The Goldman Sachs Group, Inc. (GS) Earnings Call Transcript & Summary

Great. Good morning. So our next presentation is from Goldman Sachs. Joining us today from Goldman is President and Chief Operating Officer, John Waldron. Most of you know Mr. Waldron very well by now on. Prior to his current role, he's held many leadership positions at Goldman, including the Co-Head of Investment Banking business as well as leadership roles in the financial sponsors group and leveraged finance. John will give a short presentation and then we will sit down virtually for a Q&A session. [Operator Instructions] So with that, John, welcome back to the SDC. Again, thank you very much for participating in the conference. And the stage is yours.

Great. Thank you, Christian. I really appreciate the opportunity with everybody. So good morning to you all. I'm pleased to be with you virtually today. I hope you and your loved ones are safe and healthy. If you turn to Slide 1, I intend to cover 4 broad themes today. First, I'll offer some perspective on the macro environment, including the unprecedented global monetary and fiscal response and our view of the path forward from here. Second, I'll discuss the lessons we've learned from our own business continuity planning. Our considerations for safely returning to the office, and what we are hearing from our clients during this crisis. Third, I'll provide an update on our early progress in executing upon the strategy we outlined at our Investor Day in late January. While we are clearly experiencing a more challenged market and business environment, we are seeing some very good signs of progress across a number of the KPIs we outlined related to our growth initiatives. And fourth, I will focus on our prudent risk management approach through this period of elevated market volatility, with an emphasis on our credit and equity exposures across the firm. So if you turn to Slide 2, let's start by outlining the market environment we have all been navigating over the past 3 months. We have seen extraordinary volatility as well as record amounts of government intervention into the markets and the real economy. This includes the fastest ever 20% decline in the S&P 500 as well as the largest 1-day drop in the MSCI World index, the VIX trading to all-time highs and credit markets that essentially closed over a period of days during March with high-quality issuers having to pay distressed prices for short-term funding. The impact on the economy has been equally dramatic, with the decrease in global GDP for the second quarter expected to be the most severe since the great depression. Now the central banks globally have had an enormously positive impact on stabilizing markets. And we commend them for moving very fast in unprecedented size and with tremendous global cooperation. Importantly, their early moves to provide liquidity and ballast to the treasury markets, the short-term money markets and the broader credit markets, among others, have had a resoundingly positive impact on unlocking private capital and enabling these important markets to function more normally. The markets are also reacting to the significant fiscal policy response globally, including the recent $2.3 trillion package in the U.S. as well as the proposals by both the ECB and the German and French governments. Actions that are a clear attempt to bridge consumers and businesses through the depth of this pandemic. This set of policies and instruments is successfully enabling corporations and institutions to reliquefy and strengthen capital bases and balance sheets to better position them to endure the demand shock. We're now seeing renewed risk appetite levels as evidenced by the sizable corporate financings absorbed into the market. Record U.S. dollar investment-grade new issue volumes at just over $1 trillion of volume year-to-date, up 85% versus last year as well as reopened and active high-yield markets and significant equity capital raising activity. With asset prices trading much closer to pre-COVID levels, we now look ahead to try and reconcile the damage in the real economy with the market's more optimistic view on the recovery. Our current research view was for global GDP to decline just over 4% in 2020, with a 6.5% rebound in 2021. This is informed by the progress that has been made globally in recent weeks to contain the spread of the virus and start reopening parts of the world economy. My personal view is that as economies start to open, any recovery is likely to be uneven and fairly bumpy. The progress will not feel uniform across the world, and undoubtedly, some economies will emerge stronger than others. We are beginning to see this play out across Asia, where we are in the early stages of reopening and are already learning some valuable lessons. And of course, just as we say that, we must now confront the prospect of China asserting further control over Hong Kong. An example of the growing geopolitical risk we will all face in the months ahead. We have been evaluating the signals we hear from our clients on the ground in China, where the manufacturing base appears to be nearing pre-COVID levels of activity. With the consumer-facing subsector is clearly lagging, but showing signs of strength in the last few weeks. Now while China is not a perfect comparison given its concentration in manufacturing, these data points make us cautiously optimistic that a measured and managed reopening is achievable in the U.S. and Europe. We will certainly learn more in the coming weeks as countries including Germany, France, Denmark and Japan proceed with sustained reopening plans in several states in the U.S. similarly begin to activate. And when turning to Slide 3, I want to spend a minute on our own business continuity planning. Goldman Sachs has weathered many crises over the course of our 150-year history. We pride ourselves in being good planners, and we were well prepared to adapt our business continuity plan as this COVID crisis unfolded. We started executing our plan in Asia in January and expanded that approach globally in early March, shifting our teams initially to a split-team strategy and then very quickly to 98% of our people working from home. This required extraordinary deployment of technology and an adaptation of our processes and procedures to stand up our firm remotely. Our effectiveness in this remote work environment has certainly exceeded our expectations, a testament to the resiliency and adaptability of our people and the firm at large. Now we are beginning the process of returning to our offices around the world and following a people-first strategy, prioritizing the health and safety of our people above all else. As part of our overall approach, we are also focused on community readiness, remaining in constant touch with the key authorities in the communities where we operate as well as facility readiness, establishing a comprehensive set of protocols for our offices as our people return over time. We have already started implementing our plan, which includes building towards approximately 50% of our people working in our offices in Hong Kong, China and Korea, and approximately 10% in our offices across Continental Europe. And we are planning for a core group of people in our markets-facing businesses to return in the U.S. and London over the next several weeks. More broadly, we have learned valuable insights through this process that will inform our operating strategy going forward. We have developed even more conviction around our intention to further digitize and automate our processes. And we are likely to accelerate the strategic location strategy I outlined at Investor Day as our success in operating remotely during this recent period emboldens us to move faster. Now turning to Slide 4. We have spoken extensively about One Goldman Sachs as foundational to our organization's structure and overall approach to further strengthening our client franchise. There is no question in my mind that we are benefiting during this period from the investments we are making in One Goldman Sachs. We are very proud of the way our people are performing in the service of our clients around the world. We are experiencing a very high client engagement across the firm, including a 30% increase in client interactions across our investment banking business. We're also very active in providing key insights and thought leadership to our clients in framing this crisis, as well as the markets and the prospects are returning to work and economic recovery ahead. Our research team has been extremely visible and often quoted, and we are seeing elevated levels of engagement here as well, including a 90% year-over-year increase in readership for February through April as we communicate with our clients and other external constituents digitally. Now if I could isolate the issues that are top of mind for our clients, I would highlight a handful, including: intense focus particularly early in the crisis on liquidity and balance sheet, husband in capacity to navigate the potential for a longer-duration economic downturn; the evaluation and planning for protocols and policies around returning to work; a review of global supply chains, with specific focus on diversification and resiliency; a clear concern about the rise of nationalism in an ever more complex geopolitical landscape with the U.S.-China relationship as the tip of that spear; and then active repositioning of investment portfolios to risk manage in a period of highly elevated volatility. Now turning to Slide 5. Let me shift to an update on the strategy we outlined at our Investor Day. We highlighted 3 key pillars underlying our strategy: first, to grow and strengthen our existing businesses; second, to diversify our products and services; and third, to operate our firm more efficiently. This strategy is intended to grow our investment across our client franchises, resulting in higher wallet shares, generating more fee-based durable earning streams while enhancing the diversification of our business and driving higher margins and returns over time. This crisis only reinforces our commitment to our strategy. Our core franchises are demonstrating real strength, and we see clear opportunities to further enhance our relative position and leverage adjacencies for growth. We are very pleased with the tangible progress we are making in further diversifying our business across our 4 primary growth initiatives. And then our mission to manage the firm more efficiently, we will continue to focus on our $1.3 billion operating expense reduction program, while remixing towards deposits to drive lower-cost funding as part of our overall progress towards higher returns. Importantly, while we are not currently in the normalized operating environment we may have envisioned back in January, we remain fully committed to delivering on our medium and long-term financial targets. I'm turning to Slide 6. Let's spend a minute on the continued strength of our core franchises. In Investment Banking, with balance sheet and liquidity top of mind for our clients, we are seeing robust activity across our capital markets businesses. We are clearly benefiting from market share gains across our debt complex as well as strong volumes in our market-leading equity platform. Our banking franchise is performing very well. But given the environment, you should expect a mix shift from M&A towards underwriting and capital markets activity in the months ahead. However, we do expect renewed strategic activity on the back of this downturn. And we believe we are well positioned for success, given our expanded client coverage footprint and our leading M&A franchise. In our Global Markets businesses, we are seeing continued high volumes and active portfolio repositioning across our client franchise. Our market intermediation capabilities are proving extremely valuable. We are providing our clients with liquidity and redistributing risk in a very disciplined manner. We are benefiting clearly from our multiyear investment in a digital infrastructure with record engagement on our marquee platform as well as record electronic flows across both FX and commodities. And we see an increased opportunity to finance our clients, consistent with our strategy as outlined in the Investor Day. Additionally, our decision to migrate the leadership of the key product areas to next-generation sales and trading talent is paying big dividends. This is a very collegial team that is performing exceptionally well and managing our risk effectively through this crisis, extremely tech-savvy and embracing of our focus on digital automation across the platform with a real orientation to collaborate in serving our clients around the world. Our Asset Management franchise is seeing substantial growth, particularly in liquid products across money markets and fixed income. We announced $8 billion of long-term fee-based asset growth in the first quarter as well as $66 billion of net inflows into short-term liquidity products. Our global, broad and deep franchise with its proven track record is attracting more flows during this volatile period. And our investment performance continues to be strong across asset classes with 72% of our global assets in the top half of Morningstar over a 5- year period as of April 30. And in our Private Wealth franchise, we are pleased with the stability and durability of our ultra-high net worth franchise. Our clients are remaining calm and measured through this crisis. We continue to see, on their part, a clear desire to create more short-term liquidity, but our clients remain actively invested in the markets with an eye towards long-term performance as well as attractive buying opportunities. Now if you turn to Slide 7. Let me now pivot to an update on the progress we are making across our 4 primary growth initiatives, which to remind you, include our alternative strategy, the build-out of our transaction banking platform, our continued digital consumer banking efforts and an expansion of our wealth management franchise. So first, in alternatives. We outlined our expectation to raise $100 billion in the next 5 years across our global alternative strategies. We continue to believe this is a significant secular growth opportunity, only reinforced in the current environment with lower rates for longer, where investors need yield and return, and we believe will evidence a clear desire to allocate more money into safer and proven hands with longer dated track records. Similar to our corporate franchise, we are driving a solutions-oriented approach here. Building an advisory-led, thought leadership position in the service of our clients, particularly important in this environment where our clients are dealing with extraordinary challenges and need our advice and expertise more now than ever. We see a clear opportunity to activate our One Goldman Sachs franchise model to offer holistic solutions that capitalize on our global footprint and the breadth of our strategies, the power of our origination capabilities as well as our deep risk management experience and an ability to navigate all-weather markets. We are actively fundraising in the market with an expectation to raise $20 billion in capital this year. And as an example of our ability to pivot and stay nimble, we are in the process of launching a strategic solutions fund, where we're extending credit to corporates and participating in the economic recovery alongside them. The combination of our brand as a long-standing investor through cycles, coupled with the significant breadth of our offering, provides us with many shots on goal with our clients as we build a more comprehensive fundraising capability over time. Turning to Slide 8. Let's talk about our transaction banking platform, which is an important growth opportunity for the firm. We are very excited about the progress we are making and the reception to our offering. Our value proposition is resonating with our clients. We're building a modern, cloud-based, digital-first offering with fast and easy onboarding, more sophisticated analytics and scalable client customization capability. On Investor Day, we spoke about an expectation to grow our deposits to $50 billion over the next 5 years. We launched our deposit product in the fourth quarter of 2019, which was part of our strategy to start onboarding corporate clients and introducing them to our platform. We have seen significant growth in our deposits since launching our product offering. In the first quarter, we disclosed that we had over 80 clients on the platform and approximately $9 billion in total deposits. Today, we stand at over $20 billion of total deposits across more than 175 clients on the platform. We are clearly benefiting from a substantial increase in corporate liquidity, as our clients raise more cash to withstand the demand shock in front of them. The combination of more money in motion, our relatively simple onboarding process and a clear focus for our bankers to get our offering in front of their clients is driving very robust growth in deposits on the platform. This deposit growth has far exceeded our expectations and is reflective of the enthusiasm around our product offering. And while these early flows are not operational deposits, we are working to deliver greater functionality to our clients to convert these deposits to operational deposits, improving their stickiness and funding value over time. We are also working to develop a series of partnerships to broaden our reach, and we're seeing very good progress here, including our recently announced partnership with SAP, which is a good example of us further embedding our capabilities into other's ecosystems. We will be launching our full suite of products in mid-June, which will include deposits, payments, escrow services and liquidity optimization solutions. And we are very much looking forward to sharing more details about our platform after next month's launch. Now turning to Slide 9. Similar to transaction banking, we continue to make very solid progress on our strategy to build a leading digital consumer bank. We believe this crisis is accelerating the trend towards digital banking, making us increasingly confident in our all digital business model. We continue to focus on building a full suite of digital capabilities, including our Marcus mobile app, which was launched earlier this year as well as investing in digital checking and other tools on the platform. Additionally, we are growing deposits, which are a valuable source of funding for the firm. We announced a record level of $72 billion in consumer deposits in the first quarter. 80% of that inflow came from new customers, demonstrating our ability to expand our existing client base. Our progress continues into the second quarter. Today, our deposits stand above $80 billion. Our loan and card balances were $7 billion at the end of the first quarter. This reflects us being careful and cognizant of the credit cycle we are operating in, in moderating our origination volumes, as you would expect. And we continue to tighten our standards and manage our risk prudently. In particular, we have a 13% allowance for loan losses against these balances. So all and at the end of the first quarter, we had a deposit to loan ratio of 10:1, clearly reflective of our strategy to lean into deposit gathering while being measured on loan and card growth. Turning to Slide 10. We spoke at the Investor Day about our ambition to build an integrated wealth platform, and we remain committed to the medium-term targets that we laid out. We continue to see a significant growth opportunity in the high net worth segment of this market. And as many of you know, we first discussed our acquisition of United Capital at this conference last year. Our thesis was to combine an advice-led digitally enabled wealth management strategy with the corporate footprint and extensive counseling services of our long-standing Ayco platform, enabling us to deliver holistic planning and wealth management solutions from the C-suite all the way through to a broader base of employees. We have since rebranded United Capital to Goldman Sachs Personal Financial Management, or PFM. In the past year, we've made substantial progress in integrating these businesses and are beginning to see our thesis play out. Ayco and PFM have partnered on 7 corporate mandates to date, covering over 2,000 employees, including Fortune 500 companies such as Chevron and Schlumberger with several more large opportunities in our pipeline. We have also seen significant synergies between PFM and our flagship private wealth franchise, with over 300 client referrals between the 2 businesses going in both directions. Year-to-date, these referrals represent an $800 million AUS opportunity, and many are already in the process of being onboarded. Now while we continue to pursue growth in our overall wealth franchise, we are acting prudently in the current environment. We have decided to slow our adviser hiring activity for this year, and we will defer the launch of our digital wealth offering into 2021. Turning to Slide 11. Our strategic priorities remain underpinned by a deep risk management culture. This culture is entrenched within our values and our people and built through years of dedication. David, Stephen and I have been extremely focused on risk management, spending time working directly with Brian Lee, our Chief Risk Officer, and his team on a daily basis throughout this crisis, balancing a disciplined approach with a lens towards our client franchise. I have always had great confidence in our risk management framework, but it is in times of stress that you can truly see the effectiveness of our firm's risk orientation. We are seeing this firsthand through our comprehensive limit structures, our robust stress testing and our rigorous approval processes as well as our ability to remain dynamic and nimble to stay in front of these evolving risks. Now away from Goldman Sachs, this crisis has caused companies to focus on building liquidity, strengthening balance sheets and accessing the capital markets. This is something I am intimately familiar with having spent the bulk of my 30-year career helping clients manage balance sheet liquidity and raising capital. This experience has been extremely valuable over the past 3 months, as David, Stephen and I work extensively alongside our teams with our clients and helping them find solutions to the current environment. And while the markets have recovered somewhat, there was clearly the risk of more volatility ahead of us. We remain vigilant, and we are prepared with robust processes and infrastructure as well as a strong balance sheet foundation. Turning to Slide 12. Goldman Sachs came into this market dislocation from a clear position of strength. Our financial position has significantly improved versus the 2008 financial crisis. Our gross leverage has been reduced by more than 50%. Our liquidity is substantially higher. We've averaged over $240 billion of global core liquid assets in the first quarter, 4x higher than in 2007 and now representing almost 1/4 of our total balance sheet footings. We also have a more diversified and stable funding profile. Our deposits were a record $220 billion, almost 1/3 of our total funding sources compared to less than 5% in 2007. And our current capital levels remain resilient despite the market volatility. And importantly, we are well positioned to continue to be part of the solution and working with our clients to rebuild their businesses and the broader economy as a whole. Turning to Slide 13. Let's spend a moment on credit risk. We support our clients by extending our balance sheet to provide credit and liquidity. In the current environment, we are laser-focused on ensuring that these decisions continue to be made consistent with our long-standing conservative risk lens. We have a very high-quality loan book. Our funded loans are 78% secured, and represent only 12% of our total assets. Now we took an incremental $937 million credit provision during the first quarter, bringing our total allowance for loan losses to roughly $2.9 billion, or 2.5% of our funded loans under accrual accounting. However, given the deterioration in the operating environment relative to our modeled assumptions, including a more significant economic contraction and elevated unemployment levels, these provisions could be higher in the second quarter. We remain comfortable with our credit risk as we see it today. But as you'd expect, we're watching it very carefully as the economy moves forward. Now turning to Slide 14. We are equally focused on asset risk, particularly as it relates to our asset management segment. As we've mentioned before, last year, we merged our Merchant Banking and SSG businesses into a single alternatives investing platform. In addition to helping us carry out a holistic third-party fundraising strategy, there is an added benefit here from a risk management perspective. We've now developed a unified risk committee with a consistent set of protocols and standards, enabling us to have more transparency into the entire portfolio and an ability to risk manage in a more consolidated manner. On the equity side, our portfolio is well diversified by geography, by vintage and by sector. The portfolio was rigorously evaluated and appropriately marked to reflect the inherent investment risk. On the debt side, our loan portfolio was largely secured, and our debt investments are diversified across sectors. We have more exposure to defensive industries and less in sectors like consumer discretionary and natural resources, including energy. And importantly, across both our equity and debt investments, we have a strong track record of working with our portfolio companies and navigating through risk periods like this before. Finally, turning to Slide 15. I want to emphasize the importance of Goldman Sachs' purpose, which we laid out at the Investor Day: to advance sustainable economic growth and financial opportunity. This particularly resonates with us in the environment we are living in now. I am heartened by the stories I hear every day about the significant efforts my colleagues are undertaking across the globe in support of our people, our clients and our communities. We're proud of what we've accomplished in the recent months, and we're confident that we'll continue these efforts in the months ahead. Our purpose is supported by a steady operating approach, which remains equally important today. First, our clients. We will continue to deliver One Goldman Sachs to help provide our clients with solutions as they navigate this complex and volatile period. Second, operating focus. We are committed to maintaining a long-term mindset and are confident that our multiyear planning process will serve us well in this crisis and beyond. Third, growth. We are investing in both our core franchise and our new initiatives, all with an eye to the current market environment. And last, accountability. We will continue to be transparent on our progress, and we are driving accountability throughout the firm to deliver on the targets that we've laid out. And with that, I'll turn it back over to you, Christian. Thank you.

Thank you very much, John. There was a lot in there. So thank you much for the presentation. So maybe a good place to start, John, is just on the macro backdrop. Clearly, the equity from the markets have rebounded very sharply. And maybe taking a more positive view on the longer-term risks, you are somewhat more cautious, I would say, given your remarks. I think you mentioned things like bumpy and uneven reopening, geopolitical risks. So as you think about the next a couple of quarters, how do you think about sort of the main risks that you see going forward?

Okay. Sure. I appreciate the question. I appreciate the time again this morning. I think undoubtedly, the biggest risk we all face is the economic trajectory. You're right. I referenced bumpy and uneven. I think the markets are discounting a more benign economic recovery. I wouldn't say that, that's impossible. I think obviously, we all root for that and hope for that. But I think the risks ahead are that it doesn't go quite that smoothly. And you have reemergence of the virus maybe in pockets, you have uneven start and stop kind of feeling around the world and more of a W as opposed to an elongated U or even a V. And so while not predicting that will happen, we certainly want to plan for that and think about that and model those scenarios. And so I think if you think about that broader economic sort of overlay, the places we would look at underneath that broader umbrella would be credit, I think both corporate credit and consumer credit. In corporate credit, we tend to focus on the areas that don't benefit as much, or if at all, from the government support. So obviously, the governments have supported large aspects of the economies around the world. But there are components of the economies that have not been as supported or supported at all. Middle market lending would be one area that I might call out, where -- while we've got Main Street Lending in the U.S. and other programs around the world, there is a squeezed middle that is probably not benefiting really from access to the capital markets or government support. And there has been a lot of lending to middle market companies over the last decade or so in various forms, some in the banking systems, some outside the banking system, and so we pay pretty close attention to that. I think you have to worry a little bit about that as the economy unfolds. On the consumer side, I think the issue really relates to unemployment and the fundamental health of consumer balance sheets. Obviously, we're seeing extraordinary unemployment levels now, much of that is furloughing. If that furloughing finds its way back into employment and we get to more rational employment levels and economic recovery, then the consumer balance sheet should be okay and we may end up kind of getting through here without much damage. If we have more of a W and the government support starts to wane and consumer balance sheets are more damage, then you end up with a little bit more -- to maybe a lot more destruction in the consumer credit arena. As you know, we're not big consumer lenders, but as I said, we have $7 billion of balances, so we pay close attention. We're watching consumer balance sheets carefully. I would probably also call out sovereign credit. I think, obviously, there's a lot of fiscal pressure with almost every country in the world now extending balance sheet and providing relief, which is the right policy at this point in a crisis. But the second and third order impacts of those balance sheet expansions are to be worried about. And so we spent time, obviously, thinking about that. We've seen a lot of volatility in the commodity markets. I think you have to worry about the volatility ahead in commodity markets. We may see a benign recovery, and it may all be fine. But if you have something that's more uneven, we've certainly seen supply/demand imbalances, kind of unprecedented in the oil markets in the last handful of weeks, now starting to repair. Some of the supply reduction and the shut-ins are having an impact. There is a little bit of demand recovery as things reopen. But that volatility could persist. And obviously, you want to look through the underlying commodity in the credits that are more exposed to those commodities. And so it has a real flow-through impact, and we spent a fair bit of time looking at that. And the last thing I'd probably call out would be cyber, which is a risk that we always are focused on and mindful of. But I think in this environment, with this kind of a crisis and this kind of a geopolitical stress period, you have to be ever more mindful of the cyber risks that are in front of us.

Great. Maybe how -- let's think about how that impacts your business. So maybe first on just the markets. Obviously, in the first quarter, you took some sizable marks on your equity and debt portfolios. The markets have rebounded some. So maybe any color on what's happening this quarter? And then again, on the second side of that will be credit. You gave some helpful -- I think new disclosure around your credit provisions by second quarter. So those 2 issues, maybe talk about how are you're thinking about those 2 issues going forward?

Okay. Sure. So in the first quarter, as you said, we took marks across our portfolio, both private equity, public equity, credit, real estate, et cetera. The public equity marks would tend to flow from the public asset prices. So it's pretty easily observed. The private equity marketing that we do or private portfolio marketing that we do is much more fundamental-driven. So we're going to look most prominently at how the COVID crisis is impacting the underlying companies or the underlying positions. And so you'll model cash flows and think about the fundamentals that are in front of you, and how the companies in positions will perform. And then you'll bring to bear third-party metrics, appraisals, industry multiples, transaction multiples, various things that we can triangulate around to create marks. And that's kind of how we think about it. And that's how we thought about in the first quarter, and that's how we think about it in the second quarter. I think if you look at the portfolio in the first quarter, we highlight that about 65% of our portfolio at that point was really unaffected in terms of our forward view on the underlying performance of those businesses, those positions. 15% were really reserved for gains on sale. So we were monetizing or liquefying those positions, which leaves about 20% of the private positions that were definitely impacted by COVID and were more susceptible to more pronounced mark. The debt marks will be much more impacted by credit spread widening in addition the fundamental performance of the underlying credit. The second quarter data on the economy and unemployment has obviously trended worse than what we would have thought, perhaps in the second half of the first quarter. So there's certainly potential for further marks ahead on both sides of the ledger. Public prices have improved. But the underlying fundamentals in the economy and unemployment have deteriorated. So that's a little bit of a put and a take as we look ahead into the second quarter.

Okay. Very helpful. Maybe a broader question on kind of how you're thinking about the world post-COVID, right? And this is a question we're asking everyone at the SDC. You think about your priorities around current cost or where you want to invest and the level of investments, kind of how do you think about that in a post-COVID world? I would love you to just tie that into -- we do have some specific targets around expenses of $1.3 billion. So maybe just tie those 2 things together.

Sure. It's a very good question, and I can't think of a client conversation that I've had over the last 60 days that didn't include a version of this discussion. So I think it's on everybody's mind. I would say at the high level, we remain committed to our strategy, to our approach and to our targets. There's nothing about the crisis that leads us to deviate from what we laid out at the Investor Day, as I alluded to in the presentation. So while there are puts and takes and while there are things that we can accelerate and things that we will defer, broadly across the firm, we still feel very good about the long-dated approach we're taking and the direction we're heading and the targets we laid out. But there's no doubt, as I alluded to, that there are things that can go faster versus slower. So I talked a bit about our consumer lending and card balances and the moderation in those origination volumes, you would expect us to do that at this point in a crisis with an economic contraction. Similarly, our wealth management strategy will be a little slower on the adviser hiring front, although going a little better on the high net worth United Capital rebranding integration with Ayco. So there, again, there are some puts and takes there. And our deposit franchise is actually benefiting from the crisis. So while there are aspects that are slower, our deposits are coming in faster, as there's more money in motion, both on the corporate and the consumer side. And I think our alternatives franchise will do really well in this period. Our breadth, our 30-year track record, our scale, alongside a handful of others in the industry, I think will stand to benefit from this period. In the core franchise, the M&A business is a little slower, and the Global Markets business is a little better. So again, that's why having a diversified platform is a good thing because you get aspects that slow down and aspects that do better, and that portfolio can still perform through a crisis. You asked about the operating efficiency and the cost elements that we talked about at the Investor Day, and I alluded a little bit to it in the presentation. There's no doubt that we're learning a lot about operating efficiency in this period with 98% or so of our people having worked from home for a large part of this crisis. I think the ability for us to be more digitally transformational and automate our processes faster than we would have guessed is for sure in front of us. We talked a lot about that at the Investor Day. We believed in it at the Investor Day, but there's no doubt, the last 60 or 70 days has proven to us we can actually turn that crank faster. We can take more human intervention out of the processes in terms of the way we execute upon a lot of the activities in the firm and really push that theme bigger and faster. Similarly, I talked about real estate and strategic locations at the Investor Day. I think I said at the Investor Day that we have 30% or so of our people in a strategic location, which to us, include cities like Bangalore, Dallas, Salt Lake City, Warsaw, Singapore, a handful of others, outside the core, call it, city center headquarter-type cities, where we were running a front-to-back model. We're trying to build some centers of excellence in there, where we can have more data analytics, cloud, mobility, machine learning, process reengineering and really trying to push more of that into those strategic locations. There's no doubt we can run a more distributed model now. We've proven to ourselves that we can actually have more people working away from the office location and run a more distributed model. So we talked about taking 30% up over a reasonable period of time. We didn't give a target, but that 30% can go up higher and it can go up faster. And so we're going to be moving, I think, in a fairly expeditious manner to try to be more accelerating that strategy. But the one thing I would say that we spent a lot of time focused on that is a real challenge, which doesn't detract from running a distributed model, but it's something that we spend a lot of time on is culture. Our firm thrives on connectivity, on collaboration, on teamwork, on learning from each other, sitting around a table, comparing notes on a problem and giving a solution to a client, which results in having a lot of people deliberating. That's a lot harder to do persistently by video. We have an apprentice model. We teach our people by having them work alongside us. They grow and they develop through the mentoring of all that we do during those periods. That's a lot harder to do in this environment. So while we are working well from home, and it has gone better than we might have expected and we stood up the firm and the markets are functioning, I worry that it decays over time. And so we are anxious to get some of our people starting to come back into offices and starting to really reinvest back into the culture and that people development aspect, which doesn't detract from distributing more people around the world into more locations, but is an important component of how we run Goldman Sachs.

Yes. Very helpful color. And just quickly on the $1.3 billion. Do you think of it as a -- with what you're learning so far as in more -- you can get there faster or you can actually do more than $1.3 billion. How do you kind of think about the net-net of all this?

We're not deviating from the $1.3 billion that we laid out. That was only 3 short months ago. We still intend to execute on that plan. There are definitely aspects of that we're going to get to faster. As you'd expect, we're evaluating all aspects of our cost structure, all aspects of the way we run the firm. And we may have things to say about that over time. But as we look at it right now, there's no reason to deviate from that $1.3 billion over the time frame we talked about.

I thought I'd try a little bit. On M&A, a topic I always like to talk about with you given sort of your history and knowledge of the space. Goldman did a little deal, I think Folio, recently, and you've done kind of small bolt on. So maybe 2 questions. One, just remind us how you're thinking about M&A as a strategy for your business. Or more broadly, I think, how are you thinking about just transformative deals to really accelerate your strategy?

Sure. You're right. You do like to ask me this question, and I get asked this question a lot. We're proud of the M&A we've done so far. Folio is only a few weeks old. So it's hard to say much about it. But both United Capital and Folio are good examples of what our strategy has been thus far, which is to look for areas where we are already desirous of growing organically, where there's a platform or a set of capabilities or business that can accelerate our plans. And United Capital is a really good example of something that accelerated our integrated wealth management strategy. We didn't have a national RIA. We have a flagship ultra-high net worth franchise. We have an ambition to build deeper into the high net worth segment. We have our Ayco platform, and United Capital is really a good example of giving us that RIA platform to start to really go after the corporate channel more holistically. And so that, again, bolt-on, as you said, integrated in a way that we feel comfortable with, culturally makes sense, financially, it makes sense. And so we go ahead and do it. Folio similarly, approach towards the custody aspects of the RIA platform. So we want to be a custody player. That's a stable, durable fee-based business, consistent with our strategy. It's not that big. We can integrate it. It's a nicely built platform. With $11 billion of assets on the platform, we can grow it from there, and it gives us more balance to run into that RIA channel and be a larger player over time. You asked about transformational M&A. The bar goes up exponentially when we think about something that's much larger or much more impactful to the whole of the firm. We obviously look at financial criteria, we look at cultural criteria, we look at integration and execution risk. And on something large and transformational, the elements of execution risk and cultural risk go up a lot. So put the financial on the side -- even if it financially makes sense, we've got to feel comfortable that we can blend it into Goldman Sachs and that we're not going to change what's uniquely advantageous about Goldman Sachs. So as I've said before, the bar is up high. We look at things. We have to be aware of what's going on around us. But we like the Folio, United Capital strategy, and we intend to continue to pursue that path.

And on the transformational deals, does the current macro backdrop even make the bar higher? Or Goldman historically been opportunistic, does it make it more likely? I'm just trying to figure out how you think about the relative merit of transformational deals given what's going on just now.

It's a good question that I alluded to in the presentation, not with respect to financial services, specifically, but we expect more strategic activity coming out of this crisis. I don't think it's happening next week. But I think as you get to a place where there's more conviction and more confidence that we are on a sustained economic recovery, you will see companies start to play more offense. We're starting to see companies raise capital in advance of wanting to go play more offense. And I think in financial services, we can see some of that. There's no question that scale and breadth and diversity of businesses is proving to be an advantageous thing to have. And so I think there could be more consolidation and aspects of financial services, but it doesn't change our perspective on the bar being high on the aspects I talked about. So we obviously keep a close eye on what goes on around us. But the bar continues to be high in terms of our ability to do something large and transformational and integrate it and culturally make it work for Goldman Sachs.

Okay. Let's talk about transactional banking. I think it's an area where I certainly have been surprised at least at the pace of growth. I think you mentioned 150 or 100 clients, so far. Deposit gathering has been very strong. Why are you seeing so much early success? What's the differentiating factor? Is there a theme to the type of clients that are covered on the platform? And then help us understand the economics of the business. I know there was an FT article, of course, talking about you guys paying 200 basis points for deposits. So maybe help us think about kind of what the economics of that business looks like.

Okay. You're right, you have been a skeptic. I don't blame you for that. We intend to try to pull you on to our side of the table. And so we'll keep taking one step at a time to try to do that. The first thing I would say, you mentioned the FT article, and I can't help but respond to that because 200 basis points is not anywhere close to an appropriate level. And I don't know where that number came from, but it's erroneous. We pay between kind of 10 to 35 basis points for the physical deposits that we take on to the platform. So that's a long way from 200 basis points. We are seeing progress. There's no doubt that the corporate reaction has been very, very good. I think our decision to develop a deposit product as a wedge and an introduction of the platform before going live with a full suite of payment capabilities and liquidity capabilities has proven to be a good thing because we've been able to build and rapport in relationship with our corporate clients. Believe it or not, one of the things that we hear from our corporate clients is that the onboarding process is really easy and really seamless and takes a matter of hours versus what they're used to in other platforms that they interact with. So it can take days or weeks with lots of paper in other platforms, and they can get into our platform in the matter of a day, maybe in a matter of an afternoon. And so as simple as that sounds, that actually is resonating. We're hearing that quite consistently. And then I think the analytics and the ease of use on the platform for a treasurer or an assistant treasurer to kind of navigate and see everything in front of them on a dashboard is also proving to be something that they really like. So there are aspects of the product that we're getting good feedback on and that emboldens us to continue to believe that we're building something that has real value-added and that the proposition is helpful for our clients. The client base is pretty broad. The 175-or-so clients that I referenced, there's a lot of large companies in there. There's some kind of large-sized, mid-market companies in there, but a lot of companies that you would recognize that are putting significant deposits on the platform and are saying to us that they're going to give us an opportunity to prove that the operational -- that operationalizing the platform will be something that they're anxious to see and that they want to be part of. And so we're desirous of getting that place. We're launching it in mid-June, and we'll be back to talk to you more about it. And so far, it's going very well, but we're taking it one step at a time. And I guess the last thing I didn't say that I should say is our bankers are really embracing this offering right now. That was something that I -- that is something I've been asked about in prior conferences, prior sessions. Skepticism about whether our investment bankers would deign to work on a transaction banking product, maybe helped by the crisis because more of their conversations are around liquidity and balance sheet and financing and funding. So that might be, at the margin, a propellant to this. But there's no doubt, our bankers are engaged and very actively working on this offering. We've put some escrow deposits into the platform, on the back of M&A transactions. That's a potential significant area of synergy between banking and transaction banking when we sell a company. There's a lot of cash that's in motion. A lot of revolver draws coming on to the platform. So we're really working the synergy between our investment bank and our transaction banking platform. And I think all of that so far is going as well as we could have expected at this point.

Perfect. We're running out of time, but I want to squeeze in 2 very quick questions. One on just capital and dividends. A lot of industry discussion around the sustainability of bank dividends and just particularly about Goldman Sachs, given capital ratios. So maybe just talk about how you think about the sustainability of Goldman's dividend.

Okay. I'll be brief since I know you're running out of time. We always care a lot about our capital base. We're consistently focused on having a resilient, strong capital base. As you know, we suspended our share buyback alongside the other financial service firms in our peer G-SIFI firms in the U.S. that runs through the end of the second quarter. I think it's a little early to speculate as to when and where we -- when and how we would buy back stock. I think we'll want to see a little bit more of a clear economic trajectory, and we'll see what comes after the second quarter. There has been commentary about suspending dividends in the market and in the narrative out in the world. Although I would note that Jay Powell's comments of late were pretty clear that he doesn't see any reason for the big banks to suspend dividends. We certainly don't see any reason to suspend dividends. Our capital base is very strong. Our liquidity is very strong. We'd obviously comply with whatever was asked of us, but we don't see any reason in the near-term to change our dividend policy.

Perfect. And then last one is I'm just tying everything together. At Investor Day in January, you laid out a target of -- with a 13% ROE over the medium term. As you kind of put the entire backdrop together around a post pandemic view, et cetera, how do you think about what your ability to achieve that in terms of time line? As a [Audio Gap] pretty high or low, et cetera. How do you think about sort of the ROE achievability?

Okay. Well, I said this a couple of times, and I'll say it again, we're committed to our targets. We're not deviating from our targets. This is definitely not a normalized operating environment. We said the targets were with a normalized operating environment. But 3 years is a long time. We're running the firm for medium and long-term targets. We're not running the firm to produce targets quarter-to-quarter, although we've got benchmarks and KPIs to make sure that we're measuring our trajectory along the way. I'll remind you that a significant part of the targets we laid out are really more in our control. The operating expense program that you asked me about, the funding savings of $1 billion that we talked about at the Investor Day. So between the operating expense reduction of $1.3 billion and the funding of $1 billion, that's $2.3 billion. That are numbers that we put out there that are in our control, largely in our control, that don't really rely on a revenue target or an operating environment per se. And there are probably places that we can continue to be more efficient over time, as you rightly asked about. And so that gives us great confidence that we can continue to move the firm in the right direction. And we are making a lot of progress on the revenue side, despite not being in a normalized operating environment. We are seeing very good signs across all 4 of the growth initiatives, as I tried to lay out earlier, where while some aspects are going a little slower, on balance, we're making very good progress, and we're seeing KPIs continue to trend in the direction we would hope. So we're obviously going to be mindful of the environment around us. But at this point, we feel very, very committed to what we said in January and expect to continue to move in that direction.

Fantastic. Thank you very much, John. We're in a little bit over our time, but thank you very much for participating in our conference. Thank you.

I appreciate the time, Christian. I hope to see you soon in person.

Great. Thanks.

Take care.