or the credit behavior of that portfolio is outperforming our modeled expectations, that is, losses have been coming down relative to that which was otherwise budgeted or forecasted, which is as much a function of how we've managed underwriting on the entry, how we've managed customers under customer assistant plans and the like. And so that just gives you a sense of where performance lies in the context of David's comments. Speaker 5: (01:02:33) Your next question's from the line of Mike Mayo with Wells Fargo Securities. Please go ahead. Mike Mayo: (01:02:39) Hi. I think my question is rooted in my business school class that I read In Search of Excellence, and it said, stick to your knitting. I'm not sure if you recall that old book, and maybe it's just too ancient, but when I look at your business, the capital market side, I mean, you're clearly gaining wallet share. It reminds of 2009 when you were successful in supporting your customers through the last recession. And on the other hand, the expansion businesses, buying into credit cards. One concern I hear is you're just buying into a lower PE activity. Mike Mayo: (01:03:24) You certainly seem committed on that strategy, but it seems like there's still questions there. So specific questions on the side where there's a lot more confidence, the legacy businesses of capital markets. Your M&A backlog, how does that compare to the all time high. And trading, how much has the wallet share gains been due to the environment because VIX is so high, versus new business? So that's all that's on the positive side. And on the less confident side, the growth, what do you bring when you buy a credit card, that the seller wasn't providing before? Thanks. David: (01:04:05) There was a lot there, Mike. And so I appreciate all the questions. If I don't get them all, I just want to highlight, I don't remember the book because I didn't go to business school. But as I try to tick through an answer, first on emanate backlog, and I think Steven said this. While M&A backlog strengthened during the quarter, it's not back to where it was at the beginning of the year. And it's certainly not at its all time high. With respect to market share gains in global markets, I think the market share gains, we believe as a management team, that the market share gains are rooted in an evolution back of our strategy to really being very, very client centric. Our 1GS approach, and really trying to think about how we as an organization deliver for our clients in a very central way. David: (01:04:51) And this is core to the way we're running the whole firm. It's been a big initiative over the last two years, and we think it's having a real impact on the way our clients interact with us, and our ability to serve our clients. And we think that's helping our market shares. Certainly, the volume levels, I think at this moment in time are elevated. The overall activity levels are elevated to some degree, based on the pandemic and the volatility in markets. But I think the market share is coming from the way we're executing a strategy. And we began that focus well before COVID, we began that focus two years ago, and I think we're really getting results from that investment. The third thing with respect to the credit card business, it's hard to imagine we're in any business that has a lower PE than the current PE that we trade at. David: (01:05:40) But when you look at our vision for what we're trying to do in building a digital consumer platform that marries our strong expertise and wealth, while also providing a digital experience for general banking services for consumers, we're committed to it, we believe in it, but we want to be perfectly clear. This is something that's going to be built over a long period of time. Just like we now sit today with an extraordinary asset management franchise where we have over $2 trillion of assets under supervision. That's been built over a very long period of time. And we believe it's really a credit to the value of Goldman Sachs and our shareholders over a very long period of time. And so we're going to continue to work at this cautiously. I know there's skepticism out there. We're going to prove over time as to why we think it's right, we'll continue to advance it. Mike Mayo: (01:06:34) And I'm going to ask you a question that's not really your responsibility, but it goes back to the earlier question. On a day like today and last quarter, the market seems to be giving you a PE of one or even less on your earnings. And I think there's a disconnect between the lumpiness of your capital markets revenues with the annuity-like nature of your customer relationships. So I'm not sure if there's any way that you could put in context, the recurring nature of the bulk of the capital markets activity, even while parts are lumpy. And I think some shareholders are very frustrated as it was reflected by the earlier question. And so I know your view is, look, stock prices follow earnings. You've had a focus on growing book value, let's grow book value, and everything else will take care of itself. Is that still the way you think about that? David: (01:07:32) Well, I think your last statement is true, but I'll make a couple of other comments at a high level, and it would offer a perspective. And I know, Mike, you'd have a perspective on this, too. But for sure, we're going to continue to focus on performing, and I think over time it will take care of itself. At a high level, the banking sector and financials broadly are well out of favor. And so it's not as though we're sitting in a unique position. If you look at the people that you would benchmark us against, and you look at how they trade on a relative basis, people are pretty clustered in the neighborhood. Is that something that I think is permanent? No, I don't think it's prominent. Can you and I both speculate as to reasons why people feel that way at this point in the cycle? And with some of the uncertainty, absolutely. David: (01:08:23) I do think, to your point, the client franchise and the capital markets revenues that we have are, if you're looking at it not quarter to quarter, but over periods of time as a franchise business, there is volatility in it, compared to some businesses. But over any meaningful period of time, they generate lots of revenues, lots of earnings, very consistently. So part of it depends on the frame through which you look. And we can certainly go over long periods of time and see how the client franchise and the strength of the client franchise continues to do well. So we really believe when we focus on clients, that revenue will be sustained in the context of the market opportunity. As a business, we operate in a business that might have more short-term volatility than some other businesses that are out there that people benchmark in some way. David: (01:09:18) I think it's an interesting time because of the pandemic and the uncertainty, so I think that hurts the overall neighborhood. But I continue to believe that we have big platforms, we have scale, we have leadership positions. Those things are sticky. The things that we do are not going to go away. And if we focus on our clients and delivering for shareholders over time, I believe the stock price will follow. Stephen: (01:09:42) Mike, an interesting development, just to amplify on David's comment, which is that, even in the trading businesses, which one could argue are volatile in the context of the market, on certain of the electronic platforms that we're seeing, and I would speak specifically about the credit platform, we are seeing an increasing number of our clients come to those platforms, transact on those platforms. Now that may be a function of work from home and the disposition of those clients, but we're seeing a growing presence. Their attachment to those platforms, whether it's marquee or otherwise, is sticky and tends to stay there, perhaps even more than what you might see in a high touch, versus low touch. And getting into that, in the business that you would not otherwise expect to be as predictable, if you will, I think it's just something to take note in the context of your question. Speaker 5: (01:10:39) Your next question is from the line of Brian Kleinhansel with KVW. Please go ahead. Brian Kleinhansel: (01:10:44) Great, thanks. A quick question on the CT1 ratio. I noticed there was a kind of meaningful reduction in the RWAs quarter on quarter, and I heard you talk about some of the environment just being probably seasonality impacting that. But can you guys tease out the change in the RWA between what was more seasonality activity, versus where you actively managed those RWS lower to ensure you got over your STB minimums? Stephen: (01:11:09) Yeah, so I think on one hand, if you look on a year over year basis, it's a question of volatility, so we'd see it higher than not by virtue of volatility. Otherwise, on a quarter on quarter basis, you see the positional set change, reduced exposure, certain diversification effect, which plays to the positive. So there was no meaningful uptick in risk, in the context of, where RWA deployment otherwise was. Brian Kleinhansel: (01:11:38) Okay. And then when you think about the CT1 ratio targets that you're running into, obviously, that assumes know the STB would improve for you from here. So what is some of the actions that you're taking for it to get the STB lower so that you can run 13 to 13.5 With a management buffer over the near term? Stephen: (01:11:57) Sure. Well, I think over the medium term, I think if you look at the various initiatives that we articulated and invest today, and are executing on now, whether it is transaction banking, the consumer business, what we're doing with respect to our alt business, all of those will reduce the stress loss intensity of our business overall. Transaction banking will be a fee generating proposition. The alternatives business equally will give us a more durable thread of fees, and at the same time, take down the capital and balance sheet intensity that otherwise weighs on the capital calculation. So I think all of those are geared with an eye toward reducing down, as I said, stress loss intensity, and ultimately leading to a lower STB itself. Speaker 5: (01:12:50) Your next question's from the line of Jim Mitchell with Seaport. Please go ahead. Jim Mitchell: (01:12:56) Hey, good morning. I appreciate the commentary around M&A, and maybe the spillover impact on acquisition advance. But if we think about what's been going on this year, in terms of significant capital raising, both equity, DCM, how do we think about that going forward? It sounds like you've replenished some of the coffer, in terms of the pipeline. How much demand is there to shore up balance sheets and for capital markets activity, or is it kind of a yin and yang where M&A picks up and capital raising comes down and we don't really grow banking much? Just trying to think through that level of activity. David: (01:13:34) Jim, I think it's a hard thing. I think it's a hard thing to look at and predict with granularity. There's no question that the environment pulled forward, both pulled forward some financing for companies, and also created a whole bunch of financing, that if we didn't have this environment, it wouldn't have happened. And so there's no question that financing levels have been elevated during this year. At the same point in time, if again, and this goes back to my point, as people think about this, if we get out of the mode of kind of thinking quarter to quarter to quarter, and we look at these as huge franchises, we have leading shareable well positioned, I believe over any period of time, three years, five years, seven years, ten years, there's going to be a normal corporate financing activity, and we will have leading share participating in that. David: (01:14:22) And that will be a big profitable business that will enhance our franchise and help drive earnings growth and book value growth. And so, in the short term, it's hard for me to speculate. I mean, I would speculate that if things normalize, which I expect them to, we will not see the same velocity of financing in 2021 that we saw in 2020, as people tried to adapt and finance themselves out to create more runway, given the uncertainty in environment. And so again, big franchise, big opportunity, and whatever the market puts forward, I think we're well positioned to serve our clients and capture it. Jim Mitchell: (01:15:02) Well, maybe as a followup, too, on that, just maybe you could update us on your efforts to kind of expand market share. You've talked about going downmarket into the middle market. How's the progress been on that? David: (01:15:14) The progress has gone... I appreciate that question, Jim. The progress is going quite well. And I think one of the things that I know is self evident to everybody on the call, as market cap grows, there are more and more companies that grow into being worth $500 million, $1 billion, $ 2 billion that have never been on our radar screen. So that footprint has expanded meaningfully, and there's been hundreds of millions of dollars of revenue accretion, based on the opportunity set that's come from that, and I think that will continue. So I feel good about the way that platform expansion is going. And I think there continues to be more opportunity for us over time to continue to add to that footprint. Speaker 5: (01:15:56) You have a followup question from the line of Mike Mayo with Wells Fargo securities. Please go ahead. Mike Mayo: (01:16:01) Hi, what is your [inaudible 01:16:04] for asset management acquisitions? Along with that, I know you've mentioned ROE and ROTCE. You've always been very cognizant of having a lot of good will, and you don't have so much, but what's your appetite for asset management deals, and what's your appetite for good will? And do you still have the same focus on ROE as much as ever? David: (01:16:26) I think, Mike, that I'm not going to say anything in response to this that's different to what I said just a few minutes ago. We're making investments to grow our business, our asset management business organically. Certainly the strategy we've laid out and alternatives and the mix shift, and the way we're approaching that is an organic effort. We certainly are aware of the continued consolidation that's going on in the asset management industry. We feel very well positioned as a very, very large global, broad and deep, active asset manager. As opportunities come up, we'll consider them. If we think they can enhance our franchise and allow us to expand the strength of our franchise and our ability to serve our institutional clients and also individual clients through our wealth business, to the degree that we thought something would really enhance our ability to drive that platform, we would take on the good will that was necessary to do it. David: (01:17:23) We're not afraid of that. We haven't seen the right opportunity for us at the moment. And so we'll continue to grow the business organically. If the right thing came along inorganically, we'd take a very hard look at it. Stephen: (01:17:38) Okay, since there are no more questions in the queue, I'd like to take a moment to thank everyone for joining the call. On behalf of our senior management team, we look forward to speaking with many of you in the coming weeks and months. If additional arise in the meantime, please don't hesitate to reach out to Heather. Otherwise, please stay safe and we look forward to speaking with you on our fourth quarter call in January. Speaker 5: (01:18:02) Ladies and gentlemen, this does conclude the Goldman Sachs third quarter, 2020 earnings conference call. Thank you for your participation, you may now disconnect.