The Goldman Sachs Group, Inc. (NYSE:GS.PK) Goldman Sachs 2022 US Financial Services Conference December 6, 2022 7:40 AM ET
Company Participants
David Solomon – Chairman & Chief Executive Officer,
Conference Call Participants
David Solomon
Good morning, everybody. Welcome. It’s good to see everyone here. Thank you for joining us. It is my pleasure to welcome you to our 33rd Annual Goldman Sachs US Financial Services Forum, 33 years. It’s a long time. We have a record 114 participating companies and over 1,200 registered attendees.
I look forward to this event every year. It’s a great opportunity to stop, take stock of everything that’s happened in the financial services industry over the past 12 months and to debate the landscape for 2023 and beyond. And this year, we certainly got a lot to talk about. As you might expect, it’s been a challenging operating environment, the war in Ukraine, the energy crisis in Europe, rising tensions between the United States and China, inflation, rising rates, their impact on asset prices; the list goes on.
Speaking of inflation, we, of course, like everyone else, are focused on it. And for students of economics, the inflationary trend should not be a surprise. Our fiscal and monetary policy pumped an enormous amount of money into the economy as a response to the pandemic. And now the Fed is raising rates and money is no longer free, we’ve obviously seen significant increase in volatility in markets.
The way I see it, while many policymakers are unwinding of policy responses to the pandemic, the global economy is rebalancing itself. And as a result, economic growth is slowing. Our economists expect the global economy to grow by 1.9% in 2023. They believe Europe is already in the midst of a recession, a mild recession. China’s economic prospects are uncertain as they start to potentially unwind their zero COVID policy, and they expect the US to narrowly avert recession in 2023. I’m actually slightly more cautious.
When I talk to clients, they sound extremely cautious. Many CEOs are watching the data and waiting to see what happens. I get a lot of questions about China and its relationship with the United States, the economic trajectory of Europe and obviously, recession risks. But I’m not hearing panic. Balance sheets are still strong, even with higher interest rates, investment grade markets remain open as clients work on their budgets for 2023, they are revising their economic forecast downward, but not dramatically. They’re using cost controls they put in place long ago. They aren’t concerned about current stock valuation so much as protecting against future vulnerabilities.
And we’re seeing clients shift attention away from supply chain resiliency and towards keeping headcount down. When you look at the current environment for financial services and our businesses in particular, the picture is also cautious. We were hopeful that we would see a more meaningful rebound in capital markets activity this quarter, but that hasn’t happened yet.
On the trading front, engagement levels for the majority of the year have been robust, as we’ve helped clients manage risks and a viable market backdrop. But so far, this quarter, clients seem to be taking risks down, and we ourselves are focused on prudent risk management. To me, clients seem fatigued after a very viable year.
At the same time, we continue to see headwinds on our expense lines, particularly in the near-term. Non-compensation expense is pressured by investments in technology and integration as we deploy resources to strategically grow and strengthen our business as well as the broad impact of inflation.
And in terms of our largest costs, our people, the job market remains surprisingly tight, and the competition for our talent, particularly top talent is as strong as ever. So we will continue to seek balance. We will continue to seek to balance an appropriate pay-for-performance mindset with a focus on talent retention at this time.
You’ve already heard from us that we’ve set in motion certain expense mitigation plans, but it will take some time to realize the benefits. Ultimately, we will remain nimble and we will size the firm to reflect the opportunity set that we see in front of us.
Overall, I’m cautious about this macroeconomic outlook, but I am bullish on Goldman Sachs long-term ability to serve our clients and navigate the operating environment as we prepare to start a busy 2023.
A couple of months ago, we announced some organizational changes, structuring the firm into three business segments: Asset Wealth Management, Global Banking and Markets and Platform Solutions in order to further strengthen our core businesses, accelerate our ability to scale growth platforms and to improve overall efficiency.
One of the benefits of this new structure I found in the last six weeks is our ability to highlight the two big muscle groups of the firm, which comprise the vast majority of our revenues, capital and profits.
First, we have a powerful asset management franchise, the fifth largest active asset manager in the world, and alongside it, we have our Crown Jewel Wealth Management business. We focused on performance and client flows, historically drive — the holistically drive toward our target of over $10 billion in management and other fees in 2024, including more than $2 billion of fees from alternatives.
Second, running investment banking and global markets together will help us do even more for clients. These businesses are performing at the top of their peer group over the last few years, and integrating them together gives us the opportunity to maximize share across our world-class franchises in financing, risk intermediation and strategic advisory.
We also made a purposeful decision to focus our efforts in consumer. We lean into our strengths and narrowing our ambition. I’m very focused on achieving scale and profitability across our platform businesses, transaction banking and consumer platforms.
We feel good about the platforms we’ve built, and we’re encouraged by the opportunities they present. I’ve also heard from many of you that you like the fact that we further clarified the extent of our consumer ambitions and that we will be providing more transparency on these activities going forward.
This reorganization is an important step in our strategic journey. It sets us up to deliver on our medium-term targets and continue to unlock shareholder value. And in February, we’ll do our next Investor Day, we will lay out more details and give you specific metrics so everyone can clearly track our progress as we go forward.
So even in the midst of a difficult operating environment, we continue to work hard to strengthen the firm. We know progress is never a straight line, but we’re excited about the opportunities ahead, and we think we’re extremely well positioned for the future.
Lastly, I wanted to touch base briefly on culture where we have a renewed focus. Our culture has always been a differentiator. It is distinctly collaborative, which we have worked hard to preserve.
It drives our performance, and it’s enabled our success across many generations, because we have welcomed thousands of new people to our firm in the past few years, and our global footprint has expanded.
And due to the impact of having so many people work remotely for a significant period of time, we’ve launched a broad new culture initiative to help our people experience the culture in-person with the goal of giving everyone a sense of pride and fostering a sense of shared identity. I am personally super focused on enhancing and preserving Goldman Sachs special culture.
And with that, I’d like to kick off our program. We’ve got a great lineup for you today. Our speakers are going to offer you insights into all the major trends, affecting the financial services industry and the global economy as a whole.
You’ll also hear perspectives on how the industry’s strategic priorities have shifted over the course of the year and what to expect in a world where recession risk looms. So again, thank you all for joining us. I’m now going to pass it off to my partner, Richard Ramsden, and I hope you’ll enjoy our conference. Thank you, and have a great day.
Question-and-Answer Session
End of Q&A
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