Goldman Sachs Group Inc Q4 FY2020 Earnings Call

Good morning. My name is Dennis and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Fourth Quarter 2020 Earnings Conference Call. This call is being recorded today, January 19, 2021. Thank you. Ms. Miner, you may begin your conference.

Good morning. This is Heather Kennedy Miner, Head of Investor Relations at Goldman Sachs. Welcome to our fourth quarter earnings conference call. Today we will reference both our strategic update and the earnings presentations, 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 in both presentations. This audiocast is copyrighted material of the Goldman Sachs Group Inc. and may not be duplicated, reproduced or rebroadcast without our consent. I’m joined by our Chairman and Chief Executive Officer, David Solomon, and our Chief Financial Officer, Stephen Scherr. This morning we are pleased to review the firm's fourth quarter and full year performance in addition to providing an update on the strategic plan we outlined at last year's Investor Day. David and Stephen will be happy to take your questions following their remarks. I’ll now pass the call over to David. David?

Thanks Heather, and thank you to everybody for joining us this morning. Let me begin with Page 1 of our strategic update presentation. I'm pleased to report that 2020 was a year of strong performance for Goldman Sachs, as we successfully navigated an unexpected operating backdrop characterized by near-record volatility and correspondingly high client activity. This year was marked by an extraordinary decline in economic activity in the second quarter brought on by COVID-19 and a dramatic reversal in the third and fourth quarter as economic output and unemployment partially reversed course. This volatility contributed to severe dislocation across asset classes, which was met by profound fiscal and monetary action taken across the globe. Goldman Sachs met the needs of our clients relying on dynamic management of the firm's liquidity and balance sheet to provide complex risk intermediation, financing solutions, advice, and innovative thought leadership. Momentum remains strong into year-end as we produced record revenues for the fourth quarter of $11.7 billion resulting in record quarterly earnings per share of $12.08. For the full year, we grew revenue by 22% to $44.6 billion, our highest revenue production in more than a decade, which allowed us to generate meaningful operating leverage. We delivered a full year ROE of 11.1%, notwithstanding nearly a 4 percentage point impact of litigation expense. This revenue growth was clearly driven by a larger opportunity set given the extraordinary activity throughout 2020. While industry wallet grew, we also took meaningful market share across businesses and geographies. We continue to demonstrate the strength of our diversified business. We maintained our leading global position and completed M&A as we have for 19 of the past 20 years, and strong lead table positions in underwriting, including a number one ranking in equity and equity-linked offerings and a top-three ranking in high-yield. We delivered robust performance in global markets in both FICC and equities and solid client activity across our global platform, and grew market share across businesses and client groups. Our next-generation trading talent, now in positions of leadership, demonstrated strong risk management discipline and client focus in executing against an expanding opportunity set. In asset management we had record management and other fees as well as continued growth in our assets under supervision. We also generated solid revenues from our balance sheet investments driven by public marks and event-driven gains on our portfolio. We continued our broader effort to reduce the balance sheet intensity of this business as we transition to more third-party investing. We continue to provide high quality advice to our wealth management clients producing record revenues and generated strong growth in our consumer business. Finally, and perhaps most importantly, we maintained a resilient and highly liquid balance sheet and demonstrated agility in the deployment of capital to serve clients amid high levels of market volatility and evolving regulatory constraints. While we are cautiously optimistic, given improving macro trends, we recognize that the operating backdrop will continue to evolve. Although we are now seeing the initial rollout of vaccines in the U.S., UK and other nations, there remains significant uncertainty in the path forward related to virus resurgence, vaccine distribution, further fiscal stimulus and geopolitical risk. Let me underscore the progress on economic growth is contingent on an effective vaccine rollout program globally. I urge political leaders at all levels and across all jurisdictions to do everything possible to implement a coordinated and comprehensive distribution plan. In its absence, economic recovery will be unnecessarily delayed. Economists continue to anticipate a mixed outlook for near-term growth. The expectation is it will take until at least the second quarter to return to pre-pandemic levels of output. Our economists expect GDP growth this year of roughly 6.5% both globally and in the U.S., which would suggest a more rapid recovery. Though circumstances around COVID-19 remained fluid and we remain vigilant about risks in the markets and potential weaknesses in the broader economy, looking ahead the extreme volatility of 2020 is unlikely to repeat given the government actions taken last year. Nevertheless, I am confident that Goldman Sachs will continue to benefit from the established wallet share gains made in 2020 across an expanding client set, particularly in investment banking and global markets and continue to develop more durable revenue sources across asset management and consumer wealth management. With that, let me turn to Page 2. In the 12 months since our Investor Day, we have made steady progress towards our medium-term goals and we remain confident that we will achieve these targets as well as our longer-term goal of mid-teens or higher returns. Our 2020 ROE when adjusted to exclude the impact of litigation comfortably exceeds our 13% medium-term target. We are pleased with our progress on funding diversification as we grew deposits by $70 billion in 2020. While the Fed funds rate declined faster than the reduction in our deposit rates, we have since adjusted our pricing, which should allow us to achieve our funding optimization goals by 2022. We are making headway and realizing expense efficiencies throughout the organization and have achieved approximately half of the $1.3 billion initial target we presented at our Investor Day. We will continue to make progress from here and we will evaluate additional opportunities for further expense savings. Finally, with respect to capital, our CET1 ratio stands at 14.7%. This positions us well to serve clients and accelerate capital returns to shareholders in the first quarter. We continue to believe that a 13% to 13.5% ratio is appropriate for the firm over the medium-term. We are encouraged by the results of the recent mid-cycle stress test. That said, we will continue to proactively reduce the stress capital intensity of our businesses, including through continued sales of our on-balance-sheet private equity investments. As John, Stephen and I have emphasized many times, we are committed to holding ourselves accountable and being transparent with our stakeholders on our progress. We are tracking roughly 30 firm-wide KPIs and many additional business level metrics on a regular basis to measure our success as we execute on all aspects of our strategy. Let me now turn to Page 3. While last January's Investor Day seems distant given the events of the past year, the pillars of our strategic direction remain unchanged. Our strategy is simple; first, to grow and strengthen our existing franchise and capture higher wallet share across a wider client set; second, to diversify our products and services in order to build a more durable earnings stream; and third to operate more efficiently so that we can drive higher margins and returns across the organization. We are seeing early success in each category. Moving to Page 4, the strength of our firm's culture is the foundation for our performance as individuals in the firm and is central to the success that we achieved in 2020. Delivering the entire firm to our clients through our One Goldman Sachs approach is crucial to our mission and clients remain the center of everything we do. The investments we made to break down internal silos and motivate better collaboration across the firm have been critical and will continue to guide our approach going forward. Equally, core to our mission is delivering on our firm's purpose to advance sustainable economic growth and financial opportunity. This purpose is fundamental to our 10-year, $750 billion sustainable finance commitment that cuts across two broad pillars: climate transition and inclusive growth. During the year we have worked closely with our clients to deepen knowledge and expertise, develop capabilities, and accelerate commercial activity. We are delivering integrated ESG solutions across our client base, and I'm proud of the firm's leadership on this topic and optimistic about the benefits that these opportunities will bring to our clients. As we pursue these ambitious goals, we will also continue to focus on our people. Diversity is an imperative for our organization. For Goldman Sachs it is about bringing diverse people, perspectives and abilities together to best serve our stakeholders and fosters more creative thinking and supports the inclusive sustainable growth that is core to our long-term business strategy. While our recent progress is encouraging, including the most diverse campus analyst class ever to join the firm this past summer and improved diversity of our most recent partner and managing director classes, the events of the past year have reinforced how much further we have to go to enhance diversity and inclusion throughout the firm. This remains a personal priority for me and we will continue to hold ourselves accountable to make further advancements, including through our new aspirational goals to drive diverse hiring at more levels of the firm. Let me now take you through each of our four operating segments. I will start with investment banking, where we remain the advisor of choice for corporations around the world and 2020 is measured against the goals set out at our Investor Day, we maintained our number one ranking and announced and completed M&A and equity and equity-linked offerings. We also ranked in the top-four for wallet share in global debt underwriting through the third quarter. We spoke last January about our aim to grow share in our core business. We began to execute on this goal in 2020 as announced M&A deal count was up along with our equity underwriting wallet share. On our footprint expansion efforts we have met our Investor Day target for client coverage. We generated in excess of $800 million of revenue in 2020 from this client set and we expect this to be an important source of growth going forward. Across the business we have added approximately 2,700 net new clients since 2017 and we will continue to add new clients to sustain this pace. We are cautiously optimistic on the outlook for investment banking given the robust activity levels in the capital markets and the elevated strategic activity on the back of improving corporate confidence reflected in our near-record backlog at the end of the year. We are also pleased with the early success of our transaction banking platform which since its launch last June has attracted roughly 225 corporate clients and nearly $30 billion of deposits and is well-positioned to drive growth and more durable revenues for the firm. A combination of our compelling product offering, strong client receptivity, and tailwinds created by the macroeconomic environment, drove deposit growth ahead of expectations. As we work to deliver greater functionality to clients and continue their onboarding, we will convert more of these deposits to operations providing increased funding utility to the firm. We also continue to look for innovative ways to expand the reach of our platform to new clients as we did with our recent partnership with Stripe which embeds our transaction banking payment and deposit solutions directly into Stripe's platform, making these products available to its millions of small business customers. Let me now turn to Page 6. In 2020 our global markets business posted its strongest net revenues in a decade, exceeding the return targets laid out for the business at Investor Day. Global markets is a business that many believed should have been downsized when John, Stephen, and I took our seats. While it's only a single year, the performance of the business in 2020 is an early validation of our decision to stay the course. Our teams worked diligently to serve our clients through the challenges of 2020 providing liquidity across asset classes, mediating risk and engaging in execution solutions, while also supporting significant volumes across expanding digital platforms. We also advanced on our Investor Day objective of moving into a top-three position with more of the top-100 institutional clients. We are now in the top-three across 64 of these firms, up from 51 a year ago. We gained 120 basis points of wallet share through the third quarter of 2020, which we intend to maintain through our deepened client relationships, superior risk intermediation, and ongoing investment in technology platforms. We set a goal in January to increase our client financing activity. A record in financing revenues in 2020 demonstrate our ability to meet this target. Additionally, we continue to strengthen our prime business where we closed the year with record balances, the result of a multiyear investment in platform enhancements and other client-oriented initiatives particularly in the Quant space. Finally, while we saw meaningful revenue growth in global markets, we remain focused on operating efficiencies. We achieved roughly $400 million in expense efficiencies last year and allocated $1.25 billion of capital in that business to more accretive opportunities, both ahead of schedule. Across any level of industry wallet, the progress that we have made in global markets has improved the business's structural return profile. Let me now turn to Page 7. Our asset management business experienced solid performance in 2020 marked by continued growth in assets under supervision driving record management and other fees. Our status as one of the world's leading global asset managers has served us well during this volatile period. Our Asset Management business provides clients with offerings across the spectrum, from liquidity to alternatives and we will continue to grow this business opportunistically by serving our clients' needs and differentiating our offerings with holistic advice, investment solutions, and portfolio implementation. We are progressing well towards our longer term objectives of $250 billion of growth in traditional equity and fixed income products and $100 billion of net inflows to alternatives. To that end we spoke at Investor Day about growing our third-party alternatives business and we are pleased with our early achievements. We have raised approximately $40 billion in commitments to date across asset classes, including private equity, private credit, and real estate. This is good progress toward our goal of $150 billion in gross fundraising over five years. Additionally, we are encouraged by the expanding number of institutions that are investing with Goldman Sachs. Many pension funds and international institutions participating in recent fundraising offerings are new investing clients to the firm. As we shift towards a greater emphasis on third-party funds, we also continue to work to optimize the capital consumption of our asset management business. To that end, we sold or announced the sale of over $4 billion of growth equity investments in 2020, with a related $2 billion of expected lower capital. We will continue to advance this sell down process in 2021 and beyond to achieve the objectives we set out at our Investor Day. Importantly, as we highlighted at Investor Day, incentive fees on portfolio remain unrecognized until investments are sold and fund return thresholds are achieved. Our estimated unrecognized incentive fees currently stand at $1.8 billion. Turning to Page 8, we made meaningful advancements this year in growing our consumer and wealth management segment, particularly in expanding our customer base, improving our technology platform and leveraging our corporate franchise. We remain committed to delivering tailored advice and simple and transparent financial solutions to our individual clients across the wealth spectrum and our goals here remain integral to our strategic priorities. Our wealth management franchise remains a crown jewel for the firm. Revenues grew 10% year-over-year to a record $4.8 billion, as our clients largely remained invested through uncertain market conditions. Our private wealth management business's success has long been built on the strength, depth and trust of client relationships, which became even more relevant as COVID-19 limited face-to-face interaction. Throughout this period our private wealth advisors have continued to maintain high levels of client engagement and deliver trusted advice. While the environment has caused us to slow some of our hiring efforts in this area, we remain committed to the growth potential of this franchise. We also continue to expand our high net worth platform through Ayco and Personal Financial Management, our rebranded United Capital business. Our Ayco platform achieved its annual goal of bringing more than 30 new corporate clients onto the platform in 2020, as corporates of all types increasingly looked to Ayco for financial planning and wellness solutions. We remain well-positioned to meet this ongoing need given Ayco's broad spectrum of offerings as well as connectivity with our investment banking franchise and our new personal financial management capabilities. We have already begun to see significant synergy as a result of these advantages with over 4,000 referrals in 2020 representing over $7 billion of AUS opportunity across these channels. Moving to Page 9, I want to provide some additional detail on our consumer business, which continues to perform well and deliver strong growth. The pandemic has reaffirmed our view that traditional banking has not kept up with the way people live their lives today and Goldman Sachs is uniquely placed to step into this gap. We’ve had early success launching online savings, lending and credit cards and we are now moving to the next phase of our growth plan taking us from a series of singular products to a more comprehensive offering. We are particularly excited about the launch of Marcus Invest platform in the U.S. this quarter, which for the first time brings the investing expertise of Goldman Sachs directly to mass affluent customers. Following our U.S. launch we plan to expand to the UK in the second half of the year. Marcus Invest will offer individuals the ability to invest as little as $1,000 in our proprietary asset allocation strategies with options ranging from index funds to ESG-focused ETFs. Digital investing features will be integrated into the Marcus app and website and will combine the accessibility, simplicity and transparency of Marcus with our leading investment advisory capabilities. In addition, our new digital checking offering also scheduled for launch this year will deliver an enhanced customer experience that is simpler and more transparent than what traditional banks have historically offered, providing smart money management tools that help consumers take control of their financial lives. As we grow, we will not only serve customers directly through the Marcus platform, but we will also serve customers through our growing partnership channels. In 2020 we launched four new partnerships with Amazon, Walmart, JetBlue and AARP, following our first partnership with Apple. We also recently announced a second co-branded credit card with General Motors. This is a sign of our ability to be the banking partner of choice for leading corporations across a variety of industries. Our partners value our scale, innovation, engineering prowess, robust infrastructure, regulatory status, and importantly the power of the Goldman Sachs brand. The opportunity set here is very large, with each partner reaching tens of millions of individuals through their existing customer bases. With that as background, let me also comment on 2020 consumer performance, which exceeded our expectations, but which also has implications for our financials as we go forward. We proactively adjusted our strategy beginning in March as the impact of COVID-19 and the evolving market conditions began to take shape. We timed underwriting standards to reduce risk deliberately slowing our consumer loan growth across both unsecured loans and Apple Card. Given the economic outlook, we also significantly grew our reserves for potential future losses. At the same time, we continued to raise deposits at a pace meaningfully higher than we had expected, as clients appreciated the value of our products and the strength of our brand. Taken together, our pretax loss in consumer, excluding reserve build was reduced versus 2019 levels and lower than our expectations for 2020. Looking forward, we have a clear opportunity to achieve breakeven excluding reserves for our existing product set, including checking and investing in 2022. That achievement would be one year later than initially anticipated due to business adjustments driven by COVID. The 2021 pretax loss for our consumer business, excluding the impact of reserves is likely going to be higher and look more like what we had initially expected for 2020. This is driven by lower value on deposits, tighter credit standards, and additionally the investment in our new General Motors credit card. Beyond 2021, we will continue to invest where appropriate, and opportunities to build additional functionality with our digital bank, as well as to pursue further growth in our partnership channel. In terms of broader functionality, we may look to develop additional products, driving a more comprehensive customer experience over time. These investments, if pursued, may delay our planned breakeven for the business. I want to emphasize, however, that should we choose to invest in additional products to broaden our consumer capabilities, it will not affect our ability to meet our enterprise level targets. With respect to partnerships, these opportunities with corporate clients of the firm allow us to commercially engage with a broader consumer population, and are designed to build on the platform-based architecture that we have built for our proprietary markets business. Just as we did with the Apple Card, our intent is to develop differentiated products and service offerings that are embedded in our partners' ecosystems and tailored for the spending, borrowing and investing needs of their customers. From an economic perspective, these opportunities are designed to materially reduce our customer acquisition costs and leverage the embedded cost base of our systems. Furthermore, partnerships we seek to pursue offer the firm potential for mid-teens returns at scale. Each partnership is intended to extend beyond a single product and bring scale to our business on favorable economic terms. Goldman Sachs has a history of building businesses with a long-term orientation. Our investment in our consumer business will continue to be dynamic and appropriately sized to support our ability to achieve our long-term financial targets and in the interim, it will not prevent us from reaching our medium-term firm-wide goals. Before I close, let me share that I'm incredibly proud of the progress we've made in 2020, which was a transformative year for Goldman Sachs. Our success could not have been achieved without the extraordinary efforts of our people who continue to put clients at the center of everything we do. I am humbled by the level of commitment I see across our organization every day, knowing many of the personal and professional challenges our people are navigating. As we look forward, I know there will be further challenges, but I am optimistic about the potential for Goldman Sachs in the coming years. I believe in our strategic plan, our leadership team, our culture, and in the raw talent of our people. Taken together, these attributes will better enable us to achieve higher and more sustainable returns for our shareholders. Let me now turn it over to Stephen to review funding, expenses and capital as a part of the Investor Day update.

Thank you David, and good morning. Let me continue the presentation on Page 10. We are pleased with the progress made-to-date on the diversification of our funding. The achievement of our medium-term funding goals remains a significant source of forward value for the firm. As you will recall, our ambition is to achieve $1 billion in annual revenue uplift over the medium term from growth in deposits, enhancements to our asset liability management and the optimization of our liquidity pool. Along with the broader industry, we experienced a material shift in the rate environment in 2020. With Fed funds declining over 150 basis points, the relative value of our deposits remained positive, but lower than projected at Investor Day. What's more, since we are modestly asset sensitive as a firm, our assets re-priced more quickly than our liabilities. As 2020 progressed, we were able to adjust our deposit pricing to reflect the broader downward movement in rates. While we did not achieve savings in 2020 with greater volume and now updated pricing in the consumer channel, we remain on track to achieve our $1 billion run rate savings target. We also remain well positioned to capture further savings, as we expand our offerings in markets, deepen our client relationships, and rely less on pricing as a lever for customer acquisition. While the focus has been on consumer deposits, our total deposits grew by $70 billion in 2020 across multiple strategic channels, including particularly strong flows in transaction banking. Importantly, deposits comprised approximately 50% of our total unsecured funding base at year end, in line with our medium-term target. As the recent environment has helped accelerate our deposit gathering efforts, growth will likely be more moderate in the near term, in light of our entity funding needs. We continue to grow assets within our bank entities, where we have traditionally lagged our peers. We now have approximately one quarter of the firm-wide balance sheet held in the firm's bank entities, versus roughly 15% in 2017. We have also made improvements in our asset liability management and continue to employ a conservative funding approach focused on term and diversification. Let me now move to Page 11, and expenses. We remain on track to achieve the target laid out at Investor Day of $1.3 billion in expense savings over the medium term, accomplishing approximately half of our goal over the past year. The achievement of these efficiencies has enabled us to partially offset the cost of investment in our business and our people in 2020. Our experience over the past 12 months has given us even greater confidence in several of the key elements of this plan. In particular, we are already seeing important benefits from our investment in automation and consolidation of platforms, including increased straight-through-processing rates and reduced cost per trade. In addition, we continue to generate efficiencies from structural adjustments to our employee base through our front-to-back realignment, location strategy and evaluation of pyramid structure. On the non-compensation front, consolidation of offices in London and Bengaluru focused on transaction-based expenses and more centralized expense management processes have all contributed to early success. The remote work environment has also catalyzed an increased focus on our location strategy. Last January, we expected that 40% of our employees would ultimately work from one of our strategic locations, and we will continue to evaluate the potential for that number to grow over time. We will also look to expand into new strategic locations around the globe, as well as consolidate our footprint, where appropriate in keeping with our evolving business mix. Now turning to Page 12, and capital. Our capital management philosophy remains unchanged. We seek to deploy capital on accretive terms, both in our incumbent businesses, and in areas of growth investment and otherwise return excess to our shareholders. While our ratios initially declined in early 2020, as we committed capital to support clients navigating the pandemic, we received an SCB result in the 2020 CCAR process that was higher than anticipated. Our standardized CET1 ratio at year end was 14.7% accomplished through strong earnings, lower capital return and disciplined balance sheet management. Importantly, we are pleased with the results of the recent interim stress test and we intend to resume share repurchases this quarter. As in the past, and as permitted, we will continue to reassess our dividend commensurate with the strategic direction of our business. We will be dynamic in our approach, both to reflect proactive steps to reduce capital consumption in the business and as a function of capital requirements more in line with the results of the interim CCAR examination. As such, we continue to target the CET1 ratio of 13% to 13.5% over the medium term, which will inform our capital deployment decisions. As we look ahead, we remain engaged with the Federal Reserve to improve stress modeling in CCAR. As David mentioned earlier, we have already sold or announced the sale of $4 billion in assets with $2 billion of related capital reduction. That said, in the first quarter, we will adjust our equity attribution across our segments to more appropriately reflect the firm's higher SCB based on the results of CCAR 2020. Given the higher stress loss intensity of our equity positions, the capital attributed to asset management will be larger, and so will the capital reduction associated with our intended sell down of assets. This change will not impact our stated medium-term targets, and in fact we intend to increase the size and accelerate the pace of asset sales beyond that anticipated at Investor Day, so as to further reduce the capital intensity of the segment beyond our original ambition. Speaking more broadly, there are several key drivers affecting capital requirements for the firm overall. First, our stress capital buffer which we expect to improve as I have noted. Second, our G-SIB surcharge, where we ended the year at 3% to meet client demands, the impact of which will take effect in 2023. And lastly, our management buffer, which we plan to run between 50 and 100 basis points, accounting for volatility and client activity. Before turning to our earnings report, let me finish on Page 13 with a slide that David first presented at Investor Day one year ago. Our strategic direction is guided by these objectives. We are pleased with our progress to date in strengthening our existing businesses, growing our new businesses, and operating the firm more efficiently. Early success in 2020, however, does not diminish our focus on forward execution. We have work to do from here, and will continue to drive more durable earnings and enhanced returns for our shareholders. In all cases, we will continue our commitment to transparency and accountability and we look forward to updating you further on our progress in the year ahead. With that, let me now switch gears to our separate earnings presentation to cover the fourth quarter and full year results. First, to quickly recap our financial results on Page 1. Fourth quarter net revenues were $11.7 billion, resulting in $44.6 billion for the full year, a growth rate of 22%. In the fourth quarter we delivered net earnings of $4.5 billion and record quarterly earnings per share of $12.08. As David mentioned, the firm delivered full year ROE of 11.1%. Litigation burdened our full year returns by nearly 400 basis points. Turning to Page two and our individual segments. As we noted earlier, Investment Banking delivered outstanding performance in 2020. In the fourth quarter net revenues were $2.6 billion. Advisory revenues were $1.1 billion, more than double third quarter levels, reflecting growth in the number of completed M&A transactions. We advised on over 350 transactions that closed during the quarter, representing over $1 trillion of deal volume, roughly $150 billion ahead of our closest peer. Equity underwriting produced a record $1.1 billion of revenue in the quarter, as industry volumes remained elevated, and we continue to gain market share. This drove record full year revenues in equity underwriting of $3.4 billion, supported by $115 billion of deal volume across nearly 600 transactions. In an extraordinary year for equity issuance we participated in 120 traditional IPOs, 70 private transactions, and a number of SPAC IPOs, providing clients advice and access to capital in innovative forms. Turning to debt underwriting, net revenues were $526 million, down 8% sequentially, reflecting lower investment grade transactions partially offset by strength in leveraged finance. Full year revenues of $2.7 billion were a near record and up 26% versus 2019. Our franchise remains well positioned as evidenced by our number three high yield lead table ranking for the year. Looking forward as David mentioned, our investment banking backlog is at near-record levels, significantly higher versus the third quarter and a year ago. Client dialogues remain robust and we are optimistic on activity across a broad set of sectors, including TMT, FICC and Healthcare. Fourth quarter net revenues from corporate lending were negative $119 million, reflecting roughly $250 million of hedged losses against the relationship loan book as credit spreads tightened. Recall that for risk management purposes, we maintain single-name hedges on certain large relationship lending commitments. Of note, in relationship lending, the total notional drawn or funded on revolvers is now back down to pre-COVID levels. Moving to global markets, on Page 3, net revenues were $4.3 billion in the fourth quarter, up 23% versus last year. For the full year global markets generated $21.2 billion of net revenues, up 43% versus 2019, driven by stronger FICC and equities intermediation performance. This represents the highest yearly revenues for this segment in a decade. Turning to FICC on Page 4, fourth quarter FICC net revenues were $1.9 billion, up 6% year-over-year. Our growth versus last year was driven by higher FICC intermediation revenues, where we saw increased client activity, while FICC financing revenues were roughly flat. Three out of five FICC intermediation businesses posted higher fourth quarter net revenues versus the prior year, reflecting the continued strength and breadth of our business. In credit, we saw significantly better performance helped by elevated activity and market share gains, driven in particular by outperformance in portfolio trading, notably across our digital platforms. In commodities, net revenues were driven by stronger performance across most assets, including metals and agricultural products. In currencies, net revenues rose on solid performance in emerging markets, as volatility rose across most currency pairs. In mortgages and rates, net revenues were lower year-on-year, though client activity remained solid, particularly in mortgages around CMBS and mortgage intermediation, and in rates activity remained elevated as a consequence of a number of macro events, including the U.S. election, COVID and the overall reflationary theme. Moving over to equities, net revenues for the fourth quarter were $2.4 billion, up 40% versus a year ago. Full year revenues of $9.6 billion were the highest since 2009. Fourth quarter equities intermediation net revenues of $1.8 billion reflected stronger results in derivatives across all regions, as well as higher cash revenues helped by strong performance in program trading. Equities financing revenues of $591 million were down 19% year-over-year due to higher net funding costs, including the impact of lower yields on our liquidity pool. Importantly, as David mentioned, client balances rose to record levels. Moving to asset management on Page 5, our asset management activities produced net revenues of $3.2 billion in the fourth quarter. For the full year, asset management generated net revenues of $8 billion, down from a strong 2019 as equity and debt investment performance was challenged in the first half of 2020. Fourth quarter management and other fees totaled $733 million, up 10% versus a year ago on higher average assets, contributing to record full-year net revenues of $2.8 billion. Across the asset management segment, our AUS stood at a record $1.5 trillion at year end. Our equity investments generated $1.8 billion in the fourth quarter on gains on our public and private investments. More specifically, on our $3 billion public equity portfolio, we generated roughly $745 million in gains from investments, including Caspi and Sprout. And on our $17 billion private equity portfolio, we generated net gains of approximately $775 million from various positions, substantially all of which were driven by events, including corporate actions, such as fundraisings, capital market activities, and outright sales. Additionally, we had operating revenues of $250 million related to our portfolio of consolidated investment entities. Net revenues from lending and debt investment activities in asset management were $637 million on revenues from net interest income and gains on fair value debt securities and loans. This reflected tighter credit spreads on our portfolio of corporate and real estate investments. On Page 6, we show the composition of our asset management balance sheet, consistent with the information that we have provided to you in prior quarters. Our equity and CIE portfolios remain highly diversified by sector, geography and vintage and our debt investment portfolio is also diversified, with segment loans largely secured. On Page 7, turning to consumer and wealth management, we produced $1.7 billion of revenues in the fourth quarter. Full year net revenues were $6 billion, up 15% versus a year ago, driven by higher management and other fees and strong consumer banking growth. For the quarter, wealth management net revenues included record management and other fees of $1 billion. Full year revenues of $4.8 billion rose 10% year-over-year, and assets under supervision rose to a record $615 billion at year end. Total client assets in this segment exceeded $1 trillion at the end of 2020. Consumer banking revenues were $347 million in the fourth quarter, contributing to full year revenues of $1.2 billion, which rose 40% year-over-year, and were diversified across lending, card and savings. Consumer deposits remained stable during the quarter, despite an additional rate reduction, ending the year at $97 billion across the U.S. and U.K., up $37 billion versus last year. Funded consumer loan balances were $8 billion, of which $4 billion were from Marcus consumer loans and $4 billion from credit card lending. Importantly, the credit behavior of our loan and credit card portfolio outperformed our expectations. The portfolio benefited from improved underwriting, as well as the consequences of our consumer assistance plans. Next, let's turn to Page 8, for firm-wide assets under supervision. Total AUS rose to over $2.1 trillion during the quarter and are up nearly $290 billion versus a year ago. The sequential change was driven by $17 billion of long-term inflows, $6 billion of liquidity inflows and $86 billion of market appreciation. On Page 9, we address net interest income and our lending portfolio across all segments. Total firm-wide NII was $1.4 billion in the fourth 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 credit card balances, and repricing of deposits in consumer and wealth management. Equally, this activity is reflective of the decision to allow our G-SIB surcharge to increase to 3%. Next, let's review loan growth and credit performance across the firm. Our total loan portfolio at quarter end was $116 billion, up $4 billion sequentially, largely driven by modest growth in loans in consumer and wealth management and real estate warehouse lending. Our provision for credit losses in the fourth quarter was $293 million, roughly flat sequentially and down versus a year ago. The quarter’s provisions were driven primarily by continued growth in lending in our consumer business and wholesale impairments, offset by some reserve releases driven by improving macroeconomic conditions. Given our announced partnership with General Motors and the planned acquisition of the current loan receivables from Capital One, we expect to recognize approximately $200 million of associated provisions in the first quarter. At quarter end, our allowance for credit losses for both loans and commitments stood at $4.4 billion, including $3.9 billion for funded loans. Our allowance for funded loans was flat versus last quarter at 3.7% for our $103 billion accrual portfolio, including an allowance for wholesale loans of 2.7% and for consumer loans of 15.9%. For the full year, we recognized firm-wide net charge offs of $907 million, resulting in an annualized net charge off ratio of 0.9% up 30 basis points versus last year. Next, let's turn to expenses on Page 10. Our total operating expenses were $5.9 billion in the fourth quarter. For the full year, our efficiency ratio was 65%, which includes a nearly 800 basis point impact from litigation expense. On compensation, our philosophy remains to pay for performance, and we are committed to compensating top talent. While compensation expenses were up 8% year-over-year relative to growth in revenue net of provisions for credit losses of 17%, our full year compensation ratio is at a record low, reflecting the operating leverage in our franchise. As we have said in the past, we view the compensation ratio metric as less relevant to the firm as we build new scale platform businesses. Our non-compensation expense for the full year 2020 rose 25% versus last year; excluding litigation our full year operating expenses grew by only 8% inclusive of investments spent across the business and higher variable expenses associated with transaction volumes. Growth was partially offset by efficiency savings, and lower travel and entertainment costs due to the circumstances of COVID-19. Finally on taxes, our reported tax rate was 18.7% for the fourth quarter and 24.2% for the year, reflecting the impact of non-deductible expenses. We continue to expect our tax rate over the next few years to be approximately 21% under the current tax regime. Turning to our capital levels on Slide 11, as previously discussed, our common equity Tier 1 ratio increased to 14.7% at the end of the fourth quarter, under the standardized approach up 20 basis points sequentially. Earnings were largely offset by higher RWAs as we stepped in to serve our clients. Our ratio under the advanced approach increased 50 basis points to 13.4%. Turning to the balance sheet, total assets ended the quarter at $1.2 trillion, rising 3% versus last quarter as we deployed resources to facilitate client activity, particularly within our prime brokerage business. We maintain very high liquidity levels with our global core liquid assets averaging $298 billion, reflecting the current backdrop. On the liability side, our total deposits were roughly flat at $260 billion as planned roll-off of higher-cost brokered deposits was partially offset by modest growth in consumer, private bank and transaction banking deposits. In conclusion, our strong fourth quarter and 2020 results reflect the diversification of our client franchise, resilience of our business model, strong risk discipline and flexibility in our balance sheet deployment. David, John and I are proud of our people for their efforts this year in serving our clients and delivering on our strategic goals, especially given the challenges of COVID-19. We look forward to furthering our progress on our medium and long-term targets and we remain confident that execution of our strategic plan will drive better client experience, more durable revenues and higher returns for our shareholders over time. With that, thank you again for dialing in, and we'll now open the line for questions.

Operator instructions. Your first question is from the line of Glenn Schorr with Evercore. Please go ahead.

Hi, thanks very much. I'm curious, on Slide 6 on the Strategic Update, you went back and reminded us of the medium-term target of 10% for global markets - 14.1% in 2020. Obviously 2020 was just kind of repositioning and needed assistance. But is that just you being conservative on your best guess of normalized trading, like nothing changed there? And I'm just curious in the way capital is being re-shifted towards asset management for private equity, I just didn't know if we should be reading anything more than the obvious into the medium-term trading targets.

Hey, Glenn it's Stephen. No, there's nothing more to read. We were just on this slide reiterating the medium-term targets that we had set at 10%. I would point out that well-reported ROE in 2020 for global markets was 14.1%. The performance ex-litigation otherwise allocated to the segment was 18.1%. I think the other point I would make here is that, as we look forward, and as we've commented several times, it's impossible to know what 2021 and beyond hold in terms of what the industry is presented, but I think there have been some fairly profound structural shifts in that business. One, of course, is the expense base is being reduced. The second is we're much more attuned to the agile deployment of capital across the firm. But I think perhaps most important is the improvement of wallet share and the focus on clients. And David commented a couple of times on the improvement in overall wallet share growing by 120 basis points through three quarters, and we'll see what played out for the full year. But I'd also say that a step up in where we stand with the objective of being top three across the top 100 institutional clients in global markets, I think also reflects that we will capture at or better than our share on a going-forward basis. Again, acknowledging that the market may not look as robust forward as it did in 2020 for this business, but the structural changes are important.

I appreciate that. Maybe the same kind of concept for the follow up related to investment management. So I get the allocation of more capital, I get the capital that you freed up on the announced sales. I know that when you were initially going down this path, I felt optimistic of your ability to raise lots of third-party money and you have. So I wonder if you have a thought process on 2021 or it's just continually marching towards the 150. And then the same, I was concerned about selling down private equity and whether earnings pick up at some point. But being that you have almost $2 billion in unrecognized incentive fees, do you feel like you can continue down this free up capital, sell down private equity, raise third-party money path without a big earnings hiccup?

Thanks Glenn. Yes, thanks so much. So let me take both of those first. On fundraising, I think what's gratifying about the progress made in 2020 was a comment David made about an increasing number of clients new to the firm that are investing with Goldman Sachs. And so, that leaves us optimistic about the prospect of the fundraising pipeline in 2021, which will be across a range of different investing sleeves and we'll start to see that growing number of investing clients look across a range of different product offerings that we have. On the sell down, we're very attentive and have always been to the prospect of creating kind of a canyon, and we don't anticipate that to happen and we'll continue to manage with that in mind. Now you drew the right observation, which is, there's $1.8 billion of embedded fees to take, which we will take when gains become irrevocable and so that will buffer, but the point here is that our objective is to reduce the stress loss intensity of that segment. And so we've spoken about $4 billion in balance sheet sales to yield $2 billion of capital relief. We equally have line of sight into another $2.5 billion of sales, which could generate another $1 billion of capital relief. And I'd also point out, though it's not obvious in the way in which the results play, over the course of the year, we sold $2.1 billion of public equities to offset about $1.9 billion of appreciation in market value and so that equally has capital consequence for us. And so you'll continue to see us move along that road. Finally, on the question or the observation you made about what I was speaking to about what we will do in terms of attributed equity to that segment, that has no bearing on what our objective is, which is to bring capital down. But as CCAR 2020 was higher, more capital came to the firm, we distribute equity to segments. So by definition, because of its intensity, asset management will pick up more capital. Obviously, on a unit of balance sheet reduction, more capital will come out as we reduce positions, which is why we're confident that we'll maintain at or better than what we're indicating in terms of capital reduction in the segment overall.

Your next question is from the line of Christian Bolu with Autonomous. Please go ahead.

Good morning, David and Stephen. Maybe I'll start on Marcus and the digital bank. Thanks for the strategic update there, but stepping back a bit, how do you think your digital bank's current and future offerings are stacked up against very successful fintechs like Sofi or Chime? And then given the very big valuations those companies have gotten, is there a way for you as a management team to better unlock the value of this digital bank for shareholders?

So, Christian, I'll start with that. Good morning and thank you for the question. We tried to highlight this in the update that we're working to go from a product structure, a handful of products to a much more integrated offering for our customers. When you ask about comparison to some of the fintechs, the fintechs are much more narrow in scope in terms of what they offer, and don't have the broad capabilities that we have and are expanding for our clients. So just in the context of the two examples that you gave, when you think about spending across both checking and credit cards, when you think about borrowing across credit cards and loans, and you think about savings, and also investing and the investment capabilities that we have as a wealth manager, we have a much broader integrated offering and we continue to get feedback that the state-of-the-art product platform and the digital applications that we have are excellent by any standards. So we're going to continue to move forward with that long-term strategy. I don't really have a comment on the valuation of these businesses, although I'm watching with everyone else, and I'm looking at what we have, the number of clients we have, the number of customers, the size of our business, the scale that we have as we continue to move forward and I am looking at that opportunity, the growth that we have, and if people like those businesses. I think at some point in time, they should value our business more fully, but we'll continue to execute and wait on that. We really like our model of having a proprietary platform for Marcus, but then also, given our corporate relationships, the potential for partnerships is very, very strong for us. I think you saw that in our execution this year by adding four more partnerships and capturing the GM card, and I think you'll continue to see us do more on this front. So we feel good about it, but as I said in my comments, we're taking a long-term view in what we're doing and none of this will affect our medium-term targets that we're working toward at the end of 2022.

Okay, thank you. Maybe the question I was asking really around valuation was, is there something you can do other than spin off the division to get better valuation or better currency to build a business? And then a second question: I'm trying to understand the impact of interest rates on the Marcus business. You called out higher funding costs and lower yields on the liquidity reserves as a headwind to the Marcus business. But also, in the actual deck, we saw a really big step up in global markets NII quarter-over-quarter. So let me just step back here—remind us how interest rates impact the business in terms of the level of interest rates, the shape of the yield curve, and liability management actions you've taken. How does that impact the markets business over the coming year?

So NII, Christian, as you noted, grew; it was $1.4 billion for the firm in the quarter. That was driven largely by balance sheet growth, notably in global markets, and most especially in prime. The challenging aspect for us—and the reference made in the context of funding—is that our liquidity grew over the quarter and we were slower to adjust, particularly on the retail deposit side pricing of our liabilities, so we didn't capture quite what we wanted. Obviously, we've now adjusted pricing and so we're able to allocate that cost out to the business. So liabilities are important. NII expanded because of balance sheet growth and overall net funding costs. That's the reference to the headwinds: notwithstanding prime balance growth, funding costs were higher than we wanted. That notwithstanding, NII grew because of overall balance sheet growth over the quarter in prime and by virtue overall of moving to a higher G-SIB to meet client demands.

Your next question is from the line of Michael Carrier with Bank of America. Please go ahead.

Good morning, and thanks for the update and taking the question. First, as we get to moderation in global markets, can you provide some color on what areas of the business and strategic initiatives are best positioned to potentially create some offset over the next one to two years? I think it seems like asset management could be one of those. Some of the initiatives may be further out, but any color on timing of growth away from some accepted moderation in global markets?

Sure. I think first, what we've been speaking about within the asset management business and the growth of third-party alternatives and the forward durability of those revenues is one area. There's obviously growth in some of the growth initiatives, including transaction banking, as well as what we're doing on the consumer side. You'll continue to see pickup and share pickup. None of those are necessarily meant to be compensating factors for what could be a shortfall in global markets. Within global markets, we will buffer structurally speaking what might be a less impressive opportunity set on the forward relative to 2020 by virtue of what we've done around market share gains and what we're doing around the cost base. Also, what we're seeing in terms of the growth in low-touch, high-volume activity around Marquee and the digital platforms, particularly growth in portfolio trading across all regions, will support improved performance. Finally, the investment banking footprint continues to expand and that too will provide an offset to the extent the industry trading opportunity moderates.

Okay great and then just on the capital side, given your CET1 ratio well above your expected buffer, how are you thinking about either the need for the business, either organic or M&A versus capital return? And is the asset management repositioning significant longer term as you shift into third-party funds?

On capital, our philosophy remains unchanged: we look for opportunities for creative return on investment in capital in the business while meeting client demands. We expect to hit our first quarter repurchase expectations, which based on the Fed's calculation will be about $1.9 billion in the quarter plus neutralizing equity-based compensation expense, and we will fulfill that in the first quarter. We'll continue to reevaluate our dividend in the context of the shape of the business being more durable going forward, though that's not a first-quarter proposition given Fed rules. In terms of asset management, this is about reducing the balance sheet intensity of that business, moving on-balance-sheet investing to third-party activity across more sleeves with more clients. I think that will continue to reduce our capital consumption. Based on progress in 2020, taking $4 billion of sales for $2 billion of capital relief, and line of sight into more, we expect to reduce capital at or better than our Investor Day expectations.

Your next question is from the line of Steven Chubak with Wolfe Research. Please go ahead.

Hi, good morning everyone. I wanted to start with a question on the trading business. Your share gains in trading for 2020 were quite impressive and likely represent the strongest gains across the global IB cohort. Historically, you've been the dealer of choice for clients during periods of macro stress given your risk intermediation expertise, and those client needs will be magnified this year due to COVID. Raising questions as to why those share gains will be sustainable as those client needs moderate. Can you give perspective on what gives you confidence that you could sustain the recent share gains in global markets as activity normalizes and any differences you're seeing across high versus low touch would be helpful.

Thanks, Steve. I'll start. Historically, at times of severe stress, we've been a dealer of choice. You can look back to the financial crisis where we had significant share gains, but part of that was that many competitors were in a weak structural financial position and couldn't intermediate for clients. This time, banks were a source of strength during the pandemic and our competitors showed up, yet we still had significant share gains. That's due to a change in our strategic approach over the last few years: a one Goldman Sachs approach, a targeted wallet-share initiative with the top 100 clients, and much more client-centric execution. We advanced materially on that, going from top-three with 51 to top-three with 64 of those clients. We've also made structural improvements in the cost base and capital allocation in the business. So even if industry wallet moderates, we have a structurally more profitable business and a strategy to hold many of these gains. That said, in easier markets some share gains can moderate, but we believe our client-centric orientation and investments will help sustain much of our progress.

One thing to add on high touch versus low touch: in Q2 and Q3, amidst high volatility, we saw bespoke, block-like activity that we've long been known for. In Q4, we saw a lot of portfolio trading, rebalancing among asset managers and pension funds, much of that via our digital platforms. Q2 and Q3 showed our strength in high-touch intermediation; Q4 showed that our more technology-driven, platform-driven activity is sticky. Taken together, that's a broader, more robust business positioned to capture different parts of the market.

It's really interesting color. I appreciate the perspective from both of you. For a follow-up on efficiency, you spoke about continued efforts to evaluate additional opportunities for further expense savings. Could you give perspective on what some of those opportunities might be and, for clarity, is the $650 million savings already captured versus the Q4 '20 baseline or versus the full year 2020 expense base?

I'll start. We've been re-underwriting the firm and executing on our Investor Day plan. We've learned a lot about operations during this year that gives new insights into further efficiencies. Our business is digitizing, allowing us to automate processes that were previously manual. We'll continue to focus on automation, consolidation, location strategy, and other opportunities and will provide more specifics as we progress.

Achieving $1.3 billion was an annualized savings target, meaning these are run-rate savings arriving each year. This was measured against entry-level 2020 expenses when we announced them at Investor Day. About half of the $1.3 billion has been achieved. COVID has accelerated our thinking about moving populations and taking aggregations of people into different areas, and we feel more confident in our ability to execute on location and structural changes going forward.

Your next question is from the line of Jeff Harte with Piper Sandler. Please go ahead.

Good morning. How are you thinking about the cyclical outlook for capital markets activity levels broadly? There is a belief that the strength in 2020 was stimulus-driven and that we may return to 2019 levels. But historical cyclicality and activity indicators suggest potential sustainability or continued growth. How are you thinking about that as we move into 2021 and 2022?

I'll take this at a high level. We're still in the middle of a pandemic, there's still an enormous amount of stimulus, and the acceleration of digital trends has companies rethinking strategic positioning. Corporate activity and capital markets activity are high. As we head into 2021, many indicators suggest continued robustness, at least near-term. We don't expect to repeat all of 2020, but our expectation for 2021 is more robust than 2019. Pipelines and backlogs are robust, though we won't assume a full repeat of 2020 levels over multiple years.

Okay, thanks. Secondly, as you continue to grow deposits, are you facing limits on your ability to deploy incremental deposit growth? When I look at the balance sheet, it seems deposit-investable earning asset growth is a pressing need.

On the forward, expect a more moderated level of deposit growth as we pull more assets into bank entities. Incremental asset movement—about 90% of lending activity—is being booked in bank entities and will consume deposit funding within those entities. We've moved from 15% to roughly 25% of the firm-wide balance sheet in bank entities and expect continued growth there, with different deployment requirements by region.

Your next question is from the line of Betsy Graseck with Morgan Stanley. Please go ahead.

Hi, good morning. Question on the expense side, two parts: one, on comp and the comp ratio—we saw the comp ratio come down on a full year basis. Is that really a function of non-compensatable revenues that shot up year-over-year, or does this reflect the changes you were making such as moving people to strategic locations? It feels like a lot in one year. How should we unpack the major drivers and how should we expect that to flex going forward?

The key observation is considerable leverage in the business: when we grew revenue 22% and net of provisions 17%, comp and benefits rose by 8%, so there is embedded leverage. As we continue to build platform businesses like transaction banking or consumer, the comp ratio will become a less relevant metric because those businesses are less comp-heavy. For now, there's leverage allowing us to reward talent while benefitting shareholders via operating leverage.

Could we get a sense of the tech budget now and how you're thinking about its size and growth over the next year or so?

The tech budget will continue to grow, by several hundred million dollars year-over-year, for two reasons: continued improvement at the core (automation, straight-through processing), and focused initiatives like transaction banking and consumer. We intend to harvest cost savings to substantially offset the increased investment, and that dynamic will continue.

Your next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi, could you get more color on your backlog? You said it's near record and updated quarter-over-quarter, specifically as it relates to SPACs: how much have SPACs contributed to revenues in 2020 and what's the multiplier effect? I understand it's linked with mergers and leveraged finance. How have SPACs contributed to the backlog and how sustainable is that?

Backlog levels are up quarter-over-quarter and activity levels across the banking platform are up. SPAC activity is contributing, but strategic corporate M&A is also meaningfully higher. SPACs were a little more than 50% of IPO activity this year, but IPOs overall were about 17% of our equity volume: we did about $20 billion of IPO lead table against $115 billion of equity lead table, 17%. IPO fees were less than 40% of all our equity underwriting fees and SPACs are a subset of that. SPAC activity creates an ecosystem around capital raising and advisory services and contributed to activity. We participate selectively in SPACs and are thoughtful about sponsors. SPACs are a useful innovation and created tailwinds in 2020, but the ecosystem is evolving and incentive structures still need refinement. It may moderate over time and the market will need to rebalance.

One more: do you think the decade-long reduction in wallet share in the markets business is reversing? Some say it is, some say it won't. Thoughts?

Over the last 2.5 years we've evolved our strategy and made material strides in strengthening our position in global markets. We have a client-centric approach, targeted wallet-share initiatives, and investments in platforms. Being global and at scale, and staying committed across asset classes, has provided a competitive advantage. I expect us to hold many of the wallet-share gains we've made.

Your next question is from the line of Brennan Hawken with UBS. Please go ahead.

Good morning, thanks for taking the questions. On the consumer side, there's regular speculation about potential M&A to build out the business. Could you help clarify whether your intention is to build organically rather than buy? If you're investing so much, why would you consider an acquisition, and is something large likely in the near term?

We are focused on building an integrated digital platform in the consumer space. We've made strong progress organically and we'll continue to invest. We are always open to M&A that can accelerate our strategic growth plans if the target is a good fit and can be integrated attractively. The bar for sizable M&A is extremely high, and while we will consider opportunities to accelerate growth, our default is to build and invest organically and we believe the business can be sizable and accretive at scale even without large M&A.

Thanks. Second, on efficiency: you achieved about half of the $1.3 billion run-rate savings. How much of the $650 million realized savings was non-comp versus comp, and what's the timing on the remaining amounts?

A spot observation on non-comp expense in the year: our non-comp was up 8% ex-litigation, about $900 million of non-comp increase year-over-year; roughly two-thirds of that, over $600 million, was variable expense tied to volume (brokerage, clearing and execution related). Regarding the run-rate efficiencies, a good proportion of the savings realized through the end of 2020 came from compensation reductions: spans-and-layers, scope of management, and front-to-back realignment. On the non-comp side, we've done rationalization of campuses in London and Bengaluru and centralized expense management (e.g., SAP consolidation). Those initiatives contributed to about half of the $1.3 billion in run-rate savings and give us confidence to achieve or potentially exceed the target over time.

Your next question is from the line of Gerard Cassidy with RBC. Please go ahead.

Thank you. David, you've been clear about the difference in your success in this stress period versus 2008 and 2009. There's been a consolidation of the broker-dealer community over the last 25 years. Can you address your success based on economies of scale and how important is scale today versus five or ten years ago? Is it an advantage for you and some peers over smaller broker dealers?

Yes Gerard, scale is a huge advantage. Being global and at scale, with the capacity to make significant technology investments and to operate across multiple asset classes, is increasingly important. Top firms have a competitive advantage: it's more difficult to compete without scale given capital, tech, and regulatory requirements. Our commitment across asset classes, such as commodities where others stepped back, was beneficial in 2020. The leading firms' position has strengthened over time and scale is more important today than 15–25 years ago.

Very good. Then Stephen, on the capital position: when the Federal Reserve releases banks from the limitations on share repurchases, would you consider an accelerated repurchase program once everyone is released from that limitation?

We'll look to use our repurchase capacity as it becomes available. Right now, the Fed hasn't yet returned to the SCB regime initially contemplated where banks above a minimum can repurchase freely; until then, repurchase capacity is limited. We will execute to the capacity we have in Q1. It's not appropriate to comment on mechanisms in detail now, but we'll use our capacity and proceed prudently.

Your next question is from the line of Brian Kleinhanzl with KBW. Please go ahead.

Thanks. Clarification on the provision you mentioned related to the GM partnership: you said approximately $200 million associated provisions in Q1— is that a gross number or net? Are you saying that the provision expense in the first quarter is $200 million on a net basis?

To be clear: in connection with the back book we are acquiring relative to the GM partnership, we anticipate taking approximately $200 million of provisions in the first quarter. This is not reflected in 2020 and is occasioned by the acquisition of that receivable backlog. It's an accounting outcome associated with the transfer.

And as it relates to reserve releases: given expectations for economic conditions from here, when do you expect more of the reserve releases to occur on a going-forward basis?

In Q4 we took a provision for credit losses of $293 million, which embedded a release of about $200 million occasioned by improvements in macroeconomic assumptions and model adjustments. That release was offset by incremental provisions due to portfolio growth and impairments. We continue to see our consumer portfolio perform better from a credit perspective than we anticipated coming into the crisis, but overall releases will depend on macro developments and portfolio growth. The Q4 release was reflected in the quarter, and going forward releases will be contingent on improving macro conditions and portfolio dynamics.

Your next question is from the line of James Mitchell with Seaport Global. Please go ahead.

Hey, good morning. You seem to be progressing well toward your targets, but there seems to be skepticism around hitting the 14% ROTE and 60% efficiency ratio in 2022. That reflects uncertainty around trading trajectory in IB. Do you still feel comfortable hitting those targets in 2022 with revenues in trading and investment banking similar to 2019 levels, or do you need materially higher revenues?

Remember, the efficiency ratio is both revenue and expense. We saw more revenue growth in 2020 than anticipated, but we still expect levels of growth consistent with Investor Day. We've worked on the expense side and there remains leverage: if revenue growth moderates, we have levers to pull on expense. That's why we remain comfortable targeting roughly a 60% efficiency ratio by 2022. Variability exists, but we're confident given both revenue assumptions and our expense levers. It's not entirely reliant on global markets.

Right. So the assumption was minimal growth in those core businesses beyond 2019 levels—fair?

Yes, that's fair.

Your next question is from the line of Jeremy Sigee with Exane BNP Paribas. Please go ahead.

Thank you and thanks for the strategy update. On transaction banking and consumer: given the evolving environment into 2021 with areas of stress and areas of recovery, which of these new businesses do you see accelerating growth and which might slow or change the game plan?

We should take them separately. Transaction banking is resonating: we've built a modern digital interface for corporates to manage operational flows and attracted clients; that's likely to continue as operational flows are ongoing. The consumer side depends on GDP, rates, and the economy, but our strategy is long-term: building relationships with tens of millions of consumers, offering a broader integrated platform in 2021 with Marcus Invest and checking. That should attract more consumers and make us a more reliable primary bank for more customers even as macro conditions evolve.

Your next question is from the line of Jeff Harte with Piper Sandler. (Note: duplicate listed earlier.) Your next question is from the line of Gerard Cassidy with RBC. (Note: duplicate listed earlier.) Your next question is from the line of Mike Mayo with Wells Fargo. (Note: duplicate listed earlier.)

One additional point that was raised earlier about bid-ask spreads: in Q2 and Q3 we benefited from wider spreads during high volatility; in Q4 those spreads compressed, but wallet share gains and our electronic and platform offerings helped offset. The business is now more diverse: high-touch block intermediation and newer high-volume, platform-driven flows, both of which support continued intermediation activity with high balance-sheet velocity.

At this time, there are no further questions. Please continue with any closing remarks.

Since there are no more questions, we'd like to take a moment to thank everybody for joining the call on behalf of the senior management team. We look forward to speaking with many of you in the coming weeks and months and if there are any additional questions that arise in the meantime, please don't hesitate to reach out to Heather and her team. Otherwise, please stay safe and we look forward to speaking with you on our first quarter call in April. Thank you.

Ladies and gentlemen, this does conclude the Goldman Sachs fourth quarter 2020 earnings conference call. Thank you for your participation. You may now disconnect.