Good morning. My name is Erica and I will be your conference facilitator today. I would like to welcome everyone to The Goldman Sachs First Quarter 2021 Earnings Conference Calls. This call is being recorded today, April 14, 2021. Thank you. Ms. Miner, you may begin your conference.

Good morning. This is Heather Kennedy Miner, Head of Investor Relations at Goldman Sachs. Welcome to our first quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. No information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audio cast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent. Today, I am joined by our Chairman and Chief Executive Officer, David Solomon; our Chief Financial Officer, Stephen Scherr; and Carey Halio, our incoming Head of Investor Relations, who will host this call beginning in July. Carey most recently served as the firm’s Deputy Treasurer and CEO of GS Bank USA and began her career in credit risk as a bank analyst. She brings 22 years experience at Goldman Sachs to her new role. As I leave this seat to assume the role of COO of our asset management business, I want to extend my sincere appreciation to each of you for your partnership over the years. On the call today, David will start with a high level review of our first quarter performance and our client franchise. He will also provide an update on the operating environment and macroeconomic backdrop. Stephen will then discuss our first quarter results in detail. David and Stephen will be happy to take your questions following their remarks. I’ll now pass the call to David. David?

Thanks, Heather, and thank you everyone for joining us this morning. Before I begin my remarks, let me thank Heather for leading the firm’s Investor Relations effort for the past four years and welcome Carey to the role. I will begin on page 1 of the presentation with a summary of our financial results. In the first quarter, we produced record net revenues of $17.7 billion. The strength and breadth of our client franchise continued to be evident as we delivered net earnings of $6.8 billion, record quarterly earnings per share of $18.60, and a return on equity of 31% and a return on tangible equity of 32.9% the highest in over a decade. Our first quarter results underscore the ongoing strength of our franchise in the supportive environment which we operated during the quarter. These results also evidenced our successful execution towards the firm’s strategic priorities. We maintained our leading global positions across M&A and equity underwriting. We delivered the best performance in global markets in a decade with strength in FICC and equities driven by solid client activity across our platform and reinforced by last year’s market share gains. In asset management, we recognized significant net gains across our public and private equity positions, and we continued to harvest on-balance sheet investments in our efforts to transition the business to more third-party assets, where we are making progress in raising funds across a range of investing strategies. In Wealth management, we continue to provide valuable advice to our ultra-high net worth PWM clients, while we further scale our personal financial management business. And in Consumer, we continue to make strong progress on our vision to create the leading digital consumer banking platform. This quarter, we launched Marcus Invest in the U.S., our digital investment offering, which provides consumers…

Thank you, David and good morning. Let me begin with our summary results on page 3. During the first quarter, the firm’s performance reflected meaningful strength across all four of our business segments. In investment banking, clients remained very active in raising capital, particularly in the equity markets, and we witnessed high levels of M&A activity amid elevated strategic dialogues. In global markets, we saw strength across all products and regions, as client engagement remained high. In asset management record performance was attributable to gains from our equity investments, particularly as we harvested private equity positions in an attractive market. We also saw double-digit revenue growth year-over-year in our consumer and wealth management segment for the third consecutive quarter as we further expand our wealth capabilities and scale our consumer offering. Turning to specific business performance on page 4, let me begin with investment banking. Investment banking produced record quarterly net revenues of $3.8 billion up 73% versus a year ago. Financial advisory revenues of $1.1 billion rose 43% versus last year on increased transaction closings in the quarter. During the quarter, we maintained our number one league table position as we participated in over $400 billion of announced transactions, over $100 billion ahead of our next closest competitor, and closed over 100 deals for approximately $300 billion of deal volume. The bigger headline in investment banking again this quarter was equity underwriting, where we generated a record $1.6 billion in revenues over 4 times greater than the levels the year ago. We ranked number one globally in equity underwriting with our volumes climbing to nearly $50 billion across roughly 240 deals, including over 90 initial public offerings, for companies across all markets like Coupang in Korea, InPost in Poland, and Bumble in the U.S. Our equity underwriting market share…

[Operator Instructions] Your first question comes from Glenn Schorr with Evercore ISI.

Hi. Thanks very much. I appreciate your comments on the capital freed up on the equity investment sales. The question I have is -- I don’t remember every number, but it looks like some of those sales or a lot of those sales came from the older vintages, which is good, I think. But now, with most of the book or all the book six years or younger, does that slow the monetization process? I know you mentioned you had line of sight on $3 billion more. Maybe you could talk about how much capital would be associated with that $3 billion, and maybe how the pipeline looks for third-party capital raise for the remainder of the year?

Sure, Glenn. Thanks for the question. So, let me just go through the numbers, so we’re all level set. In the quarter, we closed on about $1.5 billion of balance sheet reduction producing about $852 million of AE relief. And as I noted in the prepared remarks, since our Investor Day, we’ve disposed of balance sheet positions totaling $4.7 billion that produced about $2.3 billion of relief as well. In terms of line of sight, as I said, we have a view into about $3 billion of balance sheet reduction. My view is that the capital attachment associated with that $3 billion would be, I would say, well in excess of about $1 billion, probably close to $1.4 billion in terms of AE relief there. As to the profile vintage and otherwise, I think it’s important to recognize that in pursuing the strategy of migrating to more third-party funds, we’re going to look across the portfolio, regardless of vintage of opportunities, particularly in this market, to advance. It’s not only in the pursuit of course of that strategy, but equally it reduces the capital density of that business and holds the promise of reduced capital that the firm would be required to hold overall, and so two components in the context of what we’re trying to achieve strategically. If you look at what we’ve done, just on the last part of your question in terms of fundraising, you’ll remember that through 2020, we noted that we had raised funds approximating $40 billion. Taking that and extending it through the first quarter, we’re up just north of about $52 billion and are looking to deploy that now where obviously management fees get paid on deployment and investment of that fundraising. And so, the roster of ambition of what we’re going to do this year is quite real. We’re confident in our ability to achieve it. And this is all obviously part and parcel of meeting what I was talking about, which is as we see the harvest of positions now and take that revenue in, we will see compensation for that, if you will, in the context of management fees as we grow and deploy capital in the alternative space.

I definitely appreciate all that color. Thank you. Maybe a quick follow-up, just quickly on composition of that pipeline that you talked about. I think, I heard in your remarks that M&A is pretty darn good but underwriting actually is not bad also. I guess, my question is, how dependent is fulfilment of that pipeline on getting past this current SPAC indigestion here that we have? Just looking for a little more color on fulfilment of that pipeline.

Well, if you look at our overall backlog, which as I noted is at record levels, I would say that notwithstanding very high level of revenue recognition certainly in the investment banking segment, we’re nonetheless seeing the backlog replenishment at extraordinarily high levels. And so, that’s really the sort of best picture forward, if you will, in terms of what our clients are engaged in doing. I think, on the forward, as it relates, for example, to global markets, there it’s difficult to say. As I noted in the comment and David did as well, it’s hard to know what the market opportunity will be. The comparative set of results, second and third quarter last year versus this will be challenging just given the volatility we saw last year in those quarters. I think, the confidence we’re taking in terms of sustainability of results lies in our market share, and we have picked up market share across global markets, across investment banking both in financial advisory and equity capital markets, and we will rely on that to capture kind of our fair share or better of the opportunity set presented.

Your next question comes from the line of Christian Bolu with Autonomous.

Good morning, David and Stephen. And first, let me just echo the sentiments on Heather. She’s been truly exceptional in the IR role, so will be sorely missed. On to my questions, I guess, the first one is on the trading businesses, just to follow up on what you just said in terms of market share gains, it seems like the market share gains are actually accelerating in trading. And I’m just curious if there’s any more color really on what exactly is driving EBITDA gains in the quarter or over the last year, just a bit more specifics? And then, I know you -- both you and David have talked about the sustainability issue around trading, but it feels like trends are slowing a little bit here in April as we move into the summer, so just any sort of thoughts around what you think will support strength for the rest of the year?

So Christian, I’ll start and thanks for the question. First, I’ll start at a high level and then Stephen will probably give you some more granular data. But at a high level, one of the things we’ve been very focused on over the last 2.5 years is the client centricity of our business and trying to really look at the way clients experience us, look at it holistically, see how we’re serving their needs holistically. You’ve heard us talk about our One GS mantra, our ability to bring the whole organization together to deliver better for clients. And one of the things that I’m hearing consistently from clients as I reach out and spend time with clients is that they feel like there’s been a meaningful change in the kind of broad client service they’re getting, our focus on them, the resources we’re getting, giving -- or bringing to them, and the coordination of all that. And I think that has contributed meaningfully, that client centricity, that culture is contributing meaningfully to market share gains. You know and we’ve put it forward that we talked about looking at the top 100 accounts in global markets. We gave you data last quarter on our progress against those accounts, being top 3 against those accounts. That is a KPI we continue to track. We made progress last year, and we’re committed to making further progress this year. And so, I think that also has an impact on this. In addition, then obviously you have the market activity that’s generated. And so, we get the benefit of those market shares gain against that activity. On your second question with respect to kind of activity looking forward, what I’d say was the first quarter was an extraordinary quarter. I don’t think that the expectation should be that activity will continue at that pace through the second quarter, third quarter and fourth quarter. But I will say that activity levels continue to be elevated from what I would say was a pre-COVID activity level by a meaningful amount. And I think as we said in the script that the environment, the monetary and fiscal stimulus, and in addition the economic recovery, continues to paint a relatively constructive background. But, I don’t think the expectation should be for it to continue at the pace we saw in the first quarter.

So, Christian, just to pivot off of David’s comments, all of which I’ll give to you and our -- a reflection or a product of the client centricity that David was speaking to. First of all, across the equities business in global markets, I think we’re seeing a very clear consolidation of share in and among a discrete number of banks in the U.S., among which we are one. We saw elevated prime levels, part of the strategy that we’ve been pursuing, and as I noted in my comments, record prime levels that contributed to meaningful uptick in equity financing. Even on the last call, I had noted that over the course of 2020 across global markets, we had picked up about 120 basis points of wallet share across the patch. And then when you look at -- I’ll just take 2 individual businesses in FICC, just to pivot to FICC for a moment. First of all if you look at mortgages, the interesting thing about mortgages is that this business is now sort of pivoted away from sort of straight market-making and is now itself engaged in financing and loan origination. And so doing more for more clients has been kind of the signature, if you will, of just expanding in the mortgage space that has grown that business. And then, if you look at credit, we have picked up meaningful market share, both in cash and loans, in the context of what we’re doing. And then the last thing I would say, which I think is a contributor to enhanced share, client engagement and the like has been what we’ve done in the development of platforms. And credit is a good example of that, where portfolio trading has grown quite considerably. Our place in it is quite high. And so, again it’s all, as David is saying, client centricity and engagement with clients and meeting clients where they care to execute platforms being a good example.

Maybe shifting on to expenses and expense management looking forward. I mean, I’d argue that the opportunity set across pretty much all your businesses today are much bigger than certainly when you -- so much bigger today than when you set out some of those expense targets at Investor Day in early 2020. I’m just wondering how you’re thinking about continuing along the path for those expense targets versus capitalizing on revenue opportunities that are ahead of you?

Sure. So the way I would think about expenses is the following. First of all in non-comp expense more broadly, there should be no doubt that we have a very keen focus on controlling our expense base. I’m saying that independent of the efficiencies that we laid out at Investor Day, which I’ll come on to. But our as reported, non-comp expense was up 5%; ex litigation, up 9%. And within that, literally the totality of the increase in expenses were related to transaction-based expenses, so BC&E relating to elevated levels in global markets and our technology spend. And so, I think on the forward, you should expect that where transaction activity is high, where we’re meeting our clients, where market opportunity is large, that variable expense will continue to fluctuate, consistent with the market and will carry us there. The second piece I’ll comment on is just the $1.3 billion of expense initiative. Again, independent of the day-to-day focus on non-comp expense. And there we continue to make progress in all of the areas that we had talked about, including our real estate footprint as we just announced that we’re opening up offices in Birmingham. We did that as it relates to Hyderabad. All of that is a component piece of what we’re trying to achieve in the $1.3 billion of expenses. The last piece I’d say is the operating leverage that exists with compensation. As we’ve said many, many times, we pay for performance. And so, that lever is always available to us as and to the extent we see revenue turn down relative to the kind of performance we’ve otherwise seen in this quarter.

Your next question comes from the line of Steven Chubak with Wolfe Research.

So, I wanted to start with a question on capital. Now, how does the Fed decision not to extend SLR relief, inform your capital management priorities? And maybe just give us a sense as to where you’re comfortable running on that measure? Since some of the areas where you noted some gains, like prime are clearly going to be impacted by the prospect of potentially SLR being binding. And then just on risk-based ratios as well, if you could just speak to how you’re thinking about the RWA trajectory as you continue to execute on the planned equity investment sales?

Sure. So, first on SLR, just to be clear, that has not been and is not a binding constraint on us, just to be clear about it. Obviously, 5% at the holdco is 6% at the bank. We stand higher than both of the minimums and don’t find that to be a binding constraint to us. And so, I would say that at both levels, we have ample growth capacity in terms of balance sheet growth before that comes on to the horizon as being an issue for us. So SLR, not the issue that it is for some of the other commercial banks. In terms of RWA growth, I think that you’ll see that commensurate with the nature and level of activity that’s there. The one thing I do want to point out is that risk control and risk calibration remains unchanged. It is as disciplined as you would expect it to be, notwithstanding RWA growth. So, the opportunity set that’s been presented causes us to extend balance sheet and grow risk-weighted assets commensurate with that opportunity, but without compromise to the kind of risk levels that we find. I mean, the thing I would say, Steve, on this is that if you look at growth in the firm and you look at growth in balance sheet, in the service of our clients as David’s been talking about, the resource input to this has been maintained so as to protect the risk flank of the firm. We’re sitting with elevated levels of liquidity at GCLA north of $300 billion. We sit in an ample capital position, obviously elevated by where the minimums sit, but within -- in an offensive mode and a buffer prepared to deal and engage with our clients. Marry those two resource sort of points alongside risk controls that David spoke about, and we feel quite comfortable with the RWA growth we’re experiencing and keeping it in control and checked from a risk point of view.

And for my follow-up, I guess, both for you and David, just as a follow-up I guess really to Christian’s earlier question, just on trading and IB normalization. I know this has been asked a number of different ways on recent calls. But just given the sheer pace of share gains and David, some remarks you actually made at a conference this quarter noting that industry fee pool should normalize above 2019 levels, it does feel to us like those two factors alone should support more than $3 billion in higher run rate IB and trading revenues, which actually compares to a target for incumbent business growth of just 2 billion to 3 billion. So, clearly some of the targets that you outlined at Investor Day on the revenue side do appear quite conservative, just given the sheer level of progress. I was hoping you could speak to your confidence around the ability to drive better growth in the incumbent businesses relative to those targets, and maybe if you feel like that north of 3 billion in higher run rate IB and trading is a reasonable expectation, given the underlying trends that you’re seeing as well as the improved and deepened client penetration?

So Steve, I appreciate the question, and you think about this in a similar way that we do. We’ve always talked about how long-term market cap growth has led to long-term growth in our business broadly, but you’ve got to look at it over long periods of time. I think, there are a variety of structural things that has supported growth in our core businesses, and I think we’re seeing some of that. I’m not going to comment specifically on your numbers, although I think that your numbers as you point out set very reasonable expectations for us to meet our medium-term targets that we set at Investor Day. So I’ll start by saying I am extremely confident of our ability to meet our medium-term targets that we set at Investor Day. We also said at Investor Day that that is not our longer-term aspirations. And as the market continues to evolve, as we come out of the pandemic, as we have more clarity on how the world sets out moves forward, we’ll give you clearer communication about our longer-term expectations for our ability to drive the franchise forward. But as we did pre-pandemic at Investor Day, I reiterate now, we do see opportunities to drive the franchises forward and drive higher returns over the long term than what our current medium-term targets are.

Your next question comes from the line of Mike Carrier with Bank of America.

First, just a bigger picture question following on that, on that last one. In terms of the sustainability of some of the things that we’re seeing in trading and banking, we haven’t seen this level of GDP growth in terms of the forecasts for a very long time. So, just wanted to get your historical perspective on how this cycle compares and can that drive more activity? And then, David, I think you mentioned higher inflation as one of the risks or something that you’re monitoring. So, I guess, just if we’re in an environment where that starts to ramp up, how do you expect that to impact activity levels?

Sure. So, I appreciate the question, Mike. And there’s no question, if you look at a broader historical perspective, growth and activity levels in our business have been correlated to robust GDP growth around the world. And so, I’d state quite clearly, and I said in the prepared remarks, that we think that we’re going to have very, very robust economic growth in the second half of 2021 into 2022 as vaccines continue to accelerate, as we come out of the pandemic, as we move forward. There’s no question that there is meaningful consumer pent-up demand. Consumers have reasonable liquidity and savings higher than they did going into the pandemic. And we expect that all of that economic activity and that pickup in economic activity is a constructive backdrop for our business. There’s no question, given the monetary and fiscal actions, that there’s an increasing risk of inflationary activity. We all are watching very carefully comments from central banks around the world as we look forward. I think in my opinion, there is no question that we will see an increase in inflation. The question is how much, how quickly, and how we respond to that. And I think it’s early -- it’s very early to speculate. But there is a scenario in the distribution where it would accelerate more quickly, and actions would have to be taken that would create more headwinds for our business. I don’t see that as obvious on the near-term horizon as we look through this year and we continue to come out of the pandemic. But I do think it’s a risk issue for markets that we’ll have to continue to watch very closely.

Stephen, just a quick one follow-up on the asset management business following Glenn’s question. Just the fees, the management fees sequentially were a bit lower. I think you mentioned money market fee waivers. How significant was that? And then on the alternative fund-raising, how much of the funds that are being raised do you generate fees on committed capital versus deployed capital?

Yes. So, on the money market comment, it was approximately $100 million in fee waivers. And bear in mind, very common practice, as you know, throughout the industry. So, nothing unusual about that. On the alternatives space, the management fees that we’ll take in are on deployment of the investable capital that’s already beginning. And so, you’ll continue to see that. I did note that on one of the charts that we show, which looks at firm-wide assets under supervision and firm-wide management and other fees, it’s a slide where my ambition is to disclose more. Particularly as these alternative funds become deployed, we can start to share more with you about how much of that management fee across the whole of the business, never mind the segment in which it sits, but across the whole of the firm, is being generated by this strategic pivot.

Your next question comes from the line of Betsy Graseck with Morgan Stanley.

Two questions, the first one is on the backlog. You indicated that the backlog is I think you mentioned historic levels. But, I’m just trying to understand how much -- like what’s the multiple of the prior peak that your backlog is running at right now?

Yes. I would say that I’d have to go back and look at where the sort of prior record was set, but it’s certainly at a record. I’ll give you a little bit of composition in it, which is that it’s cutting across a range of businesses. We’re seeing higher-than-normal replenishment and backlog build in EMEA and in Asia than we are in the Americas. But bear in mind, overall size of the business in the Americas is quite significant. So, notional dollars would be higher there, but it’s showing some geographic composition. To my memory, I wouldn’t view it as a multiple to prior peak. I would call it as probably 10% higher than where the top of that number had been historically.

Okay. And then separately, Steve, I think you mentioned a comment about the dividend and you would look to raise that as soon as you could. Could you give us a sense as to how we should be thinking about the sizing of that is? Typically, people look at the dividend payout ratio relative to estimated forward earnings. I’m guessing that’s the metric that you’re thinking about, but if you can give us some color. Because of the revenue volatility that you have, some pieces lower, some pieces higher, maybe give us a sense as to what we should be keying in on when we’re thinking about where to take dividend in our estimates.

Yes. So I don’t want to peg the exact sort of aspiration of where we’ll be, and our ambition is to take the dividend up when the rules permit. But I would say that our ambition is to put the dividend in a more competitive standing than perhaps where it has sat historically. By the way, we’ve already been on that path, having raised the dividend quite considerably since David and John and I all took our seats. And so, to my memory, we took it up about 47% or thereabout at the beginning of our tenure, and higher since. I think, the ambition here is to have the dividend grow commensurate with an increasing durability of revenues in the business. As the more durable businesses or revenue streams and businesses grow, the dividend ought to reflect that, and it will. And so, that’s probably the best sort of forward view on dividend thinking that I can provide.

Our next question comes from the line of Mike Mayo with Wells Fargo Securities.

Can you just give more color on -- it looks like market share gains, but maybe by different category. So, one category would be size of client. I know you have this middle market expansion effort. Was that a record, and how is that doing? A second category could be kind of corporate versus others. A couple of years ago, you were behind with the corporates. You were trying to catch up. And a third category would be geographic. You mentioned EMEA and Asia on a go-forward basis, but just as we look at the first quarter.

So, we don’t break down the backlog exactly that way, but let me just provide as much color as I can on this. First of all in the middle market, that continues to grow. And the revenue that we’ve taken in, in investment banking around the growth in the client set has been quite substantial, and frankly I think beyond that which we otherwise thought we would achieve at the Investor Day. On the corporate side, you can see it play out in the context of investment banking revenues broadly. I would say equally, we’re playing to a larger corporate set in our global market segment in terms of those becoming more prolific clients in what we do. And then, on the geography, as I mentioned before, we have seen kind of double-digit growth in backlog in EMEA and in Asia. And we continue to see growth in the Americas as well. But again, the Americas presents a much larger set more broadly. I’d also refer you back to a comment David made and we’ve spoken about before, which is our ambition and our focus around client centricity in global markets. It’s always been there as it relates to investment banking, has put us in among the top 3 among 64 of the most prolific clients, top 100 clients in global markets, and that’s up from 51 the year before. And so, we continue to see growth in the share we’re taking. By the way, this is all against the backdrop of consolidation in share, I would say, among U.S. banks relative to the European competitors across a range of product areas in equities and in FICC.

And you mentioned record prime balances. So, after the recent hedge fund incident, do you see some players retreating, and there you’d have a flight-to-quality effect with players coming to you, or is something else taking place?

I mean, I think it’s too early to judge whether there’ll be a significant shift. I suspect that there’ll be certain clients that look to migrate from where they were to a different firm, but it’s too early to judge that. I think, the important thing to note is that growth in prime has been a strategic imperative for us. It’s not the by-product of the Archegos incident or the like. And as we grow that, and this is what David was referring to, we continue to maintain quite a vigilant posture as it relates to risk that’s embedded in it. We recognize risk of concentration. We recognize the consumptive nature of that business. And so, we’re going to maintain kind of our threshold of risk tolerance in terms of clients that we bring on. Whether or not it shows consolidation in prime, pricing pressure in prime, I suspect it might, but it’s just too early to judge that just yet.

Your next question comes from the line of Kian Abouhossein with JP Morgan.

Yes. Hi. First of all, thanks to Heather for all her support. I have two questions. The first one relates to global markets. You clearly indicated that this has been fueled by the very strong liquidity macro environment that we’ve seen. And clearly, all sublines have performed extremely, both last year and the first quarter. And I wanted to understand how you make decisions about spending additional dollars in terms of investments structurally in these businesses, considering everything is performing extremely well and most likely asking for budget. So, if you can just talk about the business lines that you’re investing as well as the geography.

Well, the one that I would call out is credit in FICC just as an example, and I mentioned it earlier. So, this is where we saw a trend line developing around portfolio trading. And so, investments that we were making in platforms and technology capabilities and the like have served us well in the capture of a solid percentage of the portfolio trading and the volumes that are going through there. And so, that’s an example of advancing and enhancing our technology capabilities that are in place. I’d also point out more generally that over the last couple of years, we’ve been spending quite a bit of money on straight-through processing. That is, taking note of the demands among our clients around middle and back office and the overall experience of our clients set not just on the front end of the trade, but all through to the back. Each of those investments, whether it’s technology to build platforms that captures portfolio trading credit, or development of enhanced technology to automate and streamline the overall straight-through processing, all of that is subject to an ROI framework with an eye toward improving the overall client and user experience that’s there. And so, that’s just a little bit of insight into how we think about the investment and where we’ve been making that investment.

And my second question is coming back to technology. Stephen, you also mentioned in your remarks, clearly the focus on technology platforms and the front office experience for clients that you have improved and are improving. But maybe you could elaborate a little bit more in detail. For example, how much of your business is cloud based? How much do you want to get to cloud? How many platforms do you have on the trading side, and how many do you envision to have in the future? And on the front office side, we hear from a lot of banks that they’re very good at the new platform operations that they are dealing with. But just wondering what is the experience at Goldman that makes it so different, in your view.

Well, I’m not sure I have it at my hand kind of the number of systems and the like. But let me answer the question this way, and let me use transaction banking as being a really good example, okay? Transaction banking is a new platform designed from the front end all the way through to the back, into the books and records of the firm. It is cloud-based engineering, which has all the efficiencies that I’m sure you’re aware of in terms of a lower expense to sort of keep it current in terms of developments around engineering and the like. And so, our new builds are largely, perhaps not exclusively, but largely cloud-based. We’re always looking to rationalize platforms. And I would say one thing I’ve learned from Marco Argenti and George in engineering is that it’s as important to decommission old platforms as it is to put new ones in. We’re riveted and focused on doing that so as to eliminate legacy technology, build in the cloud. And I think some of the newer businesses that we’re involved in, transaction banking consumer, benefit from the absence of legacy, so that we can build new and efficiently and in the right form.

Your next question comes from the line of Brennan Hawken with UBS.

Just curious that you guys are building out -- Marcus is a big strategic priority for you. You rolled out the Marcus Invest. We’ve got check writing coming. When we look at some of the fintech platforms and what they’ve embraced recently, there’s been a lot of excitement around offering crypto. You made a few comments on crypto and the outlook for how to engage in crypto in your institutional business. But, are you also considering including the offering of crypto wallets and whatnot on the consumer front, where it seems as though there might be -- but certainly competitors have found an ability to offer that capability, which has driven a lot of excitement and a lot of growth?

Sure. I appreciate the question, Brennan. And at a high level, obviously we’re monitoring this all very quickly. We have a plan at the moment to build a digital bank that’s offering an array of integrated basic services in a completely digital, frictionless platform. And we’re extremely focused on that. At the moment, we are not focused on offering a crypto wallet ahead of providing what I’ll call more basic set of financial services on a digital platform. We’ll obviously monitor how the world evolves with this. We’ll see how things progress and we’ll continue to watch it. But I’m not going to comment further on longer term plans for individuals. We’ve been focused on other things. And with respect to crypto, payment systems, the digitization of money, we’ve been much more focused on the institutional side.

That’s fair. Thanks. Walk before you run, maybe a little different than some of the fintech competitors. Anyway, let’s see, broadening it out a little bit and thinking about your strategic targets and the new directions that you’re going. Stephen, you often flag the components and how much of the revenue is recurring, which it’s probably underappreciated. Have you considered -- you guys have done a lot with disclosure, and it’s been great and very constructive. Have you considered making some adjustments in the disclosures, which would help investors and analysts to model some of those recurring revenues and show them as more mechanical, so to speak? For example with consumer banking -- I mean consumer banking is the one that seems much clear to me. You just provide the revenue line, but we don’t know what the breakdown is in fees versus NII. We don’t know what the direct balances are tied to that. We don’t know credit metrics that would allow for some sort of more mechanical calculations, and I think might assist in the appreciation of how much of your revenue base is actually recurring amongst the analysts and investor community. Have you considered any of those changes or shifts? And do you think that might help in greater appreciation of those recurring revenue streams?

So Brennan, first of all, thanks for the feedback. I mean, it’s a big area of focus for us. The strategy has clearly been to develop out businesses that exhibit greater durability to the revenue stream. And there’s no question that disclosure will follow, in the context of providing all of you with greater insight into where we think or where we would define recurring and durability of earnings that are there. On the specific points you raised around consumer, I think as consumer grows, and so David was reflecting before that that business is now turning a corner to sort of resemble the ambition of a broader platform than it is a series of products. We’d like to find ourselves in a place where we will and can provide greater disclosure on consumer, just as an example. I would say, the same will be true as transaction banking becomes more durable. These are areas where as they become more material, and we expect that they will, disclosure will naturally follow. And then, I think your feedback is a good one, just in the context of providing a firm-wide perspective through disclosure on durability.

Your next question comes from the line of Devin Ryan with JMP Securities.

A question here just on kind of the M&A environment, obviously a lot of activity going on in financials and fintech right now. So, I’d love to maybe just get some perspective on what you guys are seeing within Goldman specifically in terms of opportunities and what the appetite is, and also whether anything has changed? Clearly, the stock is at kind of a new level here. It’s up 30% year-to-date, still only maybe 10x earnings, but we’re at levels that you haven’t been at. So, I’d just love to maybe get some context on the backdrop overall and then maybe how the appetite might be evolving.

I appreciate the question, Devin. On the backdrop overall, I assume by the backdrop overall, you’re just talking about broad M&A activity. There’s been a meaningful pickup as confidence in the forward has increased. And the comments that Stephen made about backlog broadly and the constructive nature of this environment is obviously leading to clients being extremely engaged around strategic objectives that allow them to drive their businesses forward. Really in all businesses everywhere, we continue to see consolidation of those in a strong -- with consolidation by those that are in a strong position. Because all businesses continue in the digital world we’re in with further digitization require more tech investment, more scale, more global. And so, in that context, obviously leaders are continuing to consolidate their strong positions. With respect to our space broadly and how we think about this, I’m going to repeat verbatim what I said last quarter, and what I’ve said before. We spend a lot of time looking at opportunities to accelerate the growth of our franchise. In particular as we look at businesses like asset management and wealth, if we could find something that we felt would accelerate our strategic growth objectives, we would certainly consider it. But the bar for anything significant is high. And it has to be the right industrial logic more than the fact that we have a currency because the stock is higher. And so, we continue to think about ways that we could accelerate our growth, but the bar to do it is high. Prices are high. It’s a competitive environment. And we feel good about our plan, but we’ll continue to do the work and be diligent about looking for opportunities where we can accelerate the growth of the firm.

Okay, terrific. And then, just a follow-up here, we’ve received some investor questions just over some of the recent press reports around some management movement or departures even in some of the newer businesses. And I think the question is more, clearly Goldman has a deep bench and is a large organization, so sometimes I think the context gets lost. But, the question is more around whether there’s any implication of a strategy evolution or shifts from at least what some of the press is picking up. I’d love to just get a comment if you can on that.

Sure. We feel very, very good about our team that’s in place. We have a very, very deep bench. And I think we’re in a great position with the leaders that are in place. One of the things I just observe broadly, and it’s consistent with our performance, it’s consistent with stock market values and prices, it’s consistent with the environment that we’re in, there is a lot of activity in the world. There’s a lot of liquidity in the world. And the world is very, very competitive for great talent. We’ve always been a developer of strong talent, and we’ve always been a place where people come to look for great talent. There’s nothing about any of the attrition this year that looks extraordinary when you look back over a multiyear basis. And I think we’re very well positioned, but there are a lot of opportunities out there. And at times as I said in my script, people will go choose other things because they have bigger opportunities, and we welcome that. Often, they become clients when they make these moves. We rarely lose people to competitors. So, I feel good about where we sit from a talent perspective. I feel good about the interest that we’re finding people have in coming to be a part of Goldman Sachs and join the journey that we’re on to continue to grow the firm.

Your next question comes from the line of Gerard Cassidy with RBC.

Can you guys give us a little more color? I think, you touched on when you’re permitted to increase the dividend, which I would assume would be third quarter when we go to the stress capital buffer construct, that that might be an opportunity for the Board to take up a dividend increase. But, in terms of just with your CET1 ratio, I believe at Investor Day I think you guys said the medium-term target was 13% to 13.5%. Could you share with us how you expect to manage to that number with share repurchases, once we get into the stress capital buffer construct?

Well, I think the way to think about it is that share repurchase is going to follow kind of a longstanding philosophy where we look at opportunities across the firm to deploy capital and where those returns are attractive as they have been this past quarter, we’ll continue to do that. Where we don’t, we will look to return capital back in the form of share repurchase, with the dividend obviously being a reflection, as I commented earlier, of greater confidence and a more durable set of revenues and that net dividend increase to reflect it. On the achievement of the 13% to 13.5%, I would say that the lever is honestly less about share repurchase and more about what we’re doing to alter the capital consumptive density of the firm. So, key among those initiatives sits in asset management, where the pivot from on-balance sheet to third-party fund is as much about creating a durable, more predictable revenue stream as it is lowering the capital density of that business, and therefore of the firm. And to the extent that happens, we will be doing ourselves the favor of reducing capital intensity. But my expectation is that the Fed will recognize it equally and subsequent CCAR exams will reflect it as lowering of the requirement that we ultimately will have. And it’s on top of that that we’ll maintain what I view, we view, as an offensive buffer to deploy capital for clients. So, less about share repurchase, more about fundamental shifts in change that we’re bringing to the business, both to help ourselves and frankly speaking, to enable the Fed to come to a realization of the lower capital consumption profile of the business.

And then, to follow up, the outlook that you guys have described is quite positive. The Federal Reserve has pointed out there’s going to be strong growth this year for this economy, the global economy as well, as we all are expecting. Aside from the pandemic taking a reversal and it sets us all back and aside from a recession, what -- and I know, David, you already touched on inflation as being a risk. What are some of risks that you keep your eyes on that could kind of set the outlook back, maybe not as robust as it appears to be for you and some of your peers today?

Well, there’s risk in markets constantly. And part of markets and economic growth is rooted to confidence. And things can go wrong -- things can go wrong at any time. And things tend to pop up in places that you don’t see or you don’t expect. I think, we have a very, very constructive environment, Gerard, given that the world is dominated by the pandemic and dominated by the actions that central banks and governments are taking to respond to the pandemic. The weightiness of that, the heft of that really overshadows most else that’s going on. I do think over time, we’ll be having discussions about the increase in government debt and government spending around the world. There will be consequence to that. That can obviously have an impact over time. There’s a general view at the moment that rates are going to be low for very, very long. Certainly, given some of the actions that are taken, you could see a scenario where the perspective on that would change and could change quickly. And that would certainly create headwinds to growth and headwinds to activity. But I do think we have a very, very good backdrop at the moment with a higher probability or distribution of strong economic growth, because we had such a sharp reaction to the other side, given the pandemic. And the unwind of that I think will dominate as we move through the rest of the year into next year.

Your next question comes from the line of Brian Kleinhanzl with KBW.

I had a question on the prime book. I know it says that you’re at a record in the first quarter of this year. But, is there a way to frame like the overall exposure from prime? Kind of like what the balance sheet exposure is? What the market shares are from that business?

Well, kind of hard to put precision around that. I would simply say that we have made it, as I’ve said, a strategic priority to grow prime balances. I would say that our business has skewed historically more to the long short, and less so competitively relative to the comp -- to the quants. But our ambition is to continue to grow it. But as I said before, that growth is not going to happen absent corresponding risk insight into how that book grows. We’re very, very aware of the embedded risk in it. We’re very aware of the liquidity consumption in that book. And so, we mind ourselves as we grow volumes in that. But it’s been part and parcel again to the theme of durability around financing that goes on in and around that business. And so, the balances have grown consistent with that.

And the only other comment I’d make, Brian, around the business is that there is a clear consolidation going on with the leaders because of scale, because of technology capability. And I think we’re well positioned for that trend if that trend continues going forward.

And maybe another look at the prime business though. Is there any way to frame kind of where leverage is on the underlying client level today versus where it was pre-COVID? I mean, are we seeing a lot of massive increase in leverage versus where we were before?

Well, I would say -- I mean, listen. It depends a lot on the collateral pool that you have. Let me describe it this way. It’s hard for us to know what goes on in every other bank around the street. I can only speak to what we know and watch inside of Goldman Sachs. And so, what David was describing, particularly around Archegos, the story is less about the events of Archegos as much as how we’re set up to monitor it. And so, we look at consolidated or overly consolidated concentrated positions in individual accounts. We look for excessive position concentration across the whole of our business. We look and undertake a daily mark-to-market on collateral and corresponding margin. And in tracking concentration and correlation, we adjust what it is that we’re doing, the level of margin we take, the clients we take in, the pricing we put against that prime. Those are all the important inputs in terms of how we grow that business broadly.

Your next question comes from the line of Jim Mitchell with Seaport Global.

Maybe just talking a little bit about the implications of the explosive growth in the SPAC market. You guys have had pretty good market share there. I guess, number one, do you think -- there’s clearly a lot of pent-up demand for M&A that has to get done in the next 24 months. Does that make you even more excited about the M&A prospects for you and the industry? And should we see a subsequent sort of cooling off in the underwriting side, just because the demand -- the amount of capital-chasing deals seems very high?

So, a couple of comments at a high level. I mean, there’s no question that given the number of SPACs that have been raised, the incentives that are set certainly lead to all those sponsors to look for deals actively. Given our position in the M&A market, that should be a tailwind. That said, just to quantify it, when you look at our M&A activity, that M&A activity for us with SPACs last quarter, I think it was a single-digit percentage of the M&A activity that we participated in. So, while it’s a tailwind, I wouldn’t say that that’s dominating the M&A activity and the positive constructive comments we made around M&A. In fact, that’s really rooted in much more broad strategic activity that we’ve seen a big pickup in over the course of the last 6 to 9 months. With respect to underwriting activity, there’s no question that it has slowed from the peak of where it was. I think there’s a little indigestion in the context of that. You’ve obviously seen returns and some of the shells kind of slowed at this point. I’d also highlight just again kind of backlog, that when you look at ECM revenue last quarter, SPACs were less than 15% of our ECM revenue last quarter. So, this all creates a tailwind. But my guess is in this quarter, you’ll see less new issuance than what we saw in the first quarter. And you’ll see a continued progress that people try to find M&A targets to destack. All of that should be constructive for our business.

And as a follow-up, do you see any sort of longer-term good or bad with -- you noted that it’s an innovation that’s probably here to stay. Do you see it a net positive for the investment banking industry, or just it’s another quiver in for financing?

Well, I think it’s another form of capital formation and financing. But what I tried to highlight in my remarks, Jim, is that I think it’s going to continue to evolve. I think there’s room for improvement in disclosures, and you’ll see us continue to push to improve disclosures. I think, you’ll see different structures around incentive alignment for sponsors, and I think you’ll see an evolution in that. So, like any other innovation,, they evolve, they mature. But I do think capital formation that leads to more liquidity in markets and more opportunities for investors to participate is generally a good thing. But how it’s done, the disclosure around it, the incentives, the transparency, all those things are things where I think there’s room for progress around this innovation.

Your next question comes from the line of Jeremy Sigee with Exane.

I just wanted to go back to the Archegos comments you were making early on and what it means for the prime brokerage business more broadly. And I just wondered if you could comment on how unusual Archegos was compared to other funds that you do business with in prime brokerage in terms of their leverage or their investment position? So, was this an ordinary situation, like multiple others that you do business with that just went wrong, or was this some kind of real outlier to start with?

At a high level, in a high level, Jeremy, it’s hard to make generalizations around these things. But I think what was unusual here was for a variety of reasons. This particular fund wound up with very concentrated positions very quickly, and I think that was unusual. And then, the actions that they chose to take, or chose not to take, obviously affected the outcome. But,, I think it was unusual with respect to the size and the concentration of positions, which changed relatively quickly.

And just to follow up, do you expect any change in how you do business as a result of this incident, or how the industry does business, either in terms of risk limits, margin levels, capital requirements, either that you determine or that maybe the regulators are going to determine for this business?

I think, we always look at every experience we have on a day-to-day basis, and we always try to learn and we always adjust. And there’s no question that we spent a lot of time looking at this, even though I feel that we executed very well here. We got this one right. We don’t always get everything right. So we always look at every situation to try to tweak and improve our risk management processes and how we think about these things. I do think that there -- given the visibility of this, I do think there’ll be regulatory discussion around it. As I said in my prepared remarks, we’ll participate constructively in those discussions. But, I think it’s too early to speculate one way or another whether it will have any impact. I do think to some degree, this was a one-off event. But as I said earlier, we will see from time to time people get overly concentrated. They have too much leverage, and that leads to unwinds.

Well, since there are no more questions, I’d like to take a moment to thank everyone for joining the call. On behalf of our senior management team, we look forward to speaking with many of you in the coming weeks and months. If additional questions arise in the meantime, please don’t hesitate to reach out to Carey and the IR team. Otherwise, please stay safe, and we look forward to speaking with you on our second quarter call in July. Thank you.

Ladies and gentlemen, this concludes the Goldman Sachs First Quarter 2021 Earnings Conference Call. Thank you for your participation. You may now disconnect.