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

It is 10 a.m., so we're going to move on to the next presentation. I am delighted to be joined by Denis Coleman. I don't think Denis needs any introduction, CFO of Goldman Sachs, been at the firm since 1996, CFO since 2022, regular attendee at the conference. Prior to the CFO role, Denis was Co-Head of the Global Financing Group, which was actually the predecessor to the Capital Solutions Group. Delighted for you to join us again this year. So why don't we just start off with a high-level overview. Maybe we can talk about the operating environment, what your view is on the operating environment heading into next year and maybe talk a little bit about how that environment informs your strategic priorities heading into 2026.

Sure. All right. Thank you. Thank you, Richard. First, let me just start off by welcoming everyone. Thank you very much for being here, for attending this year. I think we have a record number of issuers and investors attending tremendous interest in the sector. So thank you all for your engagement with the firm. Our outlook from a macroeconomic perspective, I guess I would characterize the U.S. economy, in particular, as resilient and conducive to business. We obviously have a Fed decision upcoming. Our economists expect 25 basis points, probably a pause in the beginning of '26, then maybe 2 more cuts. But if I were to take a step back and think about Goldman Sachs, how we're positioned, the operating environment for us, our outlook heading into 2026, our focus remains very much the same. We are focused on strategically executing our plan. We aspire to be the world's most exceptional financial institution. We have a Global Banking & Markets business, which is global, which is scaled. It has leading market share positions across its major businesses, #1 in M&A for the past 20 years, a business extremely well positioned for the forward, #1 equities franchise, leading FICC franchise and a lot of sustained investment in the client franchise and market shares over the last couple of years. The Asset & Wealth Management business, we are relentlessly focused on growing those durable revenues. We have the Top 5 active asset management business inside of that segment. We have a leading alternatives platform and the premier ultra-high net worth business in the world. We have been sustainably growing our durable revenue streams across that business and think we can continue to do so, if not accelerate them. As we look into 2026, our focus is harnessing the power of One Goldman Sachs, continuing to serve clients with excellence, drive synergies across these 2 big businesses. And importantly, we're looking to invest so that we can continue to operate at scale. We're very focused on driving scale across the franchise. So we feel very, very good about the investments we've made over the last several years, where we stand from a market positioning perspective and how we're set up to attack all different vectors of client activity heading into '26.

Okay. That's a great place to start and obviously, a lot to unpack. So let's start off with the M&A business. Firm obviously had good -- very good results last quarter, particularly in M&A. But I think what stood out, at least to me, is that both you and David had a very optimistic outlook on the forward for the Investment Banking business in particular. As you mentioned, look, we have the leading M&A franchise for the last 20 years. On my calculations, I think we're 1/3 of the announced volume year-to-date. That really does give you a unique insight into how corporates are thinking about the world. So a couple of questions. The first is, look, how have dialogues shifted over the course of the year? How are you thinking about the cadence of activity heading into 2026? And then obviously, we've just come out of the government shutdown in the U.S., what sort of impact did that have on activity? And how are you thinking about business that was put on pause as a result of the government shutdown?

Sure. So I think David and I have been pretty consistent over the totality of 2025 and that we were seeing high levels of client engagement coming through our franchise, perhaps even when others were noting uncertainty and lack of CEO confidence, there was a lot of engagement coming through our franchise. That's obviously what has enabled deals to actually be announced and/or close crystallizing revenues. On an announced basis for M&A, I think we will probably have the second biggest year in history. We've advised on over $1.5 trillion of activity so far this year. We feel very, very good about how the franchise is positioned heading into 2026. I would not say that we had significant disruption to the M&A business given government shutdown. I don't even think it was really impacted that much as far back as Liberation Day. I think government shutdown is more relevant to things like equity underwriting, IPO calendar, some of the other activity, which sort of had to take a pause for a period of time. I think that's really just a Q4 issue. I think the overall outlook and expectation for equity underwriting calendar remains very positive, and we should continue to see good levels of activity into '26. Importantly, for us, between our M&A market share position and equity underwriting, those types of activities often work together. They often create multiplier effects across the franchise. It can be associated financing, there could be risk management, derivatives activity. We end up creating transactions, some of which become interesting investment opportunities for wealth clients, for asset management clients. Some of that new issue activity can catalyze secondary market-making activity around the institutional franchise. So I think our outlook and visibility on M&A is, I think, is very encouraging for aggregate, overall levels of activity heading into 2026.

And then within M&A, we've also seen a meaningful pickup in sponsor-led transactions, which I think is very encouraging. And I think something the market has actually been waiting for, for quite a long period of time. Again, leading market share in that business. How would you characterize the dialogue with financial sponsors in particular? And how is the momentum for that part of the franchise heading into 2026?

So this one, I feel like I've been talking about for a number of quarters, maybe even years. I think it's fair to say it's now happening. So sponsor announced volumes industry-wide are also up 40%. So they are starting to become more active. They still have $1 trillion of dry powder that they need to look to deploy in the market. There's about $4 trillion of assets in their portfolio companies. So between sell-side M&A activity, equity market monetizations, continuation vehicles, other strategic types of transactions, there's just a lot of pent-up activity that should come through the sponsor space, and we are seeing the beginnings of that activity actually start to happen. So I think we will see more of that heading into 2026.

Okay. So let's talk about the trading businesses. So FICC and Equities. Again, the firm, I think, has gained on my calculations, 350 basis points of market share over the last 5 years. But I think what's really stood out is the FICC and Equity businesses have proven to be very resilient across a range of different market conditions and continue to grow relative to 2019. And I think I'll go back a few years, everybody thought they're going to mean revert back to those levels, and that clearly hasn't happened. So maybe you can talk a little bit about the outlook for those businesses. But I think more interestingly, talk about the areas that you see the greatest opportunity for investment just given the starting point from a market share perspective.

Sure. So as Richard indicated, those businesses have proved, you look back over the last 5 years, incredibly resilient. I think that's a function of the investment and the commitment that we've made to those businesses. Our strategy in those businesses is to have a global, broad and deep set of capabilities where we maintain committed to across the market cycles. And if you look across the last several years, different components of that portfolio of businesses have contributed relatively more or less based on the ultimate backdrop. The focus of the professionals of that business has been driving client wallet share, serving clients with the One GS ethos more comprehensively, driving towards longer-term market share improvements. We think we have over 350 basis points of share. We continue to focus on the top 150 clients. We're moving up into a top 3 position with about 125 of them. We're looking how we can move people that are maybe #2 or #3 into the #1 position, expanding our wallet share focus across other clients. And importantly, we may have these aggregated market shares with these clients, but we don't have that level of share across each individual product area within the portfolio of FICC and Equity activity. So we continue to go through that granularly, look at where we have gaps, where we have opportunities for improvement, continue to serve those clients more holistically. Financing continues to be very important to clients in both FICC and Equities. It's been a strategic focus of ours to grow those durable revenue streams, but it's also highly valued by the client franchise. And so we continue -- our expectation, we continue to invest in those activities. And there's other pockets of growth opportunities across the FICC and Equities business. There's regional opportunities in Asia. There's growth in ETFs. There's growth in the insurance sector. There are a number of different sort of subsector type of growth initiatives that we're looking at and working on across the portfolio of FICC and Equity activities, both intermediation and financing.

Okay. So let's talk about another important strategic initiative, which was the Capital Solutions Group. I think it's coming up to the 1-year anniversary when that was announced. And I think that was established to help capture the growing opportunity set in private markets. So a year in, what has been the impact? What have you learned? And what do you -- and maybe you can talk a little bit about how you think the Capital Solutions Group is a driver of growth going forward from here?

Sure. So as a reminder, the Capital Solutions Group basically subsumes the old financing group, which houses sort of debt and equity underwriting activities as well as all corporate derivative type activities, structured finance, real estate financing, all that suite of client underwriting and risk management activities. We added sponsor coverage. We added in coverage of alternative asset managers basically to create one super hub of origination and structuring activity for the firm rather than having it dispersed across the firm. That has proven to be very successful. We continue to enjoy the leading market shares across what I would call the traditional financing group product suites, and we're creating more opportunities to do large, strategic financing transactions, whether it be in infrastructure, digital asset space, finding opportunities to create product for institutional investing clients, opportunities in our asset and wealth management businesses that are sourced from the Capital Solutions Group. And then we also continue to conduct activities in that group, which we end up retaining on balance sheet. So very pleased with how that's come together, and we think it will be an important contributor to growth as we head into 2026 and especially jumbo, more structured financing opportunities of which there are now many percolating.

Yes. So maybe let's talk about FICC financing in particular because I think that's an important part of CSG. It's the asset-based lending component within FICC financing. It's grown a lot across the industry. It's grown a lot at Goldman Sachs. Can you help us understand the composition of what's in there? And maybe also talk about the growth dynamic in that part of the business heading into next year?

Sure. So FICC financing activities, we've been at that for a while. That is a key underlying component of our overall GBM strategy, particularly in the FICC and Equities part of the business, drives an increasingly a higher percent of the revenue composition in that business. It comprises a lot of our asset secured lending activities, our repo activities, to a smaller extent, commodity financing. And within those streams, the underlying asset classes against which we lend would include commercial real estate, residential real estate, private credit, consumer finance, capital call facilities. Those are the types of facilities that we lend against. We have a very robust origination platform, having been in that business for a long time, having been a scaled on-balance sheet lender, which drives those FICC financing revenues, we see a lot of the flow, gives us a position to be very selective in terms of the composition of the portfolio and that sort of aggregated funnel also ends up being a good risk management tool for us.

So just on the risk management side, obviously, a lot of focus, especially around October. How are you thinking about risk management in that business? And has your perception of risk in that business changed relative to a year ago?

So risk management in this business, super important. Risk management across the whole firm is super important. This business benefits from the same firm-wide culture and focus on risk management. I've not been involved in any of the names that have been sort of publicly running through the headlines. They're reasonably idiosyncratic, but nevertheless, we avoided them. But that doesn't mean we are sort of resting on our laurels. We're making sure that we are -- remain extremely attentive to risk. In that portfolio, we have multiple ways of thinking about the sort of the risk management construct. But to give you a couple of examples, we obviously have very disparate LTV parameters for different underlying asset classes. We set and establish those based on stress tests, GSE type stress test to calibrate what the right sort of attachment point is for that type of collateralized lending activity. We're very focused on covenants, triggers, the way in which we call for collateral or require paydowns. That all has to be very closely negotiated, and it has to ultimately be monitored very closely. So we have a big investment globally in the infrastructure that does the underwriting and ongoing monitoring, all of the nuts and bolts processes underlying the securing, perfecting processing of collateral is really important to the risk management of that. So that has always been a big focus for the firm. Obviously, we have gone back through our portfolio over the last couple of months just to make sure that we have our processes as crisp as we possibly can. But we continue to think that's an attractive business. So if you have a large funnel, you have the capacity to credit select on a selective basis. And if you maintain sort of disciplined risk management standards, you can generate decent durable revenues over time. And we think we can continue to grow that given all of the demand that's coming through from the client base.

Okay. So let's segue and talk about the outlook for capital and regulatory capital, in particular, very important topic, I think, for a number of investors in the room. And look, I appreciate there's a lot of moving pieces here around what's going to happen with the Basel III end game, what's going to happen with G-SIB recalibration, open question marks around how the stress test is actually going to change in practice. But it does feel as if the industry is going to be in a position where there is quite considerable excess capital, and I think that will apply to Goldman Sachs as well. So can you talk us through capital management philosophy and maybe talk through where you see some of the best opportunities to redeploy that capital from a risk-adjusted return perspective?

Sure. So there have been multiple moving pieces. There continue to be multiple moving pieces, but some things are coming to be more clear. So obviously, we have resolution on SLR. We had last year's CCAR results. There remains some uncertainty as to how some of the outstanding rules with CCAR will progress, which may dictate the calibration, the pacing and the quantum of deployment. But the fact remains for Goldman Sachs, based on those rules as written and as they apply to Goldman Sachs, we have a significant amount of excess capital. And for the last several years, we've been driving our franchise and delivering returns in a sort of very constrained capital optimization way of living. And now we find ourselves unusually with a bunch of excess capital and the question now becomes the prioritization of the deployment. Our philosophy on that is unchanged. We are going to prioritize deploying into the client franchise on an accretive basis, continue to be committed to sustainably growing the dividend and then return excess capital to shareholders. There are a lot of attractive deployment opportunities for us based on precisely where we are in the cycle and given our leading M&A market share position, the opportunity to deploy sizable capital into acquisition financing is a very attractive activity for Goldman Sachs and the market environment is conducive to that type of deployment. We're very focused on continuing to drive our wealth business. We think it's a jewel inside the firm. We need to feed it with resourcing. Our clients there want us to lend more. That's an opportunity. And our institutional clients across FICC and Equities also would like to see us continuing to support their own growth across both FICC and Equities. So there are across the entire firm, lots of different things that we can deploy into attractively. So we're pretty optimistic about that. As you say, Basel III end game, I think, coming soon. I don't know exactly where that's going to end up yet, obviously. And G-SIB, there have been comments made that it should be recalibrated, but we're going to have to see the detail of exactly what that means. But regardless of how those 2 pan out, at least within a band of expected scenarios, we should have a bunch of excess capital that we'll be looking to deploy into the client franchise.

And then as a follow-on, can you talk about inorganic growth as an opportunity to redeploy excess capital? And I guess, to that end, we announced the acquisition of Innovator Capital Management last week. Maybe touch on the rationale behind that transaction, but also touch on the pipeline for those types of transactions going forward.

Sure. So inorganic is something that traditionally we've used reasonably sparingly. We did just announce the Innovator acquisition, a defined outcome ETF platform, great business, good platform, growing at much higher growth rates than the sector overall and really elevates our standing in the overall ETF space, which is something that we're focused on strategically. A couple of weeks before that, Industry Ventures, another business that we acquired, which will help our presence in the venture capital space and the secondaries business. Given the long-standing track record, the performance, the reputation of that investment team, we think it will also be accretive to Goldman Sachs in a One GS fashion across banking and wealth because that business and its people are very, very embedded in the venture capital ecosystem. And then obviously, we announced a strategic collaboration with T. Rowe Price, where we're looking to work together, combine public and private investment alternatives for the retirement channel, wealth advisers, something we're also excited about. So we've done a couple of strategic, bite-sized acquisitions that can accelerate growth for us in the durable revenue streams of Asset & Wealth Management, and there are activities that we should be able to sort of integrate reasonably easily into Goldman Sachs. The bar for more transformative acquisitions for us remains very high.

Okay. So you mentioned Asset & Wealth Management. So let's talk a little bit about those businesses. And you did say top 5 active asset manager globally. Where do you see the best opportunities for growth within the Asset Management franchise from here?

So top 5 player, $3.5 trillion assets under supervision across both public and private investing strategies. We have a leading alt platform. Last publicly reported number, $567 billion of alts assets. We continue to have momentum in the fundraising. Last quarter, we had $33 billion in the quarter. That was a record. We took up our full year guidance to north of $100 billion of alts capital raising on the year, and we continue to see good opportunities to further grow that alts platform on a diversified basis. We're working very closely with our third-party wealth activities, driving activities across other platforms and see opportunities in evergreen alts and a number of different spaces where we can drive incremental revenues in those areas, which are experiencing sort of outsized growth prospects.

Okay. And then on the wealth side, can you talk about the ultra-high net worth franchise? I think it's $1.8 trillion of client assets. I think the average account size is $75 million. Maybe talk a little bit about how you see the growth for that business going forward, but also the competitive environment given that a number of firms are investing in that business.

Sure. So we've obviously been in the wealth business for a very long period of time. And as I said earlier, I think it's really one of the jewels of Goldman Sachs. It's already a very scaled business at $1.8 trillion in client assets, and the average account size is quite large at $75 million, which means we have a responsibility to those clients to make sure that they are seeing the full suite of attractive investment alternatives, which works very well with our platform and other platforms that we work with and make available to them. Our market share, if you will, and there's not great data on this, but it is very, very low relative to many of the other activities that we operate in. So we think there's enormous opportunities for us to grow share in the wealth business. We're very focused on continuing to drive the adviser count and all the associated support services. We're continuing to focus on the wallet share that we have with clients, making sure that we offer them attractive alternative investment opportunities, continue to focus on driving incremental lending penetration, making sure that's available if clients want to take advantage of that. We're focused on making the right tech investments to make it easy to interact with us and get all access to all of our products and services. So a lot of investment in human capital and technology and the product offering to move us from a very good business with a low -- a relatively lower global market share to capture more over time.

Okay. And then within the private banking business, we've seen very good growth in loan balances and deposits over the last few years. Maybe you can talk a little bit about the outlook for further growth from here. But maybe also talk about the revenue outlook for the lending and the deposit business if we do get more rate cuts over the course of the next 12 months.

Sure. So I think outlook for lending, as I was running through in the wealth business, we continue to expect to make resourcing available, make that offering available to the wealth advisers and continue to drive lending penetration across the portfolio. We're optimistic we'll be able to do that. We're also optimistic we'll be able to continue to drive notional growth in the deposit platform. That's Marcus and the private banking and lending line item. But as you say, given the rate outlook, we'll ultimately experience NIM compression that probably be an offset to the overall level of growth in the Private Banking and Lending segment in '26.

Okay. So let's talk about efficiency and AI, 2 very popular topics. Firm recently announced One GS 3.0. Can you talk us through that initiative? But just more broadly, talk a little bit about the outlook for efficiency gains broadly for the firm going forward and just touch on the role that AI is playing in driving those efficiency gains.

Sure. So the firm has always been focused on operating efficiently. When David first took his post and set out sort of 3 key pillars, operating the firm more efficiently was one of them. We've done a lot of things over the last couple of years, as many of you would appreciate, to continue to invest in driving the firm more efficiently. It's our view that at this moment in time, we can actually step back and implement a more comprehensive and foundational review of the entire operating model at Goldman Sachs. We've called it One GS 3.0. One GS basically signals a top priority from the leadership of the firm and is expected to include everybody in the firm across every aspect of the firm from businesses to control functions to engineering, et cetera. And it's a big priority in terms of where we think Goldman Sachs is headed over the next several years. It is at its core, an effort to drive more scale and more growth. We think that there are opportunities to drive efficiency that should help unlock and enable that. And so we are comprehensively focused at multiple levels across the firm. We're focused on the quality, availability, accuracy, timeliness of our data. It's an underpinning to all of these AI exercises, making sure we have the right investment in platforms, particularly in activities that span across the firm. We're asking all of our people to think and re-underwrite the human processes that they go through. And then we are making investments with AI, agentic AI to accelerate some of the change across these processes and platforms. We've identified 6 discrete work streams, stood up teams, and we're asking them basically to go through, underwrite all of those activities, run through all the pain points, problems, opportunities for efficiency, come up with sort of 4-wall investment cases, and we'll fund some of that investment and then measure and drive accountability for the productivity outcomes that come across that business. I think it's a fundamental rethinking of the way that we want people to think about operating at Goldman Sachs. We don't want to just add more manual processes to drive growth. We need to convert some of the resourcing that goes into growth engines, digitize it, automate it and rethink the way these things work. And we're very optimistic that, that will be one of the things that continues to help us fuel the growth of the firm and let us operate even more efficiently than we already are.

Okay. So let's talk a little bit about the environment for talent. I think one of the themes that is emerging out of this conference is that everybody is very optimistic on the operating environment heading into next year, in particular, on the investment banking and I think on some of the trading businesses as well. So can you talk to the current environment for talent? Have you seen a noticeable change over the last 12 months in terms of willingness for people to pay up for talent? And maybe talk a little bit about the initiatives the firm is putting in place to retain talent in what I think is a very competitive marketplace.

Sure. So talent has always been top of mind at Goldman Sachs. It's one of the actual absolutely mission-critical components of what we need to actually deliver for clients. That has always been the case. And there has always been an incredibly competitive market for our people. We continue to see incredible demand from people to want to come and work at Goldman Sachs, more than 1 million people asking to move in laterally to the firm. We can accommodate far less than 1%. So we're still in a position to be extremely selective on the people that we hire and try to keep a very high bar in attracting really the best and brightest that will fit culturally inside of Goldman Sachs. And then we have the obligation to invest and develop them, and we have a tremendous amount of programming, and we continue to invest incrementally to retain our very best and brightest. Overall sort of compensation environment, I think it is -- it remains competitive. I think it's particularly competitive for the very best people in any particular sector or domain expertise. Our philosophy is to continue to be a pay-for-performance organization, and we want to make sure that we're in a position to pay very competitively, particularly for our very best people by domain. So laser-focused on that. I think that will -- as long as the markets are as buoyant as they are and with optimism on the outlook, that will continue to be a focus.

Okay. So we've only got a couple of minutes left. So why don't we just wrap up with, a, the key messages that you want investors to take away from this. But I think what would also be interesting is to hear your view on the investment case for Goldman Sachs shares just given where the valuation and the share price have got to.

Sure. So I think over the last couple of years, we've basically put in place all the building blocks. We've concentrated our efforts in having a world-leading Global Banking & Markets franchise and an Asset & Wealth Management business relentlessly focused on driving durable revenue growth. That Global Banking & Markets business has consistently delivered mid-teens returns through multiple different cycles. And the Asset & Wealth Management business is consistently improving its margins and return profiles. We think our leading market share positions across those businesses will give us a lot of edge as we move into 2026. We do believe being the world's leading M&A adviser is very important moving into this cycle and will unlock a lot of opportunity for Goldman Sachs. We think the investments that we've made to drive durable revenue growth in Asset & Wealth Management and/or accelerate it will prove to be very beneficial. Our commitment to continuing to invest to operate at scale and drive more efficiency will pay long-term dividends, and we do have regulatory tailwinds that I think are not fully sort of realized that we should drive incremental benefit from over the next several years. So overall, it is a moment in time. But at this moment in time, based on the quality of our franchise and the current outlook, we feel really, really good about continuing to drive growth for our clients and returns for our shareholders.

That's a great place, I think, to end it. Denis, thank you very much for joining us this year and look forward to seeing you next year. Thank you.

Thanks, Richard. Appreciate it.