Good morning. My name is Taryn and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Third Quarter 2023 Earnings Conference Call. On behalf of Goldman Sachs, I will begin the call with the following disclaimer. The earnings presentation can be found on the Investor Relations page of our website and contains information on forward-looking statements and non-GAAP measures. This audio cast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. This call is being recorded today, October 17th, 2023. I will now turn the call over to Chairman and Chief Executive Officer, David Solomon; and Chief Financial Officer, Denis Coleman. Thank you. Mr. Solomon, you may begin your conference.

Thank you very much, and good morning, everybody. Thank you all for joining us. Before I start my prepared remarks, I'd just like to take a moment to address the horrific events in the Middle East. We condemn the terrorist attacks against Israel in the strongest possible terms and are heartbroken by the loss of so many innocent lives. This is clearly an extremely difficult and uncertain time for the region, and it's very concerning for many of us around the world. We obviously will continue to watch closely as this crisis unfolds. Earlier this month, I marked the end of my fifth year as the CEO of Goldman Sachs. I've never felt more optimistic about the firm, and our strategy has never been more clear. We operate two core businesses, our market-leading Global Banking & Markets franchise, and our growing Asset & Wealth Management platform, both of which are being positioned to deliver mid-teen returns through the cycle. As I reflect on the past five years, much of what has always made Goldman Sachs extraordinary remains the same: a long track record of being a trusted adviser to the world's leading businesses, institutions and individuals; a global broad and deep platform with capabilities that span across products, geographies and solutions; an aspirational brand, exceptional people, and a culture of collaboration and excellence. Additionally, over this time, we have evolved the organization by institutionalizing a 'One Goldman Sachs' operating ethos. This approach, coupled with our best-in-class talent, advice and execution capabilities, has strengthened and solidified our leadership position across our businesses. As we sit here today, our client franchise is as strong as ever, enabling us to remain at the center of the most complex and important transactions for our clients. For example, the IPO market has started to reopen. Since Labor Day, there have been four marquee IPOs priced in the United States: Arm Holdings, Instacart, Klaviyo and Birkenstock. Goldman Sachs was lead left on three of those four and the joint lead book runner on the fourth. No other bank can make that claim. Being entrusted to help companies navigate the critical transition of coming to market requires long-standing client relationships, deep market expertise, and experience. Given the execution of these transactions, I'm encouraged by the prospects of a wider reopening of capital markets. If conditions remain conducive, I expect the continued recovery for both capital markets and strategic activity. As a leader in M&A advisory and equity underwriting, a resurgence in activity would be a tailwind for Goldman Sachs. In Asset & Wealth Management, our strategy is working as evidenced by the successes we've seen across our franchise. While some active asset managers have faced quarterly outflows over the last few years, we posted our 23rd consecutive quarter of long-term fee-based inflows. We generated record management and other fees of $2.4 billion and are well on our way to achieving our $10 billion annual target by 2024. We are also ahead of pace on our $2 billion target for alternative management fees. While our market-leading client franchise allows us to execute from a position of strength, we know we still have work ahead of us. Earlier this year at Investor Day, we laid out a clear set of goals to narrow our strategic focus, and we have made significant progress on these priorities. Most recently, we announced the sale of GreenSky. We also announced the sale of Personal Financial Management this summer. We sold substantially all of our markets loan portfolio. We have reduced our historical principal investments by $9 billion this year. We are confident that the work we're doing now provides us a stronger platform for 2024 and beyond. As we assess the operating backdrop, the US economy has proven to be more resilient than expected, though there are reasons to remain vigilant. Treasury rates have risen sharply over the past few months with 10-year yields up 75 basis points in the third quarter. On top of that, recent inflation and employment data has come in above estimates, driving market expectations of higher for longer interest rates. And there still are a number of sectors in the economy that have yet to absorb the impact of higher rates, especially in light of the further tightening in financial conditions we've seen over the last quarter. At the same time, there has been an escalation of geopolitical stresses around the globe, including the ongoing war in Ukraine, tensions with China, and now the conflict in the Middle East. Overall levels of risk are more elevated than we've seen in quite some time. While we don't know where this will all lead, it could impact economic growth and stability in the U.S. and around the world, and we remain cautiously positioned. Before I turn it over to Denis, I'd like to spend a moment on the Basel III Endgame proposal and reiterate my views on it. We, of course, support sensible regulation and the desire to ensure we have a safe and sound financial system. There are some who have recently said we need to address the lessons from the 2008 financial crisis, which is driving the needs for much higher regulations. But frankly speaking, the rules, as proposed, go too far and do not account for the vast array of improvements made by the largest banks as a result of Dodd-Frank and other reforms. Not only have banks doubled capital over the last 15 years, they have improved the quality of capital, increased liquidity, and simplified businesses that have been subjected to ongoing annual stress tests. Requiring too much capital will have negative consequences. I believe if these rules are implemented, three things will happen. First, the cost of credit will go up for businesses of all sizes from large corporations to small businesses. Second, more activity will move to the unregulated shadow banking sector. Policies that incentivize a transfer of risk outside the regulated banking system could, in fact, increase systemic risk. And third, US competitiveness will go down. Our capital markets are the deepest and the most liquid in the world. They're the engine of our economy as access to capital allows for innovation and growth across the country. Our competitive standing as the leading global economy would be negatively impacted by this proposal. The net result of these proposed rules would be slower economic growth in the US, materially unaffected soundness of the banking system. We, alongside clients and others in the industry, have been engaging heavily with our regulators and government stakeholders, and given this engagement, we expect that there will be ongoing debate and ultimately, changes to the proposed rules. Though regulatory uncertainty and geopolitical risks remain top of mind, I feel very confident about the state of our client franchise and the long-term opportunities for Goldman Sachs. We are focused on the execution of our strategy to further strengthen our leading Global Banking & Markets franchise and grow our Asset & Wealth Management business. I feel good about the relative performance in our core business, and we remain firmly committed to delivering for clients and shareholders. I will now turn it over to Denis to cover financial results for the quarter.

Thank you, David. Good morning. Let's start with our results on page one of the presentation. In the third quarter, we generated net revenues of $11.8 billion and net earnings of $2.1 billion, resulting in a return on equity of 7.1%. As David highlighted, earlier this year, we made the strategic decision to narrow our focus, and we made strong progress across a number of activities. We provide details on the financial impact related to these decisions in the selected items table. In aggregate, these items reduced net earnings by $828 million, EPS by $2.41 and our ROE by 3.1 percentage points. These items include results related to our historical principal investments within Asset & Wealth Management, including the net impact of marks, sell-downs, and CIE impairments as well as results relating to GreenSky, which includes the impact of our announced sale and ongoing operating results. Additionally, we highlight modest ongoing losses in connection with our residual markets portfolio and operating the PFM business. Turning to performance by segment, starting on page four. Global Banking & Markets produced revenues of $8 billion in the third quarter. Advisory revenues of $831 million were down versus a strong prior year period amid lower completions. Equity underwriting revenues rose year-over-year to $308 million, though industry volumes remained well below medium and longer-term averages. Debt underwriting revenues of $415 million also rose versus the third quarter of 2022. For the year-to-date, we ranked Number One in the league tables across announced and completed M&A as well as equity underwriting and ranked number two in high-yield debt. Our backlog fell quarter-on-quarter as we successfully brought transactions to market. Though market conditions are dynamic, client engagement continues to be elevated, and our best-in-class franchise remains well positioned to support the needs of our clients as they access the capital markets. FICC net revenues were $3.4 billion in the quarter, down from a strong performance last year, particularly in currency and commodities, and up relative to the second quarter. We produced record FICC financing revenues of $730 million, growing sequentially on better results within mortgages and structured products. Additionally, we were pleased to win the bids for two pools of Signature Bank's capital call facilities, totaling just over $15 billion in commitments that were held for auction by the FDIC in September. As we spoke about at our Investor Day, alternative asset managers are an attractive client set for us, and the purchase of this portfolio allows us to increase our connectivity with this client base, whom we can serve even more holistically with our One Goldman Sachs approach. These activities also enable us to grow durable revenues at attractive risk-adjusted returns. Equities net revenues were $3 billion in the quarter. Equities intermediation revenues of $1.7 billion rose 7% year-over-year on better performance in derivatives, while equities financing revenues of $1.2 billion were lower versus a record in the quarter. Total financing revenues across FICC and Equities were nearly $6 billion for the year-to-date, representing a record performance for these more durable activities. Our financing results, combined with the substantial share gains we've made since our first Investor Day, are the direct result of the successful execution of our stated strategic priorities for this business. We are raising the floor in Global Banking & Markets as reflected by our year-to-date ROE of 13.4% despite muted activity levels across Investment Banking. Now moving to Asset & Wealth Management on page five. Revenues of $3.2 billion were lower year-over-year, primarily driven by weaker results in equity investments. Management and other fees increased 7% year-over-year to a record $2.4 billion, largely driven by higher average assets under supervision. Private banking and lending revenues were $687 million, up slightly year-on-year, as higher deposit balances and spreads were offset by our sale of substantially all of the market loan portfolio. We remain very focused on driving growth in the more durable revenue streams of management and other fees as well as private banking and lending, both of which generated record revenues for the year-to-date period. Equity investments generated net losses of $212 million, driven by markdowns on investments in commercial real estate. In aggregate, the losses from our historical principal investments as well as the results for Marcus loans negatively impacted our 6% pre-tax margin for the segment by 18 percentage points for the year-to-date. Now moving to page six. Total assets under supervision ended the quarter at $2.7 trillion. We saw $11 billion of liquidity inflows and $7 billion of long-term net inflows, representing our 23rd consecutive quarter of long-term fee-based inflows. Turning to page seven on alternatives. Alternative AUS totaled $267 billion at the end of the third quarter, driving $542 million of management and other fees for the quarter. Gross third-party fundraising was $15 billion for the quarter and $40 billion for the year-to-date. We were pleased to announce the close of Goldman Sachs Vintage Fund IX in the third quarter, our largest private equity secondaries fund and one of the largest in history at approximately $14 billion. Total third-party fundraising since our 2020 Investor Day is now $219 billion, putting us well on pace to hit our $225 billion target ahead of schedule. On-balance sheet alternative investments totaled approximately $49 billion, of which roughly $21 billion is related to our historical principal investment portfolio. In the third quarter, we reduced this portfolio by over $3 billion, bringing year-to-date reductions to $9 billion. We are on track to achieve our 2024 year-end target of a historical principal investment portfolio below $15 billion. Next, Platform Solutions, page eight. Revenues were $578 million, including a $123 million revenue reduction related to the GreenSky loan book, which was more than offset by a $637 million associated reserve release as we moved the portfolio to held for sale. On page nine, firm-wide net interest income was $1.5 billion in the third quarter, down sequentially as increased funding costs supported trading activities. Our total loan portfolio at quarter end was $178 billion, flat with the prior quarter. Our provision for credit losses was $7 million, which reflected net charge-offs in our credit card lending portfolio, offset by the reserve release I mentioned related to GreenSky. Additionally, within our wholesale portfolio, impairments were partially offset by a reserve reduction that was driven by increased stability in the macroeconomic environment versus the prior quarter. On page 10, we provide additional detail on our CRE exposure similar to last quarter. CRE loans continue to represent a relatively small percentage of our overall lending book at 14%. CRE investments are diversified across geographies and positions, with no single position representing more than 1% of the total on-balance sheet alternative investments. Across both equity investments and CIEs, we have marked or impaired office-related exposures by approximately 50% this year. Now turning to expenses on page 11. Total quarterly operating expenses were $9.1 billion. Our year-to-date compensation ratio, net of provisions, is 34.5%, inclusive of approximately $275 million of year-to-date severance costs. At Investor Day in February, we articulated a goal of $600 million in run rate payroll efficiencies to be achieved in 2023 and 2024, and we are currently tracking to surpass that goal. These efficiencies allow us to reinvest in our highest performing people, particularly as the market for top talent remains fiercely competitive. Quarterly non-compensation expenses were $0.9 billion. The year-over-year increase in non-comp expenses was driven by the write-down of $506 million in the intangibles related to GreenSky as well as CIE impairments of $358 million. While one-time expenses have been elevated for the year-to-date, we continue to focus on bringing down non-comp expenses and are making progress on our $400 million run rate efficiency goal. Our effective tax rate for the first nine months of 2023 was 23.3%, high versus the first half due to the write-off of deferred tax assets related to GreenSky and the geographic mix of our earnings. For the full year, we expect a tax rate of under 23%. Now onto slide 12. Our common equity Tier 1 ratio was 14.8% at the end of the third quarter under the standardized approach, 180 basis points above our current capital requirement of 13%. In the quarter, we returned $2.4 billion to shareholders, including common stock repurchase of $1.5 billion and common stock dividends of $937 million. Given the uncertainty around the capital rules at this time, we expect to moderate fourth quarter share repurchases versus the third quarter. We remain committed to paying our shareholders a sustainable growing dividend and maintaining a competitive yield. In conclusion, our third quarter results reflect the ongoing narrowing of our strategic focus and the execution of our priorities, which will help drive our businesses to produce mid-teens returns through the cycle. We are confident in our ability to deliver for shareholders while continuing to support our clients and remain optimistic about the future opportunity set for Goldman Sachs. With that, we'll now open up the line for questions.

Ladies and gentlemen, we will now take a moment to compile the Q&A roster. We'll take our first question from Glenn Schorr with Evercore ISI. Please go ahead.

Hi. Thanks so much. I guess just big picture, if we add back all the significant items in the quarter, we're obviously still well short of the mid-teens targets. I know this is super slow times, like decade lows in investment banking, and you're in the process of hopefully reducing a lot of on-balance sheet stuff. So I wonder if you could help us bridge the gap from here to there because in the back of our mind, we also have the potentially up to 25% increase in the denominator. So I wonder if you could bridge the gap of like how much comes from improvement in capital markets activity? How much is yet to be freed up capital from the denominator? I know it's tough, but I want to say high level pieces and thanks.

Sure, Glenn, and I appreciate the question. Let's keep it high level and separate into what we've got and then we can have a separate discussion about Basel III. First, we are simplifying the firm and managing the firm to drive ourselves toward the overwhelming majority of the firm to be in two core businesses: our Global Banking & Markets franchise, which is performing very well in an environment that's not ideal for that business. Investment Banking activities are well below 10-year norms. I don't think that will stay that way. But if you look at the performance of the business through nine months, that business, which is about 7% of the firm, is operating with a 13.4% ROE in an environment that's not the best for that overall business. I can't tell you when the environment will get better, but I do believe that the capital markets and banking environment will improve in the coming years. History tells us that it doesn't stay closed for multiple years at a time. There is an adjustment. We're making the adjustment. Yes, the world is uncertain. As we mentioned, that could be a headwind. But I do think it will improve. And that business performs well. We believe that business is mid-teens through the cycle. We are reducing historical principal investments by $9 billion this year. We set a target for $15 billion by next year, which we'll meet, and then close to zero two years later. We firmly believe that that business will operate at mid-teens or higher as we reposition it. As we've also stated, we're reducing the drag in our platforms and are relatively confident that over the next 12 to 24 months, we will make materially more progress in that. So you add that up, and I think you can feel comfortable with the mid-teens target. Now, the Basel rules, if implemented as they are currently proposed, would be a headwind to that. But that doesn’t account for how we optimize and manage pricing. We've seen things before. I'm not saying it won’t be a headwind, but I don’t want to speculate until we understand how it’s coming through and how we can manage it across our businesses. We are cautiously optimistic about delivering meaningfully higher returns to our shareholders. When there's more clarity on Basel, we will commit to giving you a clear picture of that view.

Okay. I appreciate that. One quick follow-up on your prepared remarks. You mentioned a number of sectors that have yet to absorb the higher rates. I'm curious if you could give a little color either on which sectors or how meaningful that is. I'm thinking from more of the big picture economy standpoint, but that caught my ear. Thanks.

Yes. Glenn, as I listened to you play it back, what I'd say is the US economy has been more resilient. The fiscal stimulus has helped mute the material tightening of monetary conditions that has occurred. I'm still of the belief that there's been a lag with this tightening, and across a broad swath of the economy, we will see more sluggishness. Now that doesn't necessarily mean it has to be a recession, and certainly, there's a good debate on where this all lands. But we, again, in the past quarter, materially tightened economic conditions. I just think there's a lag in most sectors of the economy, not all, but most sectors of the economy. I do think over the next two to four quarters, the impact of that tightening will become more evident and could create slowdowns in some areas. I am hearing, as I interact with CEOs, particularly around consumer businesses, some softness, specifically in the last eight weeks in certain consumer behaviors. I don't want to over-amplify that because I think the economy and the consumer have been more resilient. But I think we should watch closely.

Good morning. I guess maybe just one first follow-up, Denis. I just want to make sure I heard you correct. Did you say you marked your CRE exposure by 50% in CRE office? And on that, just give us a sense of visibility even beyond office CRE. Clearly, it's a very manageable issue for you, but it remains sort of a source of nuisance and earnings noise. How much more do we have to go before this is pinned down?

Sure. So yes, to clarify, for our CRE and CIE exposure in the office space, we've either marked or impaired that down by approximately 50% this year. I think that's quite significant. We started the year with about $15 billion of CRE alternative investments, and that's been reduced now by about $5 billion. Three-quarters of that was through paydowns or dispositions, the balance through marks and impairments. So we're making very significant progress against those exposures. If you were to look at the same set of exposures in non-office, the adjustment there through marks or impairments is about 15% year-to-date. So we feel we've reduced a lot of notional appropriately reflecting the valuations in those positions. But as indicated by our targets, we intend to continue to move down those exposures.

Got it. And I guess just a separate question. I mean, I think the capital markets environment is what it is. When you look at the firm over the next year or two, if maybe, David, where do you see the best growth opportunities? One, maybe talk about the client franchise and cap markets financing. Is that getting better or worse? And then there's a lot of talk about private credit, direct lending. You've talked about credit being an opportunity. Just give us a sense of could that be a meaningful source of growth as we think about the next year or two?

Sure. In our Global Banking & Markets franchise, we still believe we have opportunities with our focus on execution to continue to grow our wallet share. We expanded our focus from the top 100 accounts to the top 150 accounts, and we are also expanding the granularity that we look at our accounts. We still do see some wallet share opportunities, but we obviously have a very strong wallet share, so that's not the most significant. We are growing financing for our Global Banking & Markets franchise, and we expect to continue to grow that financing footprint, and we have a plan to continue to allocate more financial resources toward growing that financing footprint. We do think that it has reasonable returns. It also creates a virtuous cycle for our client franchise in terms of overall wallet share, because we're a significant financer for them. When you turn to Asset & Wealth Management, I think we've been very clear at our Investor Day, and Mark stated this, that we think we can grow the revenues in that business by high single digits. That growth is driven by our continued growth in management fees over time and the continued growth in the wealth management sector, where we are experiencing good growth and still see good opportunities in Wealth Management to grow the franchise worldwide. We've made continued progress on that journey. Regarding private credit, we have over $100 billion of private credit. We’ve launched private credit vehicles. We obviously possess a powerful ecosystem when you look at Global Banking & Markets. What we do with financing can also become an Asset & Wealth Management opportunity for growth in private credit. We would therefore expect significant opportunities for private credit as part of the overall growth of our Asset & Wealth Management franchise. So those are a handful of points I'd highlight at this point.

Good morning. Just another one on the Basel III Endgame. I appreciate that you think it’s going to change and all that. But now that you've had a chance to digest the actual proposal as is, any more color on how you think it affects the competitiveness of your markets businesses? Are there any particular businesses that are more or less impacted? And then maybe give us some color on potential mitigation actions.

Sure, Christian. I appreciate it. I'm going to talk very high level because, again, this is all fluid. If these rules went into place the way they are proposed, they would affect the businesses differently. There are certain activities that would meaningfully impact end users, whether they’re corporates or individuals, where it would be obvious that you'd pass on cost. A corporation that wants to hedge and comes to us seeking an uncollateralized derivative—there's no doubt their desire to hedge won’t continue even if the cost of that hedge is higher. Naturally, they'd have to balance it and think about that differently. There are certain businesses where we might reduce our activity level because with the new Basel rules, the terms just don’t look attractive. There are others, and one I'd point to that is most obvious, is prime. There aren’t many alternatives for big institutions in the prime business. There are very few in Europe and certainly, if this was implemented this way, the Europeans would have an advantage. At the end of the day, there are a handful of scale players, and lots of scale institutions that need that service. We believe we could optimize and pass on pricing in a reasonable way. We’d have to look at the final rules and adjust. This will affect behavior, pricing, and optimization. I know everyone wants to jump to the clear answer, but I think you need to see the rules and the institutions and end users will need to adapt to the new reality, whatever it turns out to be. It’s not a binary effect that only impacts us or others in the industry; it is clearly a process of working through all that, as we have before.

Got it. Thank you. That's helpful. Maybe a question on the platform businesses here. I just have a two-part question. First, maybe just update us on how you're thinking about the partnership with Apple. Can the economics work for Goldman in the current states or does it make sense to further think about disposing of that partnership? And then the second question is more on the credit quality in your senior credit cards. What are you seeing in terms of credit quality in that portfolio? How does it compare to your expectations and the broader credit card industry?

All right. I'll start on the first part; Denis will make some comments on credit and the portfolio. First, we hired a gentleman, Bill Johnson, who's got decades of experience to help us better run and optimize the credit card portfolio and partnerships. As we've stated to you several times, and I'll repeat it here very clearly, we’ve worked to narrow our focus. You've seen us execute around Marcus loans and GreenSky. Our partnerships with Apple and GM are long-term contracts, and we don't have the unilateral right to exit those partnerships. Our focus at the moment is on managing them better, getting rid of the drag and bringing them to profitability. We’re making progress, both in how we run them and against the cost base that we put against them. Bill Johnson joining is helping with all of that. We’ll continue as we move forward to work constructively with our partners and evaluate what's in the best long term for Goldman Sachs. But our core focus is on reducing that drag over the next 12 to 24 months and ensuring we operate them better. Denis, do you want to comment on the credit quality that we’re seeing?

Sure. What I'd add is we obviously remain very focused on the overall credit quality of the portfolio. A couple of things to bear in mind. In Consumer, the net charge-off ratio for the quarter was 5.1%, down from 5.8% last quarter, and the total dollar amount of charge-offs was down as well. You'll also see that our coverage ratio now stands at 13.3%, which we think is an appropriate level, given our expectations for the portfolio. That adjustment is basically a function of GreenSky being removed from that ratio. Now that applies to the cards portfolio, but we feel good about where that stands right now. As for the overall performance of credit looking forward, we'll continue to be focused. We made several adjustments to our credit underwriting standards, and we'll keep monitoring that as we move through the economic environment.

Hi. Good morning, David. Good morning, Denis. David, you alluded to increased competition for talent driving some pressure on expenses. I was hoping you could speak to the commitment to deliver on the 60% efficiency goal? And maybe more specifically, given changes in revenue mix, some recently announced business exits, and the heightened competition you cited, how that's going to impact your ability to deliver on that 60%, if at all?

Yes. We continue to be committed to the 60% efficiency ratio. We're moving through, we're narrowing our focus. We are trying to create more transparency. I’m going to turn to Denis to ensure we get the number right. But ex those one-off items, the efficiency ratio for the quarter would have been about 64.6%. So putting it in perspective, we don't think the highlighted issues are permanent. We're trying to narrow our focus, and when we examine our Global Banking & Markets business alongside our Asset & Wealth Management platform, we think we have the right target. Regarding competition: the competition for talent, especially for top talent, remains very strong. We think we've established a great talent ecosystem. I feel confident about the hiring we're doing. Just to highlight, for our analyst jobs out of university, we had 260,000 applications for approximately 2,600 jobs, and over one million applications for employment at Goldman Sachs last year. It's a very desirable place to work, but talent competition remains high. We’ll strike the right balance and make investments in our people. You heard Denis talk about some efficiencies and how those allow us to reinvest in our best talent. We feel good about where we are, and we believe that as we continue to execute on our strategy, which narrows our focus to our two core businesses of Global Banking & Markets and Asset & Wealth Management, the efficiency ratio target that we're highlighting over the next few years is a reasonable target.

That's great color. And just for my follow-up, a broader question on the sponsor outlook. Alts fundraising has continued at a healthy clip, but private equity is facing numerous headwinds, whether it's the LP denominator effect, higher rates, and just slower realization activity in general. I was hoping you could speak to the broader outlook for the sponsor business and the implications for both the sponsor booking activity as well as the alternative asset management business.

Sure. The broader sponsor community, which encompasses the alternatives world, still exhibits a significant long-term secular growth trend that we believe will continue. I think there are compelling macro dynamics at play. There's over $70 trillion of assets held by baby boomers that, over the next 20 years, will either be passed to a younger generation for aggressive investment, go to taxes, or be allocated to charitable foundations, which also invest. So there's a powerful dynamic for positive flows as there is a shift, especially in the size of public markets towards private asset classes. We believe that trend is firmly intact. The capital raising environment is more muted than it's been; it was extraordinarily robust in 2020 and 2021 when monetary policy was highly accommodative. But there's no question that this investing can be successful as new vintages and environments are opened up even if rates are higher. The sponsor community generally profits from selling assets, and they own a vast portfolio of businesses. They also typically earn profits when they acquire new assets and, over the last six quarters, the community has been relatively quiet. In our dialogue with them, they're starting to see more interesting opportunities, and I would expect that in the next 12 to 24 months, the level of activity in the sponsor community will increase both in terms of sales and new purchases. While it may not return to the heights of 2021, if you look at historical averages, the percentage of investment banking activity that involves sponsors would suggest a return to those averages is likely. Currently, we’re below those averages.

Good morning, David and Denis. Thanks for taking my questions. I'd love to start on expenses and compensation, and David, you touched on this when answering Steven's question. But the compensation ratio, we saw revenue growth broadly quarter-over-quarter, and yet the comp ratio ticked up, which is quite unusual for Goldman. Denis, I know you layered in that there was nearly $300 million of severance year-to-date. Was some of that in the third quarter, or were there any unusual items impacting the comp ratio? Or was this mostly just a result of the competition for talent?

In terms of the third quarter, it was very small. We previously disclosed $260 million of severance, so there’s a small amount of severance in the quarter. We think it’s essential to continue to call that out and highlight it so you can track that over the course of the year. That obviously rolls into our overall ratio in terms of what we're thinking for the full year. We made the adjustment to the comp ratio in the third quarter based on our expectations for year-end performance and what we expect to pay our people. We’re looking at top composition while being mindful that we continue to pay for performance, while also recognizing that, in particular, across our core businesses, we have leading market shares in Global Banking & Markets, record year-to-date financing activity, and record management fees year-to-date. These are the cornerstones of our businesses for the foreseeable future, and it’s crucial we continue to acknowledge and retain the talent associated with those businesses that will unlock our mid-teens returns in the future.

Okay. Thanks for that, Denis. And then when you're thinking about these historical principal investments that you intend to continue to sell by the end of next year, what portion of those are CRE or CRE-related? Is it possible to provide any insight into the assets you're looking to sell and how exposed they are to CRE or other sectors?

Sure. I made a comment earlier. If you look at aggregate CRE-related on-balance sheet investments and across asset classes like loans, debt securities, equity securities, and remaining exposure of equity in our CIE portfolio, that, in aggregate, now stands at a little under $10 billion, approximately $9.7 billion, and is down already $5 billion year-to-date. There are portions of some of those exposures that relate to our firm-wide activities, our CRA obligations, and some co-invest exposures. If you look at the aggregate of about 43% of the CRE on-balance sheet investments is HPI, and that’s what we intend to sell down over time.

Hi. The pivot is not new; it’s been advertised. However, what's new is the actual losses. Looking back, who is accountable and who pays the price for the losses with GreenSky, the Marcus loans, and a consumer expansion strategy that was wider than you would want it to be now? Looking ahead, once you eliminate what you want to eliminate on both the consumer side and principal investments, how much would that improve ROE?

Thanks, Mike. I appreciate the question. The leadership of the firm, which includes myself and the other senior leadership, is responsible for everything that happens here and for everything we do for our shareholders and for our people. We obviously are responsible and accountable for any decisions we make. I've stated publicly before that I'm satisfied we pivoted. As you say, the pivot is not new; we have executed that pivot. With hindsight, there are certain things we would do differently. We reflect and learn from our actions. It’s important for companies to try things, to learn and adapt. When a decision is deemed wrong for shareholders and the firm, we adjust accordingly. So, we are doing that and moving forward. The second part of your question was?

How much does ROE improve by simply discarding your extra principal investments and the remaining consumer businesses you want to get rid of?

Well, we’ve given you quite a bit of transparency, Mike. If you look at the drag on ROE this quarter, 75% of the drag on ROE was due to impairments and losses from historical principal investments. If you assess the last few quarters, the most considerable impact on ROE performance has been these historical principal investments. They have benefited us historically as well, but not in this environment. We believe it's better to release that capital and run a fund business, achieving a lower capital requirement, and that’s the path we are pursuing. We discussed the through-the-cycle performance of the banking and markets business, and you can see the banking and markets ROE right now, alongside the forward ROE of the Asset & Wealth Management business with less capital in it. The drag from the platforms is diminishing and it will continue to get smaller over the next 12 to 24 months. This will provide you with a cleaner ROE that we believe can be mid-teens through the cycle.

What is your ability and appetite for more buybacks? Basel III, of course, is an issue. But to the extent that you're reducing principal investments, that should theoretically free up more capital for either buybacks or reinvestment elsewhere. What are your plans and limitations?

Yes. Denis highlighted this in the prepared remarks. We've built a substantial cushion and buffer as we successfully reduced our SCD based on the actions we’re taking. Under the stress test, as we continue to reduce principal investments, we will release more capital. Basel remains uncertain, so at the moment, we are operating conservatively around that. We have highlighted that we will probably moderate fourth-quarter share repurchases compared to the third quarter. We are committed to continuing stock repurchases and dividends, and as we clarify our strategy, there should be a meaningful release of capital, ultimately benefiting future buybacks. For now, we’ll exercise caution until we have a clearer understanding of the capital rules.

Hi. Good morning. Thanks for taking my question. I wanted to follow up on earlier questions regarding markets, just looking ahead. Trading revenues are strong. The industry wallet in both fixed income and equities is tracking well above pre-pandemic levels, and you've been capturing share. Is there any scenario related to Basel Endgame where the total industry wallet could shrink? Also, as you think about longer-lasting higher rates, how do you see the impact on your various trading businesses?

The intermediation activity for large institutions and corporations and governments around the world is required and continues to grow. I can’t and won’t speculate on exactly where the final Basel rules will land and how everyone will optimize through it, but the need to finance positions and activities for many of our clients continues to grow. For leading players with scale and a global footprint in these market businesses, I believe they are well positioned. Naturally, there will be ups and downs, but I think these businesses will continue to perform very well.

Thank you. Good morning, David and Denis. I’d like to return to Wealth Management. I know that the sale of Personal Financial Management is relatively small, but if you can remind us how and where you want to compete in Wealth Management moving forward. David, could you provide more context on growth opportunities you mentioned you’re seeing across the globe?

Absolutely, Devin. Our focus remains on ultra-high net worth management where we have a leading franchise. I’d emphasize that the ultra-high net worth management space is still very fragmented. Though we have a leading franchise, our market share is at mid-single digits and we have even less share in places like Europe. We’ve seen strong growth in Europe and continued growth in the US. As we deploy more resources and invest in client coverage, we believe we can continue to grow this business. We’ve seen good growth over the last five years, and I think we can sustain that. One of the decisions we’ve made, and again, a lesson learned, was to sell United Capital and PFM, which allows us to reallocate resources that we would have expended on those businesses into the ultra-high net worth growth, which we believe provides better returns.

Very good. And one quick follow-up. The $15 billion capital call facilities from Signature Bank. You think this could help you gain market share with alternative asset managers. You framed this as an important customer base for Goldman Sachs. Could you share how this will help you drive market share and insight into your sponsorships and how you rank with them and your opportunities within that sector?

In traditional investment banking services, we have leading share with sponsors across M&A and leveraged finance. These capital facilities are key to how they operate their business. While we've been in the business of capital facilities, it’s an area of lending growth for us. These portfolios also bring new clients to us where we've not previously engaged, allowing us to build relationships with them. Financing sponsors strengthens our overall position, enhancing our connections because financing is crucial for their operations. As we continue to finance sponsors, it solidifies our very strong position with that community.

Thanks. Good morning. I had a question on Platform Solutions. So for the quarter, if we exclude the write-down, is this a reasonable run rate for expenses? As you think about achieving your target of profitability in this business, will it come more from the expense side or revenue growth? Additionally, what is your outlook for Transaction Banking, given that revenues are down both sequentially and year-over-year?

Thank you for the question. I don’t think it’s the right run rate. I think a combination of growth in revenue, composition of clients, and ongoing efficiency affecting expenses will lead to better results. On Transaction Banking, we’ve been explaining that our focus is to grow high-quality client business over the long term. We had grown rapidly but are now focused on cultivating high-quality clients and deposits. As you noted, revenues and deposit balances decreased slightly sequentially, but we did grow our client count. We're dedicated to this business because we believe it aligns well with our overall Investment Banking franchise and footprint, making it a good long-term value unlock for Goldman Sachs.

Thanks. You mentioned fundraising in the private equity space facing challenges. Can you also discuss some larger funds you’ve been involved with? As you think about the maturity of the business within alternatives, how do you expect the contribution of incentive fees to evolve over time? When should we expect those to play a more substantial role in the overall revenue profile?

In the alternative space, our fundraising activity has been broad-based. $15 billion in the quarter and $40 billion year-to-date. We mentioned the secondaries fund and David discussed some opportunities in private credit. These are significant interests for our clients globally. We anticipate investing more in those platforms and broadly across the platform. Incentive fees are realized as we reach the end of funds and can start distributing carry. This means incentive fees will be lumpy and will depend on the performance of various funds. We expect more incentive fees next year and beyond; we laid out our expectations for incentive fees at Investor Day, and I believe that represents a source of upside for us.

Thank you. Good morning, David. Good morning, Denis. David, in the past, you talked about the IPOs, the four that you were significantly involved with this quarter. However, you've mentioned green shoots, including convincing private equity owners or companies that want to go public, that they have to recognize that valuations today are far below where they were in 2021 at the peak of the cycle. Are those conversations easier now? Are more people realizing that if they want to go public, they need to accept this?

Yes. I appreciate the question, Gerard. Absolutely, those conversations are easier. If you look at a handful of the companies that have recently gone public, their private market valuations two years ago versus now show a significant difference. The discussions are grounded in realism, and numerous companies are recognizing the new market environment and are concentrated on what they need to do to enhance themselves strategically.

Additionally, having several data points from market activities for both equities and across the leveraged finance sector is tremendously helpful. The discussions we’re engaging in with clients looking to enter the markets are informed by the insights gained from our leading role in the most recent transactions. This is providing an incremental source of optimism. At this time, we have no further questions. Ladies and gentlemen, this concludes the Goldman Sachs Third Quarter 2023 Earnings Conference Call. Thank you for your participation. You may now disconnect.