Earnings Call Transcript
Goldman Sachs Group Inc (GS)
Earnings Call Transcript - GS Q1 2026
Operator, Operator
Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs First Quarter 2026 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 the Goldman Sachs 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 consent. This call is being recorded today, April 13, 2026. 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.
David Solomon, CEO
Thank you, operator, and good morning, everyone. Thank you all for joining us. In the first quarter, we delivered a very strong performance, generating net revenues of $17.2 billion, net earnings of $5.6 billion, and earnings per share of $17.55. All three of which were the second highest in the history of Goldman Sachs. As a result, we delivered a return on equity of 19.8% and a ROTE of 21.3%. These results reflect the strength of our global franchise and the depth of our relationships and our ability to execute for clients while maintaining a strong focus on risk management in a highly dynamic environment. 2026 began with a degree of optimism. Markets hit record highs, confidence continued to build with most clients focused on growth, strategic activity, and capital deployment. As we've said, things were not only moving in a straight line. As the quarter progressed, the macro environment started to weigh on sentiment, volatility increased meaningfully with concerns around AI-driven disruption, sectors like software, heightened uncertainty in parts of private credit, and the conflict in the Middle East. Against this backdrop, our performance underscores the importance of having a scaled, diversified, and global franchise that can support clients across a wide range of market conditions. Operating as a leading global financial institution requires deep expertise, long-term investment, and a culture grounded in risk discipline. This is what differentiates Goldman Sachs and what clients rely on, particularly in periods of uncertainty. We pride ourselves in being a trusted adviser and providing timely and differentiated insights. This quarter, we have large-scale calls and events, reaching tens of thousands of clients across the firm. We also saw elevated engagement with our digital channels, including Marquee, with monthly average users up over 30% year-over-year and our global investment research portal which saw its second highest single day of client activity in early March. Beyond analysis and insight, our people operating as One Goldman Sachs delivered for clients in real-time as conditions evolved quickly. In Global Banking and Markets, we delivered record quarterly revenues, reflecting strong client engagement across our franchise. Elevated uncertainty led clients to actively reposition portfolios, driving strong flows across FICC and equities. We supported our clients' intermediation and financing needs across asset classes, deploying our balance sheet in response to demand. In our commodities franchise, we acted as an intermediary for our clients amidst significant moves in energy markets, including a record monthly increase for West Texas Intermediate crude in March and price surges of 60% in the European gas market. Importantly, the growth of our financing business has added further balance to our performance, reinforcing our ability to perform consistently across cycles. In Investment Banking, we remain the #1 M&A adviser globally. Clients continue to turn to Goldman Sachs for advice and expertise regarding their most important strategic transactions. I made a backdrop of accelerating technological change and industry disruption. This includes the announced $43 billion merger of Unilever's food business with McCormick, Sysco's $29 billion acquisition of Jetro Restaurant Depot, and Cortera Energy's $26 billion sale to Devon Energy. While market conditions tempered execution for IPOs and sponsor activity broadly, we believe that activity levels will rebound once conditions stabilize. As you remember, our backlog closed 2025 at its highest level in four years. Even with exceptionally strong revenue production, our quarter-end backlog remained extraordinarily robust. In Asset & Wealth Management, clients continue to choose Goldman Sachs for the quality of our advice and our long-standing investment track record. We generated $62 billion long-term fee-based inflows, including $22 billion in wealth management flows. The consistent inflow momentum throughout the quarter, including during the heightened volatility in March, underscores the strength of our client relationships built on trust and long-term performance. We are pleased to have closed the acquisition of Innovator in the second quarter, which adds an additional $31 billion in assets under supervision across a suite of over 170 ETF focused on defined outcome strategies, putting us in the top 10 of global active ETF providers. In alternatives, we raised $26 billion across asset classes, with private credit strategies generating $10 billion. We recognize that the private credit industry has been an area of increased focus in recent months. Our 30-year track record of performance in private credit is characterized by rigorous underwriting, selective deployment, and disciplined portfolio construction. In our largest non-traded BDC, for example, we saw net inflows of over 7% this quarter, reflecting divested investor demand for experienced investment managers who have navigated multiple rate and credit cycles. Looking forward, our predominantly institutional drawdown structures, as well as the breadth of our origination funnel, give us the flexibility to continue to patiently and selectively invest capital. Overall, we feel good about the long-term opportunity in private credit and our ability to deliver attractive risk-adjusted returns for clients. Let me spend a moment on capital and regulation more broadly. We've been consistent in our view that a strong, well-capitalized banking system in the U.S. is essential, and that strength has been clearly demonstrated across multiple stress periods. At the same time, we have also been clear that the regulatory framework needs to be transparent and calibrated appropriately to achieve its objectives. Getting this right matters to the real economy; a well-calibrated framework enables banks to provide liquidity, support lending and capital formation, and serve clients more effectively. Ultimately, a strong U.S. banking system supports growth, competitiveness, and economic resilience. Against that backdrop, we're encouraged by the direction of regulatory reform, including the recent Basel III finalization and G-SIB surcharge reproposal. While the rule-making process is still underway, and we plan to participate in the comment period, we believe this direction is positive for the banking system as a whole, better aligning regulatory outcomes with actual risk. All in, we continue to see the potential for a more constructive backdrop this year. The combined effects of fiscal stimulus in developed economies, ongoing AI-related capital investment, and a more balanced regulatory agenda in the U.S. are powerful forces. At the same time, the geopolitical landscape remains very complex, and the ultimate impact of higher energy prices on inflation and growth is yet to be determined. We believe Goldman Sachs is extremely well-positioned to navigate this current environment. And in the short term, we are also investing for long-term growth, including through One Goldman Sachs 3.0. As I mentioned, clients seek our views and analysis around a range of topics, including AI, and we were able to speak to these trends from firsthand experience as we thoughtfully implemented new technologies across our six initial work streams and around the firm more broadly. We remain confident that over time, One GS 3.0 will drive stronger operating leverage, greater resilience, and improved efficiency and returns, allowing us to continually elevate service to our clients. These efforts build on the strength that differentiates Goldman Sachs. As we demonstrated this quarter, our deep client relationships, global platform, and strong risk culture position us to serve clients with excellence while creating long-term value for shareholders. With that, I'll turn it over to Denis to walk through our financial results in more detail.
Denis Coleman, CFO
Thank you, David, and good morning. Let's start with our results on Page 1 of the presentation. In the first quarter, we generated our second highest net revenues of $17.2 billion as well as our second highest earnings per share of $17.55, which drove an ROE of 19.8% and an ROTE of 21.3%. Let's turn to performance by segment, starting on Page 3. Global Banking & Markets produced record revenues of $12.7 billion in the first quarter and generated an ROE of over 22%. Turning to Page 4. Advisory revenues of $1.5 billion rose 89% year-over-year on higher completed volumes. We remain #1 in the league tables for M&A with a lead of $150 billion in announced volumes versus our closest peer. Equity underwriting revenues of $535 million were up 45% year-over-year on better convertible results, while debt underwriting revenues of $811 million rose 8%, driven by better investment-grade and asset-backed activity. We ranked first in equity and equity-related underwriting and ranked second in high-yield debt underwriting and leveraged lending. FICC net revenues were $4 billion. Within intermediation, revenues in rates and mortgages were significantly lower versus the first quarter of last year as results were impacted by a tougher market-making backdrop. This was partially offset by significantly better results in currencies and commodities, illustrating the benefits of having a global diversified franchise. We produced FICC financing revenues of $1.1 billion. We remain confident in our ability to prudently grow this business over time. Equities net revenues were a record $5.3 billion. Equities intermediation revenues of $2.7 billion rose 7% even versus very strong results last year, driven by better performance in cash products. Record Equities financing revenues of $2.6 billion were 59% higher year-over-year with particular strength in Asia amid another record for average prime balances in the quarter. As we highlighted in last quarter's strategic update, Asia is one of the key growth opportunities for our FICC and equities businesses. And while there's still work to do, we're pleased by the progress to date. Across FICC and equities, financing revenues of $3.7 billion rose 36% versus the prior year and comprised nearly 40% of total FICC and equities revenues. Let's turn to Page 5. Asset & Wealth Management revenues were $4.1 billion. Management and other fees were up 14% year-over-year to $3.1 billion, primarily on higher average assets under supervision. Incentive fees were $183 million, up year-over-year despite the volatile environment during the quarter. Private banking and lending revenues were $638 million. Higher lending results were more than offset by the impact of NIM compression as we grew deposits in a more competitive rate environment in order to fund broader firm activity. Consistent with our growth strategy, we also expanded our lending to ultra-high net worth clients with balances rising to a record $46 billion. Now moving to Page 6. Total assets under supervision ended the quarter at a record $3.7 trillion. We saw $62 billion of long-term net inflows across asset classes, representing our 33rd consecutive quarter of long-term fee-based net inflows. Turning to Page 7 on alternatives. Alternative AUS totaled $429 billion at the end of the first quarter, driving $597 million in management and other fees. Gross third-party alternatives fundraising was $26 billion in the quarter, putting us on track towards our annual fundraising expectations. On Page 8, Platform Solutions revenues were $411 million in the quarter, down year-over-year, reflecting the move of the Apple portfolio to held for sale. We expect revenues for the rest of the year to run lower, in line with seasonal trends in the business. On Page 9, firm-wide net interest income was $3.7 billion in the first quarter. Our total loan portfolio at quarter-end was $253 billion, up versus the fourth quarter, primarily reflecting growth in corporate and other collateralized loans. Our provision for credit losses of $315 million reflected growth in impairments in our wholesale lending portfolio. Turning to expenses on Page 10. Total quarterly operating expenses were $10.4 billion, resulting in an efficiency ratio of 60.5%. Our compensation ratio net of provisions was 32%. Non-compensation expenses were $5 billion, with the vast majority of the year-over-year increase driven by higher transaction-based expenses tied to robust activity levels, particularly in equities. As David referenced, we are thoughtfully building out our One Goldman Sachs 3.0 work streams, and our early learnings have reinforced the need to double down on the foundational elements of our infrastructure. We are, therefore, accelerating our investments in cloud migration and in the accuracy, completeness, and timeliness of our data. These investments are critical to optimizing the deployment of AI solutions across the firm, which will allow us to unlock greater productivity and efficiency opportunities over time. Our effective tax rate for the quarter of 13.2% benefited from the impact of employee stock-based compensation. For the full year, we expect a tax rate of approximately 20%. Now on to Slide 11. Our common equity Tier 1 ratio was 12.5% at the end of the first quarter under the standardized approach, 110 basis points above our current capital requirement of 11.4%. We saw attractive opportunities to deploy capital across the firm including in prime brokerage and acquisition financing. These activities, in addition to the increase in market risk RWAs amid higher market volatility, consumed a portion of our excess capital. Additionally, we returned $6.4 billion to common shareholders, including record common stock repurchases of $5 billion and common stock dividends of $1.4 billion. We will continue to dynamically deploy capital to support our client franchise while also returning capital to shareholders. As David mentioned, we're encouraged by the direction of the recent Basel III finalization and G-SIB surcharge re-proposals, which reflect a more balanced and risk-sensitive approach than earlier iterations. In conclusion, our performance reflects the diversification and strength of our leading client franchises, which enable us to serve clients in a volatile market. We are confident in our ability to continue to support our clients as they navigate this dynamic operating environment. With that, we'll now open up the line for questions.
Operator, Operator
We'll take our first question from Glenn Schorr with Evercore.
Glenn Schorr, Analyst
I would appreciate it if you could elaborate on your balance sheet strategy. I notice you are deploying capital, which is lowering the denominator. However, with the CET dropping by 180 basis points, this raises a lot of questions. Let's discuss the deposit strategy; deposits have increased significantly, and I'm assuming this is to support equity financing. I'm interested in your thoughts on the trade-off between lower net interest income and asset and wealth management while also increasing financing. I believe this ties into our Asia strategy. I know I've covered a lot, but these topics are interconnected, so it would be great if you could provide some insights.
Denis Coleman, CFO
Sure, Glenn. So I think I would take you back to our strategic update that we gave at the end of the year, where we tried to lay out our expectations for how we were going to respond to the changes in the capital regulation. And then in particular, we’d be focused on deploying into the client franchise to support a bunch of our more durable revenue stream activities with lending being at the top of the list. And as we sit now at the end of the first quarter, you will see that we significantly expanded our activities in equities financing, and a particular area of strategic focus was Asia, something that we also did call out at that time where we had identified a competitive gap, we saw an attractive opportunity, and with the excess capacity that we saw ourselves with, we deployed into that with clients and grew our revenues. You also note that we recorded a record level of lending balances in private wealth. We continue to grow FICC financing, we grew our corporate balances, acquisition financing. All of these were the items that we called out as the priority areas for deployment, and we saw opportunities over the course of the quarter to do that. I would be remiss if we didn't mention that we also aggressively returned capital to shareholders at the record level of buybacks. So the balance sheet growth was largely in support of those client activities that I just referenced. Separately, you're right, we did have significant deposit-raising activity over the course of the quarter. That remains a strategic source of funding for us that we continue to grow. A lot of that growth did derive through the digital platform, which is a benefit to the firm. Some of that activity supports activities in Asset and Wealth Management, but as you call out, it supports overall firm-wide lending activities, and it was a strategic priority for us to extend more lending on behalf of clients across the firm, and we try to finance it as efficiently as we possibly can.
Glenn Schorr, Analyst
Okay. Maybe the follow-up is I'm going to ask the question, is all the net of that deployment in lending expected to achieve return on equities that align with your long-term goals?
Denis Coleman, CFO
So you'll obviously see that the ROE performance for the firm, the ROE performance for Global Banking and Markets, north of 22% in the case of Global Banking and Markets, where a lot of that deployment is happening. So across our portfolio of activities, we are generating very attractive returns on that incremental amount of lending activity.
Operator, Operator
We'll take our next question from Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala, Analyst
I guess I just wanted to take a step back, a lot happened during the quarter. So David, I appreciate your remarks around the 30-year track record for Goldman and private credit. But if you don't mind, I think there is a sense that private credit is a significant growth driver for Goldman. For our benefit, given just the growth in this asset class, give us a sense of how you see this potentially impacting sponsor activity when it comes to M&A IPO. As we think about the next year, FICC financing has been a big focus with investors around how that growth may slow down. So would love some color around how you think this actually coming home to impacting your growth outlook? And if anything, on credit that you're particularly watching out for?
David Solomon, CEO
Sure, I appreciate the question, and I could discuss it for a long time. There have been efforts to put this into perspective. The media has contributed significantly to negative sentiment around private credit. It's crucial to distinguish between different markets and to keep everything in perspective. Private credit, in its broadest definition, has about $3.5 trillion in assets. However, much of the focus has been on direct lending, which represents about $1.6 trillion to $1.7 trillion of those assets, with the retail channel accounting for around 20%, or approximately $230 billion of NAV. We have seen high redemptions in some peer-managed funds, mainly from retail outflows rather than institutional ones. Interestingly, a constructive trend for our business is that spreads are becoming more favorable for lenders. In our first quarter 2026 subscriptions for our GS credit BDC, 40% came from institutions, many of which are first-time investors on our platforms, including insurance companies, banks, and pension funds. Overall, more than 80% of our partners are institutional, which is very broad and diverse, and we've seen steady growth over time. We recorded positive inflows from private fundraising this quarter and believe we are well-positioned, with improving opportunities. While it is essential to focus on the current cycle, we must remember it has been a lengthy duration since the COVID shutdown without a normal credit cycle, which typically includes a significant economic slowdown or recession. Such downturns lead to higher loss levels in diversified credit portfolios. Risk management and thoughtful portfolio construction are vital. Those who haven't followed these principles may face greater challenges. Additionally, it's important to consider what a cycle would look like. For instance, during the global financial crisis, the cumulative default rates across leveraged lending reached 10%, with recoveries around 50%, resulting in cumulative losses of 5% to 6% against coupons of 9% to 10%. Institutional investors are aware of this model. While there will be ongoing noise in the retail space, we remain confident in our platform’s long-term attractiveness and believe we have significant opportunities to scale our business towards our $300 billion target. We've witnessed substantial fundraising in our platforms, including $10 billion in credit this past quarter. We will continue to grow our institutional business with a long-term perspective—while it's not a major growth channel, it's a business that is expanding and has solid prospects for a scaled platform like ours.
Ebrahim Poonawala, Analyst
Very comprehensive. If I can ask a quick follow-up. Banks in the EU were in D.C. on Friday to discuss concerns about some of the AI-driven risks to banking infrastructure. Can you share if this is significantly different from what banks have faced over the past decade? Any insights you can provide would be helpful. Also, how do you view the risk to Goldman Sachs?
David Solomon, CEO
Thank you for your question. Cybersecurity has always been a fundamental part of our business, and we have consistently dedicated significant resources to assess and address cybersecurity risks. Recently, the CEOs of major banks discussed these issues during their regular meeting in Washington, and this is not their first discussion with the treasury about cybersecurity risk over the years. This highlights the industry's ongoing focus on this matter. The advancements in large language models are noteworthy, and we are very attentive to their enhanced capabilities. With support from the U.S. government and model developers, we are committed to improving our cyber and infrastructure resilience. This effort is part of our strategy to invest in our capabilities, and we are accelerating these investments. We recognize the importance of these developments and are actively collaborating with Anthropic and our security partners to leverage the latest capabilities. Continuing to upgrade our cybersecurity measures in line with technological advancements is essential.
Operator, Operator
We'll take our next question from Erika Najarian with UBS.
L. Erika Najarian, Analyst
David, if you could just unpack a little bit your outlook on the pipeline. I know back in February, we talked about the sponsor community and your thoughts on valuation versus timing. Obviously, a lot has happened more on the negative since then on valuation. But maybe just on top of how your thoughts are relative to timing. I mean, despite the conflict in the Middle East, markets are near all-time high. So I would love your thoughts on that.
David Solomon, CEO
Sure. And I appreciate it, and I realize, Erika, as this is getting a lot of attention. I would just say, first of all, the environment for investment banking activity continues to be incredibly robust, particularly M&A activity. As I talk to CEOs, of course, they're watching what's going on geopolitically. But that's also balanced by the fact that they see an opportunity during this period of time to drive scale and scale creation in businesses with significant technological change, and they are focused on that. Candidly, that trumps some of the geopolitical risk as they have the opportunity to do consolidating trades. You saw that in the first quarter; you saw more large-scale strategic M&A. We highlighted at the end of the first quarter the high level of our backlog, the highest level in four years. You saw extraordinary accruals during this quarter in M&A. You also saw extraordinary replenishment; the backlog really did not move very significantly at all, even though we had extraordinary accruals. We continue to see significant activity on the M&A front. And I don't see, unless the overall environment got much, much worse, that slowing based on what we see at the moment. That said, there is no question that with the conflict in the Middle East, IPO activity slowed a little bit, particularly in March. I do think there's a very full pipeline, and at the end of the day, equity markets have been extremely resilient, and if that resilience continues, I do think you'll see IPO activity accelerate again. There are some very large IPOs that are lined up, and my expectation is a number of them are going to come because it's important for those businesses and for the capital formation around those businesses for that to happen, and they are also less sensitive to kind of short-term geopolitical trends. I do think that the level of uncertainty is higher, so we have to watch that carefully. Certainly talking actively to CEOs, and they are looking carefully at how what’s going on, particularly with commodity prices, is translating into the economy and into consumer demand. I think it's fair to say that people did not see that really translating through in the first quarter, but that doesn't mean that people aren't extremely cautious about whether or not it will translate through in the second quarter. My guess is to the degree that energy prices remain high, you will see that translate through a little bit. But at this point, the underlying economy still remains relatively robust. If the resolution of the conflict drags, that probably will be a headwind in some of these areas, particularly inflation trends as we get further into the second and third quarters. We'll have to watch that closely. At the moment, M&A and capital markets have been pretty resilient to that, and the environment continues to be quite constructive. But of course, I don't have a crystal ball; I and also all the market participants are watching and adapting as they see things unfold.
L. Erika Najarian, Analyst
And just to follow up, on Ebrahim's line of questioning because I think it's so important for the stock and the stock of your peers. Given everything you said, David, during the financial crisis, the cumulative loss rate in leverage lending was 5% to 6%. You're seeing more lender-friendly trends, no issues in fundraising, especially on the institutional side. It seems that if we do have a regular waste cycle or even just something sector-specific like software in terms of marks, that the ultimate loss to Goldman will be de minimis, but the opportunity in terms of spreads and market share could be notable. Is that the correct conclusion?
David Solomon, CEO
I will provide a few comments on that and then ask Denis to share his insights on historical losses. Erika, you are correct in your understanding. Generally, we are interacting with institutional clients. During economic slowdowns or recessions when credit spreads widen, the business often becomes more appealing for institutional investors. This is when institutions turn to Goldman Sachs, which has long-standing experience in making judicious decisions about deploying capital—being cautious when spreads are tight and more aggressive when spreads are wide. A significant portion of the returns in credit businesses arises from how investors manage restructuring and buy-ins during tough times, although we haven't experienced a cycle like that recently. It’s important to note that we are in a lengthy credit cycle, and as these cycles extend, market participants tend to become more aggressive in deploying capital when spreads tighten. If we face a downturn, losses may be greater than they would be in a shorter cycle. However, we are confident in our positioning, our track record, and our flows. If a cycle were to occur, we would see it as an opportunity for Goldman Sachs. Denis, would you like to add more on historical loss rates?
Denis Coleman, CFO
Yes. I mean, Erika, I could add for you another area that we get questions for obvious reasons is across the FICC financing, the asset secured lending portfolio of the firm where a lot of those clientele are in the alternative space. We have a big diversified business that we've been growing, and it's providing part of the ballast to our overall Global Banking and Markets revenues. But if we look back over the course of history on our FICC financing activities, our life-to-date realized losses, if you exclude some direct commercial real estate, are 0. So that's obviously a nexus with private credit as a subcomponent of that portfolio, and people ask about it a lot. That may not always be the case. But so far, the way that we underwrite that portfolio, the way we run the stresses, and the way we focus on our collateral protection, our covenant structures or margining capabilities have led that portfolio to realize losses of 0.
Operator, Operator
We'll take our next question from Mike Mayo with Wells Fargo.
Michael Mayo, Analyst
Can you provide insights on the rise in provisions within Global Banking and Markets? It appears that this increase significantly surpasses the growth in the balance sheet, nearly matching last year's increase. To what extent are you setting aside additional provisions for potential losses due to macroeconomic concerns or observations you've made? Additionally, are you implying that conditions may not continue to be as favorable?
Denis Coleman, CFO
Sure. Appreciate that question, Mike, and you actually answered it for yourself, but I'll do it for you back. The composition of that PCL build was in part attributable to growth. As I went through earlier on the call, we grew lending activities in the first quarter across the firm. That increased lending activity attracts provisions. We also did have impairments, single-name impairments across the portfolio, which we have typically; we have those impairments as well, and we have adjustments for the overall operating environment and the outlook. It was really the combination of those three things that come together for that PCL build. I kind of answered it on the previous question, but if there was a question as to whether that PCL relates to private credit somehow or relates to our FICC financing business, the answer is no. It was growth across the various lending streams, at least not from a default or credit impairment perspective, that broader lending growth in the GBM segment.
Michael Mayo, Analyst
At what point do investors stop actively participating? It seems they are still engaged and trading at high levels. Do you notice any differences in how corporates engage compared to other investors in the ecosystem? Specifically, are corporates more involved, and is there a sense of risk reduction among investors?
David Solomon, CEO
So first, at a high level, Mike, I think people are very engaged, okay, across the franchise. Corporates, investors, very, very engaged. I think it's an interesting moment because there's so much going on in the world of technology and innovation and so much around that space that people are extremely engaged in understanding how that creates opportunities for enterprise, how that shifts investment theses, and we're not seeing any decline or pencils down, as you suggested. I will say the corporate world, and I highlighted this before, is incredibly engaged right now because they don't operate in the short-term noise; they operate over the long term. They believe they have an opportunity to drive scale and consolidation and they haven't had it for a previous administration. I expect that to continue. Obviously, as I said before, I don't have a crystal ball; if the macro situation gets bumpier for a short-term period of time, that can have short-term effects on investor behavior. But I'd say at this point, people are very actively engaged. Look, we're only a couple of weeks into the quarter, but the quarter has started with very significant engagement across all aspects of the business. The quarter started in a positive way. We'll see. The level of uncertainty is higher. But at the moment, the engagement is pretty high.
Operator, Operator
We'll take our next question from Steven Chubak with Wolfe Research.
Steven Chubak, Analyst
So I'm going to take this in a slightly different direction. I wanted to ask on the efficiency outlook. You'd indicated some front-loading of infrastructure investments and cloud migration in advance of AI-driven investments that you plan on making. Just given all the investments that you cited in terms of what you're deploying on the platform. How should we think about the trajectory of non-compensation expenses? That $5 billion baseline is a little bit higher than what we've seen in recent quarters. And just bigger picture, how that informs the timing for when you can reach that 60% efficiency goal or if it impacts it at all.
Denis Coleman, CFO
Sure. Thanks, Steve. It's Denis. I'll take that. Obviously, we continue to make progress on the efficiency ratio overall, with slight improvement on a year-over-year basis, and we remain laser-focused on driving towards a 60% level. We did have a higher level of non-compensation expenses. But if you pull apart the year-over-year delta, it was roughly magnitudes of $650 million of the $750 million increase attributable to transaction-based expenses. We talked about how we've been growing the overall activity, particularly across equities, particularly in Asia. If you look at some of the expenses, some distribution fees in Asset and Wealth Management, there were high levels of client activity that we executed across the quarter, and some of that comes with transaction-based expenses. We remain focused on doing what we can on the unit cost elements of transaction-based expenses. And as in prior years, we have dedicated workstreams to drive benefits from a unit cost perspective, but the overall volumes reflected in the record results for the equity business obviously came with transaction expenses. As it relates to the overall investment profile, we are continuing to make investments to drive longer-term efficiencies, and the more we focus and do work on it, we appreciate that having greater capacity to migrate activities to the cloud and to harness a lot of value from data centers for investment now to drive unlocking potential in future periods. Those factors also feature in our thinking. At the same time, we're looking at other areas where we can reduce expenses. So there's categories of our overall operating expenses, which we're moving down by more than double-digit percentages on a period basis as we look to get more efficient.
Steven Chubak, Analyst
And for my follow-up, just on the Fed's capital proposal, I was hoping you could provide some at least preliminary guidance on the three bigger buckets of proposed changes, whether it's the adjustments to the RWA calculation first. Second, the G-SIB surcharge and the proposed changes there? And then third, how the elimination of double counting could provide some relief going forward? I'm just trying to gauge how that informs where you're comfortable running on CET1 versus the current ratio of 12.5%.
Denis Coleman, CFO
Okay, sure. As David said in his remarks, we're following the reproposals closely. We do expect to comment. We are encouraged by the direction of travel, but we will have comments, and we think there is room for further improvement. The double count is definitely an area of focus for us, particularly as it relates to operational risk. We think there are further enhancements that can be made to FRTB and CVA across the proposals. We think GSIB, again, making progress, perhaps not recalibrated as far as it could have been but making the right directional changes. As it relates to the impact on the firm and how we're calibrated, we start the second quarter at 12.5% from a CET1 perspective; that’s 110 basis points of cushion, which is basically at the wide end or just outside our typical operating range, and we think that's an appropriate level. It gives us capacity to step in and support the types of client activities that we continue to see coming through the franchise and gives us capacity to continue returning capital to shareholders. I would say, based on everything that we see we think is a prudent place to be as some of those regulatory proposals get refined and finalized.
Operator, Operator
We'll take our next question from Brennan Hawken with BMO Capital Markets.
Brennan Hawken, Analyst
David, you spoke to strategic activity and how robust it is in banking. Curious to hear your thoughts on what you've been seeing as far as sponsors are concerned. We've heard a great deal in recent years about building pressure for sponsors to sell. How big of a setback is the valuation reset and tighter financing markets to that cohort?
David Solomon, CEO
Yes, Brennan, this continues to draw significant attention. Activity from private equity sponsors has been slower, although I believe it will pick up pace. However, when we assess overall performance, we want to emphasize the effort we've invested over the past 7 or 8 years to build a larger, more diversified business with stable revenue streams. This quarter exemplifies that, as sponsor activity did not accelerate as we anticipated following our last earnings call in January. Nevertheless, it has been the strongest quarter ever for Global Banking and Markets at the firm. It's been an excellent quarter despite weak sponsor activity. Our business is broad and diverse. Clearly, once sponsor activity ramps up, it will bring additional benefits. Sponsors do not control the capital; the limited partners do, and they need to return that capital. So while the current pace has been slower than we hoped, our extensive and diverse business remains resilient and is not significantly affected by this slower sponsor activity.
Denis Coleman, CFO
The other thing I would add, a lot of those comments relate to monetization and exit activity, which we're very focused on, which ripples through the firm in a variety of places. But at a certain point, you have asset price adjustments in one industry or another, and all of a sudden, it presents opportunities for sponsors to redeploy some of the dry powder that they've been husbanding for some period of time. All of a sudden, public to private becomes back in focus, and while there could be given the uncertainty of the war, some slowdown in IPO type monetization, that doesn't mean that the sophisticated sponsors of the world aren't thinking much like some of the well-capitalized corporates as to whether they can’t take advantage of some of the dislocation. So there's multiple ways to think about it.
Brennan Hawken, Analyst
Great. And Denis, I'd love to follow up on your comments on FICC financing. Do you have any color on what proportion of your fixed financing exposure is tied to direct lending counterparts? I know it will probably fluctuate within a range, but maybe a rough idea of how to think about the bookends.
Denis Coleman, CFO
It really comes down to how we categorize things. We have various underlying sponsors and managers for our FICC financing. Our approach is based on different asset classes because many of these bilaterally extended loans are secured by a pool of loans targeting specific markets, such as residential, mortgages, consumer finance, private credit, and private equity. We also engage in capital call facilities. All these elements are part of our FICC financing, and our entire portfolio is well diversified across those asset classes. We evaluate loans with varying underwriting standards and risk parameters, taking into account the stresses we encounter for each asset class. Therefore, while we manage it in a diversified manner, it does not expose us to the same portfolio concentration risks as idiosyncratic bilateral structured credit extensions, where we can implement appropriate protections tailored to the specific risks involved.
Operator, Operator
We'll take our next question from Manan Gosalia with Morgan Stanley.
Manan Gosalia, Analyst
I just wanted to follow up on the expense question. The comp ratio on adjusted revenues was down from the usual 33% in the first quarter. I know you typically true up based on the environment at the end of the year, but is the year-on-year change so far being driven by One GS 3.0 and the AI investments you're making? And is it a signal for the direction for the full year?
Denis Coleman, CFO
Thanks, and welcome to the call. Regarding the comp ratio, we have significantly increased our revenue. Our goal is to achieve a 60% efficiency ratio. Because of the rise in revenue and our outlook, we reduced the ratio by 100 basis points compared to our target set in the first quarter last year, but our revenue and outlook have changed. We will adjust that throughout the year based on our expectations. Currently, this is our best estimate for compensation. We continue to be a pay-for-performance firm, which is fundamental to our approach. Attracting and retaining top talent is crucial for delivering results for our clients, and we are also focused on running the firm as efficiently as possible. So, 32% is our best estimate while balancing these priorities.
Manan Gosalia, Analyst
Great. And can you expand on what drove the weaker intermediation revenues this quarter? You noted lower rates, mortgage, and credit. Was that driven by a tougher year-on-year comp? Was it specifically driven by the higher geopolitical risks, or is there any specific client behavior that you're seeing that may spill into the rest of this year?
Denis Coleman, CFO
Sure. Thanks, Manan. We say many times on this call, we look in particular at components of our FICC portfolio. We remain very, very committed to having a leading presence across all of the sub-asset classes and continuing to do that on a global basis. In the last quarter, in the first quarter of this year relative to the first quarter previously, we saw significant increased activity and more strength in the commodities business and more strength in the currency business, but mortgages and rates were lower. That was basically just a function of the overall environment making markets. We have big activities across all of those activities. We remain actively engaged with clients, but our performance in rates and mortgages were relatively lower. Performance in currencies and commodities was relatively stronger.
David Solomon, CEO
A lot of this relates to the expectations set within the research community. When looking at FICC performance, it's important to note that it was the tenth best quarter out of over 100. The scale and diversity of the business show it is performing very well. Although the first quarter last year was a strong comparison, this quarter is 29% better than the previous fourth quarter. It was close to a top decile quarter and certainly within the top quartile. If we reflect on the last 15 to 20 years, a quarter like this, where FICC showed some weakness, would have been difficult because FICC was such a crucial part of the business. Now, the business is much more diversified. FICC did perform well during the quarter, and overall performance was quite strong. Some quarters will be stronger in certain areas than others.
Operator, Operator
We'll take our next question from Dan Fannon with Jefferies.
Daniel Fannon, Analyst
In terms of private banking and lending, you talked about some of the moving parts in terms of deposit spreads as well as higher lending balances. So I'm curious about the outlook there. What is a reasonable goal as you think about penetration of lending within your wealth business? How do you think about that in terms of the aggregate opportunity?
Denis Coleman, CFO
Great. Thanks very much. Look, I think our performance in that piece of Asset and Wealth Management is in line with what we've been trying to achieve. We continue to grow our lending penetration, reaching record balances of $46 billion. I think we still have a long way to go. There’s a lot more that we can do for clients in that segment, and we are making progress, but it’s going to take time to meet all of our ambitions for penetrating that segment. We're aggressively offering the capabilities. More and more clients are coming to appreciate the value that it adds. We feel good that we've taken that to record levels, and we think there's a lot more to do. We also remain very committed to growing the deposit balances across the segment. We’re also able to do that very, very successfully. There is an impact from the more competitive environment for deposit raising, and we do expect that will persist as a headwind for much of 2026. However, we would expect as we move into 2027 to be back to growing that segment high double digits from a sort of durable revenue perspective. Our aggregate durable revenues in Asset and Wealth Management were up high single digits for this most recent period, but it was a function of sort of more strength on the management fee line and less performance in the private banking and lending line, and we'd expect that to improve towards the end of the year heading into 2027.
Daniel Fannon, Analyst
Great. And as a follow-up, obviously, a strong quarter on fundraising for the alts again. Can you talk specifically about what strategies in credit got you the $10 billion? As you think about the rest of the year, do you see credit as being as big of a contributor to growth? Or given some of the headlines and dynamics that likely is to see some moderation?
Denis Coleman, CFO
So coming out of our strategic update, we obviously gave guidance in terms of the aggregate assets under supervision target that we put out there for 2030 of $750 billion. We put out that annual fundraising target of $75 to $100 billion. Our platform is highly diversified, so we have success raising across corporate equity strategies, across credit strategies, across real estate, hedge funds, etc. Within credit, we have a variety of different strategies that we can raise based on level of the capital structure, type of risk profile, geographic location of the fund, etc. We have multiple pillars that we’re focused on continuing to drive the alternatives fundraising. It can vary from quarter to quarter in terms of putting together the full year results.
Operator, Operator
We'll take our next question from Devin Ryan with Citizens.
Devin Ryan, Analyst
I have another question regarding artificial intelligence. It seems investors are evaluating the impact on each business individually. It would be helpful to understand your perspective on which businesses will be most affected and whether AI is generally acting as a catalyst for Goldman Sachs as it has in previous technology cycles. A broad overview of your thoughts would be appreciated.
David Solomon, CEO
I appreciate the question, Devin. I'm very optimistic about the potential of this technology to enhance growth and efficiency at Goldman Sachs, enabling us to invest more aggressively in areas where we've been somewhat limited in the past five years. This sentiment extends beyond Goldman Sachs; many businesses can benefit from this technology. As enterprises leverage it, it stimulates activity that contributes positively to the Goldman Sachs ecosystem. Like previous technology supercycles, I see this as very beneficial for our firm. When I envision the next three to five years and our growth trajectory, while I cannot predict short-term uncertainty or volatility, I am very confident about our ability to grow the firm, better serve our clients, and invest in areas with real growth potential. For instance, we see significant opportunities in private wealth due to our strong franchise in that area. It won't be a smooth path; whenever new technology accelerates, there will be challenges and adjustments. We will likely encounter those as it scales. However, the transformative power of this technology to optimize processes, create efficiencies, and increase investment capacity is undeniable. I haven't met a CEO who isn't discussing this, and viewed through a medium-term perspective, stepping back from short-term distractions, it is incredibly positive for Goldman Sachs.
Devin Ryan, Analyst
Okay. A quick follow-up, Denis, just on Asia and the success you've been having there. You obviously really positive progression over time here. So just the gap that you talked about that you're closing, where are you in that? Is there still opportunity to accelerate? Or have you closed that gap with the big step-up that you had this quarter?
Denis Coleman, CFO
So we think we've made progress, but we are constantly reassessing each and every region of the world and each sub-product line gap that we think we may have relative to the potential. There were constraints on the aggregate quantum and type of resources that we could deploy to accelerate those activities given some of the changes in capital rules. We moved quickly to do that for clients in the first quarter, and you can see it coming through in the results. I would expect versus what we're looking at; we would have closed the gap, but I do expect there's still a lot more for us to do. So I think we made good progress, but there is more to do across Asia.
Operator, Operator
We'll take our next question from Matt O'Connor with Deutsche Bank.
Matthew O'Connor, Analyst
I want to follow up on Asset and Wealth Management, the long-term flows. You showed on Slide 6, just really good balance between the three channels. But I wanted to kind of dig into what's tracking a little bit better than what you laid out last quarter. I think you were targeting about 5% flows. We've got three quarters in a row of about 7%; a little boost from the deal this quarter. But just overall, it seems like it's tracking better than that target you had, and wondering what the drivers of that are?
Denis Coleman, CFO
Sure. That was one of our new targets mentioned in the strategic update to highlight the quality of our wealth business and to keep our team focused on this goal. It is an annual target with a goal of 5%. We delivered 9% in the first quarter, so we are significantly ahead of the target for now, although this may vary from quarter to quarter. In response to David's comments about engagement across the firm, this isn't limited to traditional investment banking or even FICC and equities. We have strong engagement in our Asset and Wealth Management business, and we are seeing good support in the wealth channel. We are ahead of the target this quarter, and we will continue to work on maximizing our performance for the rest of the year.
Matthew O'Connor, Analyst
And then any early benefits from those three deals and partnerships that you've announced the last few months, including Innovator, which just closed? Any early benefits from those? And how should we think about the opportunity maybe going forward?
David Solomon, CEO
Yes. We feel very, very good. We disclosed Innovator in the last week. We feel very, very good about the partnership and the three deals, and we're integrating the teams. The teams are very excited and very focused on being here. I think the cool thing we mentioned in the script about Innovator is it immediately positions us as one of the top 10 active ETF providers. Obviously, in the active ETF space, there continues to be very good secular growth. I think with what's going on in technology, the strengthening of our positioning around the venture community through industry ventures, we're seeing enormous synergies in the business. By the way, synergies in the wealth business do come from that platform coming on board. But look, this is new, and I don't want to overstate it, but we feel very, very good about the decisions we've made on both the partnership with T. Rowe and the two acquisitions, and we'll report as we have more substantive things to tell you.
Operator, Operator
We'll take our next question from Gerard Cassidy with RBC Capital Markets.
Gerard Cassidy, Analyst
Denis, you touched on in your comments about your CET1 ratio that you folks have used the capital to grow the businesses across the firm, and you specifically highlighted acquisition financing. Can you share with us the November changes to the leverage ratios that the regulators did away with; has that helped you guys become more competitive in acquisition financing? How much of the acquisition financing do you try to keep on your books? Or do you try to syndicate it out to participants?
Denis Coleman, CFO
Sure. I appreciate those questions, Gerard. So what goes hand in glove with the uptick in strategic activity that David has been discussing, and with a particular focus on the corporate sector is that a lot of those transactions require large-scale capital commitments. That's really what I'm referencing with respect to acquisition financing. Yes, the changes in the capital regulations give us more flexibility to deploy into that, but they're also a timing element. In the same way that you can have an announced M&A transact, you can report on announced volumes, you don't recognize revenue until that M&A transaction closes. If you take on risk in an acquisition finance book and you have that exposure on your books, you need to set aside the appropriate amount of capital, but you won't be recognizing revenue necessarily until the transaction funds or closes. There are timing mismatches or things to be aware of with respect to those items. Our general philosophy is to facilitate the transaction to underwrite and distribute the paper into long-term holders of that loan or bond instrument. We do retain some exposures to clients or as part of an overall relationship banking philosophy and from time to time; we can hold other exposures as well, but the general base case assumption is that we underwrite to distribute for most of the acquisition financing activity.
Gerard Cassidy, Analyst
Very good. And then to follow up on your comments that you made about the PCL. You obviously identified the three areas of what drove the PCL on a year-over-year basis: loan growth, the single-name impairments, and then the operating environment. Can you give us more color on the single-name impairments, what types of credits were impaired? And then just from a technical standpoint, do the impairments go through the net charge-off line? Or is it through another line on the P&L?
Denis Coleman, CFO
Thank you, Gerard, for your question. The growth piece is across the board. The impairment piece is actually several very small names. I don't think it's particularly thematic. We look at the overall operating environment, and we want to make sure we have calibrated the appropriate amount of reserves given the environment that we see.
Operator, Operator
We'll take our next question from Chris McGratty with KBW.
Christopher McGratty, Analyst
I want to go back to the change in the CET1 180 basis points linked quarter. Certainly, I understand buybacks a piece a bit, but I was wondering if you could unpack or elaborate just a little bit more on the RWA growth by product. Anything unusual in the quarter, the $85 billion or so. Obviously, I appreciate trading assets can move around. I'm just trying to fully understand the capital message relative to the 12.5% that you're at right now?
Denis Coleman, CFO
Sure. Believe it or not, I use words, but all those words calibrate to numbers. So the drivers of the CET1 delta of 180 are related to buybacks. On RWA, the biggest buckets are growth in prime financing, acquisition financing, and then market risk RWAs. Those are the three big buckets on the RWA side. Then add on to it the record level of return of capital to shareholders, and that's what explains the quarterly delta in CET1.
Devin Ryan, Analyst
Okay. And the 12.5%, roughly 100 basis points is a reasonable buffer?
Denis Coleman, CFO
It's 110 right now, and we think that's a reasonable buffer that gives us flexibility along each of the three principal vectors that I identified: more client activity, more return of capital to shareholders, and appropriate flexibility regardless of how the current proposed regulatory rules pan out.
Operator, Operator
We'll take our next question from Saul Martinez with HSBC.
Saul Martinez, Analyst
I wanted to revisit the equity results and their strength and ask a question that I assume you are tired of addressing, but I'm curious about the sustainability of those results. What distinguishes the durable aspects from the extraordinary ones? Your equity financing revenue reached $2.7 billion this quarter, more than double what it was in the first quarter of '24. The intermediation income is also significantly higher than it was five or six years ago, even compared to 2021 during the early stages of the pandemic. Balance sheets are continuing to grow, and you noted that investor engagement is still strong. However, how do you view the risks associated with this level of revenue? What is considered extraordinary versus what is sustainable? Additionally, what kind of environment would lead to lower results, and what conditions would be necessary to maintain and even grow these results, despite facing tougher comparisons? I know that's a lot, but I'm interested in your insights on the difference between durability and what is extraordinary.
Denis Coleman, CFO
I appreciate your question. There are a couple of underlying factors to consider. When looking at the long-term trend, market caps globally are growing, equity trading activity is increasing, and we have a broad range of clients participating in this space. We have made a focused effort to enhance our market share with key clients in both FICC and equities, supported by our balance sheet and capital commitments. The recent increases are a clear indication of our efforts to deploy more capital to support client activities. Additionally, there has been a slight change in the mix profile, all contributing to consistently higher activity levels. However, if we experience significant market pullbacks or a less active environment, clients may reduce their reliance on us for equity financing, which could lead to a reversal in these activity levels. Despite the various types of volatility we've witnessed over the past quarter and years, with markets fluctuating and clients adjusting their leverage, there remains significant demand for us to provide financing support. We work diligently to assist our clients while maintaining discipline and thoughtfulness regarding how we extend financing, ensuring we can continue to deliver attractive returns for our shareholders.
Saul Martinez, Analyst
Okay. That's helpful. Maybe just a quick follow-up then on the question of FICC results this quarter; obviously, some softness in rates and mortgages. It sounds like this is more of a more generalizable related to the market backdrop as opposed to anything Goldman specific? Is that right? I did notice that VARs and rates did go up quite a bit. It was an area of softness just any color there as to whether there's a reason for that divergence that is notable?
Denis Coleman, CFO
Sure. So you're right; borrowing up across rates, borrowing up across commodities. VAR, as you know, is a calculation that has a rolling 30-day contributor based on volatility, and volatility across rates and commodities in the first quarter went up, and that is what mathematically drives the change in the VAR ratio.
Operator, Operator
Thank you. We'll go next to Mike Mayo with Wells Fargo.
Michael Mayo, Analyst
Just a follow-up on the sponsor activity. And what percent is the sponsor activity of your investment banking activity? I know you said it still hasn’t come back, and that’s potential upside in the future, but is it like 10% or 20% or historical 33%. Where is that right now?
David Solomon, CEO
Yes. It's not a number we've disclosed, Mike, but in an M&A quarter like the one we just posted, it's a smaller percentage, significantly smaller. I'm not implying it's not a meaningful business for the firm, but we haven't specifically disclosed that number. It varies based on activity levels and current conditions. That said, sponsors are important; they represent a substantial client base, and we engage extensively with them. We did a lot with sponsors this quarter, but it is a broad and diverse business. Looking at the overall performance, we can have one sector that underperforms while still seeing strong performance elsewhere. For instance, we had very strong banking performance alongside weaker sponsor performance than I anticipated three months ago, but it didn’t impact the overall strength of our banking performance.
Michael Mayo, Analyst
And to be fair, you've talked about sponsors for a few years. Look, your mergers are there; you're #1, we get it, but you've talked about sponsors for a few years and you had another CEO talk about over 10,000 large companies that remain private, even with record high stock markets. So why is that?
David Solomon, CEO
Yes. A couple of things here. First, when we refer to sponsors in this context, we are primarily talking about private equity, but it's worth noting that sponsors are involved in various sectors such as infrastructure, real estate, and credit. The total rough enterprise value of all private equity-owned companies is around $4 trillion, which is a smaller figure compared to the video sector. This is important when discussing capital and capital flows. One reason private equity firms have been slow to monetize is due to the economic incentives that allow them to wait. There was a significant increase in the values of private equity portfolios in 2020 and 2021, which raised expectations for monetization, and many are currently biding their time. As the economy and the world expand, many of these businesses are likely to reach those valuations. The only leverage that limited partners have to pressure general partners is to refrain from participating in future fundraising. There is some mounting pressure, and I believe we will see more activity, but overall they have been slower to act, opting to take their time. That said, I expect that more activity will emerge over time. We are well positioned for it; I just want to emphasize that the investment banking ecosystem is currently quite favorable. Clearly, if private equity sponsors became more active, it would enhance our position even further, but for now, we see a pretty constructive environment.
Operator, Operator
Thank you. Ladies and gentlemen, that will conclude our question-and-answer session and also concludes the Goldman Sachs First Quarter 2026 Earnings Conference Call. Thank you for your participation. You may now disconnect.