Good morning. My name is Erica, and I will be your conference facilitator today. I would like to welcome everyone to The Goldman Sachs Second Quarter 2021 Earnings Conference Call. This call is being recorded today, July 13, 2021. Thank you. Ms. Halio, you may begin your conference.

Thank you, Erica. Good morning. This is Carey Halio, Head of Investor Relations at Goldman Sachs. Welcome to our second 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. I am joined by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Stephen Scherr. David will start with a high-level review of our second quarter performance and our client franchise. He will also provide an update on the operating environment and the macroeconomic backdrop. Stephen will then discuss our second quarter results in detail. David and Stephen will be happy to take your questions following their remarks. I will now pass the call over to David.

Thanks, Carey, and thank you everyone for joining us this morning. I will begin on Page 1 of the presentation with a review of our financial results. In the second quarter, we produced net revenues of $15.4 billion, our second highest result on record. The strength, breadth and diversity of our business remained evident this quarter as we delivered net earnings of $5.5 billion and quarterly earnings per share of $15.02. Second quarter results contributed to our highest ever first half revenues of $33 billion and net earnings of over $12 billion, which drove year-to-date ROE of 27.3% and ROTE of 28.9%. Our performance underscores the strength of our client franchise and the constructive but more normalized market environment relative to a year ago. Our results also reflect ongoing progress on the firm’s strategic priorities across all four of our businesses as laid out at our 2020 Investor Day. In Investment Banking, we continue to benefit from our leading M&A franchise. Given this position, we observed certain secular changes driving strategic activity as our key clients emerge from the pandemic, the drive for scale, the push to achieve operating efficiency, the shift to a digital economy across a broader industry set. We’ve maintained a number one ranking completed M&A for 19 over the last 20 years and have been the leader in equity underwriting for nine of last 10 years. We have broadening our Transaction Banking platform. In June, we launched in the UK and we will now focus on expanding into Japan and other geographies. Although we are early in the rollout, initial client feedback has been quite positive. We delivered solid results in Global Markets where recent market share gains contributed to our performance. We continued to deploy balance sheet to support client activity and we are further…

Thank you, David, and good morning. I will start with our business performance by segment beginning on Page 4. Investment Banking produced its second highest quarterly net revenues of $3.6 billion. Financial Advisory revenues of $1.3 billion reflected an elevated number of deal closings in the quarter and increasing market position of our business as we have expanded our client footprint. We maintained our number one league table position for the year-to-date, participating in $975 billion of announced transactions with a volume market share of 33%. Activity continues to be strong across geographies, particularly in the Americas with strength across all industry groups reflecting the breadth of our franchise. Underwriting performance remained very strong with its second highest quarterly revenues following on from a record performance in the first quarter. Equity underwriting performance in particular, continued to be strong, generating $1.2 billion in revenues amid elevated IPO activity and representing our third consecutive quarter with revenues of over $1 billion. We ranked number one globally in equity underwriting for the year-to-date with volumes in the first half climbing to $85 billion across 400 deals. That represents volume market share of 10%, up 40 basis points versus full year 2020. Notably, we led over 160 IPOs for the year-to-date, more than all of last year. In Debt Underwriting net revenues were $950 million with performance supported by strong high-yield volumes and importantly, robust acquisition financing activity including LBOs, as well as strong M&A and financial sponsor activity. This performance reflects the integrated nature of our Financing and Advisory businesses, as well as our dominant share in financial sponsor activity. Additionally, ESG remained a focus of the market, particularly in Europe with strong issuance volumes across sustainability-linked bonds and loans. We expect this trend to continue in future quarters. Notwithstanding the realization…

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

Hi, thanks very much. A quick follow-up. You noted the record prime brokerage, prime financing balances and curious if you could drill down a little bit on how much is environment versus - and engagement of clients versus new clients and market share gains? And while we are on the topic, I’d love to know, if you have any thoughts following the Archegos incident. What has or do you expect to change in the industry as a result? Thanks.

Thanks a lot, Glenn. So on prime balances, they have grown. They’ve grown kind of consistent with the broader strategy that we set up. As to distinguish that growth between the environment and clients, I would say it’s both. I would say the environment obviously by virtue of balance is accreting in this market, that has grown balances and we’ve obviously seen opportunity to take on new clients and, frankly speaking, to be more profound with our existing ones. But I would tell you that in the context of all of that, and I mentioned this in the script, there is a clear screen, which looks at where we are pricing, how we are structuring terms, both around new entrants and equally around the back book of our prime balances. And so, we are being rather judicious in the context of what we bring to assure that this stays as accretive as we think it can become from a returns point of view, but it is both environment and clients and our ambition is to take that share up, but to do it in a rather prudent way. On the part of your question relating to Archegos, look, this has obviously gathered kind of an investigative purview from a number of geographies and across regulators. Kind of hard to predict exactly where that yields or what that yields. I suspect that in the broad category of transparency and disclosure, both of which we would be supportive of, there will be moves by regulators to achieve that. But very hard to say, kind of, as to where that all plays out. As we shared in our first quarter earnings call, we aim to be a constructive participant in the kind of regulatory and industry change that will come about.

Okay. I appreciate that. Maybe just to follow up on…

Sure.

…on two of the new business builds. You mentioned the Family Card with Apple. I am curious on – in what customer segment you are going after with that? And maybe a bigger question on, do you have any numbers for us in terms of accounts balances or new partners who want to talk about? And maybe that same comment question for transaction banking clients, deposits, just tracking progress, I appreciate it. Thanks.

Sure. So, progress on both fronts has been considerable. I would say, let’s start with Apple Card. The press around creating the family plan was frankly speaking to achieve a greater and more positive user experience. So that people across a family were treated equally in the context of the underwriting, broadly speaking. I think that move will accelerate share. But I think more importantly, and its objective was to create just a better overall user experience. On Apple Card, generally, I would tell you that while we pulled back in terms of rate of growth during the course of COVID, we’ve seen the credit profile of Apple Card customers to prove positive, perhaps even more positive than we thought. And we’ve now opened up the aperture and are now accelerating that rate of growth consistent with the tone of the consumer market that we are seeing. And I think there is more opportunities to be had with Apple using the card as a medium for engagement with the client set. So, you’ll start to see forward growth, and I suspect balances will be a fast follower from the increase in originations and underwriting in Apple Card and the family plan will only serve to help that. In transaction banking, that business continues to grow. We are upwards of now several hundred clients, $40 billion of deposits. And perhaps most importantly, when you look at that deposit base, we are starting to see an acceleration of operational deposits approaching 15%. And that’s obviously the linchpin to creating a deposit base that is more usable and more valuable to the firm. I will tell you based on our opening expectations of that business, we have had to put less rate on deposits to attract customers. It’s turning out that the user interface and the engagement with the corporate client set just in terms of what we are offering by way of experience and technology is proving to be the winning ticket. And so, as both David and I mentioned in the prepared remarks, we are going to start to see geographic expansion both to the UK and Japan. We’ve set ourselves up from a bank entity point of view to facilitate that kind of growth with licenses in a variety of jurisdictions and a reorganization of the banking entities. And so, I think that business will continue to play forward. And perhaps what’s most illustrative of that is just the power of the corporate franchise and the open doors that are there in the context of kind of the One GS mantra and the way in which we are able to sell in through an existing client base.

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

Good morning, David and Stephen. Maybe just start off with the equity investments portfolio and thanks very much for the roll forward of Slide 9. I guess I have a two-parter on that slide. It’s a high-class problem, but you sold nearly $6 billion in positions and you made basically no progress in reducing the equity investment portfolio. So, curious what else you can do to bring that portfolio down? And then, maybe more broadly, is it time to rethink the sort of disposition strategy? Your stock is at all-time highs. The market is rewarding your stock for strong revenue growth and ROE expansion and they don’t really care about capital position. So, I mean, should you just not just cut the buybacks, focus on revenue growth, rather than potentially making uneconomic investment dispositions?

So, thanks, Christian. We appreciate the question. And on the first part of the question, we absolutely have made progress on our goal with respect to capital efficiency and the on-balance sheet investing. And I’ll let Stephen highlight some of the details in the moment – at the moment. But we continue to move aggressively to manage those positions. I think it’s a very constructive environment for us to do so and I think we’ll continue to do that. You’ll continue to see us do that with intensity as we see good opportunities to monetize those positions. We continue to be committed to both diversifying our revenue streams and also continuing to drive toward more durable and recurring revenues and the fee-based emphasis of the fundraising that we are doing in the asset management business is one aspect of that. On the broader question about opportunity, I think one of the reasons why we decrease our buyback in the quarter is that we see opportunities to continue to devote capital to serving our clients and growing our business. And so, if we can add accretive returns in our business by deploying capital in that manner, we will continue to do it, but we want to remain and I think we’ve always been a very, very nimble capital allocator. And so, when we see those opportunities, we will make investments and we’ll continue to grow the business. If for some reason the environment changes and we don’t, we will return that capital appropriately to shareholders. Stephen, do you want to comment just on the progress along those sell-downs, because we have made real targeted progress and we’ll continue to make progress with respect to some of the goals we’ve set out.

Yes. So, I guess, let’s just start kind of with the facts. Obviously, on the new page that we showed you, $5.5 billion did come off-balance sheet producing $4 billion of capital relief. And as I mentioned, there is another $3 billion that’s in sight to take $1 billion of capital down. Now, that just looks narrowly speaking at the private equity portfolio. There is consolidated investment entities. There are debt positions, all of which are on-balance sheet, all of which are subject to further reduction, all of which will reduce down capital. Now why does that matter and why we want to stick to that strategy, Christian, as opposed to kind of abandon it? Well, first of all, obviously, we are looking to elevate the capital returns of the firm. The one way to do that is to influence the denominator. The way to do that is to reduce down the capital density of our businesses more broadly. At the same time, this is going to dramatically change over time the durable revenue forecast for the firm, which is that moving from on-balance sheet to fund format and the fact that we’ve raised since Investor Day, $75 billion of new funds in those funds, okay? We’ll increase assets under supervision and equally we’ll increase fee revenue that’s being generated by those investments in that fund format. And so, in a way the page to watch on the forward will be Page 11 of our Investor Day presentation, because what’s going to play out and we promise more disclosure which we will deliver, but firm-wide assets under supervision will go up. Firm-wide management and other fees will go up. Those will prove to be more durable and predictable and I think hold the promise of greater valuation on the back of a lower capital dense set of businesses. And I think that’s the broader picture if you will in terms of what we are trying to achieve. What we put on Page 9 was nothing but an attempt very simply to show progress was made much as it would otherwise be masked by as you put it kind of a very happy problem in terms of an appreciating equity market also providing us with an opportunity to accelerate into the strategy of disposing of on-balance sheet investments.

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

Hi, good morning.

Good morning, Steve.

I wanted to start off with a question just on the investment banking outlook. First half revenue is a record. You started the record backlog or closing continued strong share gains. One of the interesting metrics that was provided recently by John at a recent conference was that, you sell $1.7 billion benefit just from share gains in global markets and just given some of the momentum in the investment banking side, I didn’t know if you could help frame how much of a revenue benefit you are seeing from those share gains and is there any risk to the – sort of disruption in the current environment, especially given the Biden Executive Order that was recently published?

Sure. So, a couple of thoughts on that broadly. I mean, the environment for investment banking activity, Steven, continues to be very, very constructive. And I think that there is a good chance that that will continue to play forward in that direction for some time here as the economic expansion continues. In my remarks, I highlighted the fact that coming out of the pandemic there were a handful of factors that we think are structurally driving CEOs and Boards to think about how they can strategically strengthen their position in an increasingly evolving digital world. And we are seeing really, really broad engagement across our franchise with respect to the desire of companies to better position themselves on a go-forward basis. And the world that’s actually evolving quite quickly, I am encouraged by the fact that our backlog levels remain extremely high record levels and a lot of that I think feels like it will sustain as we move through this environment. Obviously, if there was some sort of a disruption or an economic slowdown sometime in the future, that would wear on confidence and slow that, but that doesn’t seem likely given where we are positioned today. With respect to global markets, we picked up a 160 basis points of market share through quarter one and that’s allowing us to take greater share of whatever the broader trading market provides us. I don’t have specific market share KPIs on investment banking to share right on this call, we can certainly follow-up more broadly on some things. Obviously, we tracked our – we track our lead table position both in M&A and equity and debt and there, we’ve been strengthening our position over time and it’s consistently at the top of those lead tables. What I do say is affecting our wallet share in banking is part of our Investor Day process to serve a broader array of clients was to really expand that footprint and the footprint of available clients let’s say are in the $500 million to $3 billion enterprise value has been significant. It’s grown and we’ve continued to expand that footprint and we’re quite effective at penetrating that. And so that’s been a very good opportunity for us and I actually think that opportunity will continue. I think our Investment Banking business is positioned incredibly well. I think we continue as we have been to be a leader in that business over the course of the last decades and the quality of the talent we have in that business continues to be strong, differentiated and very, very front-footed with our clients. And so, there certainly could be macro events over 12, 24, 36 months period that slowed down the current momentum, but at the moment, it feels quite constructive.

Thanks for all that color, David and just for my follow-up, relating to the line of questioning tied to Christian’s question just on the equity investment portfolio, recognizing that barring a net reduction in that portfolio, understanding there is other metrics we have to monitor, it might be difficult to really see any meaningful SCB improvement at least in the near-term. I was hoping to get some perspective just given the multiple re-rating that you’ve seen, the strong momentum in the business, as well as the fact that the SCB is feeling some upward pressure, whether your views on a transformational M&A are evolving at all and whether a potential acquisition could at least tell potentially mitigate some of the pressures from the global market shock that seem to be driving that upward pressure on the capital ratio.

At a high level and I appreciate the question, Steven, I don’t think our views on transformational M&A have evolved. Call-after-call, quarter-after-quarter I’ve said and I’ll say again that the bar would always be extremely high for us to do something very, very significant. But I’ve also said that our drive to diversify our revenues and create more durable revenues comes, as both Stephen and I have highlighted in our remarks, from continuing to invest in and grow our Asset Management business, continuing to invest in and grow the opportunity in our Wealth Management business and for broadening our digital Consumer Banking platform. There may be opportunities from time-to-time that can accelerate the direction of travel in those. We look at things constantly. If we see things that could accelerate the direction of travel in those businesses and accelerate our goals in those businesses, we’ll certainly consider them always – always with a high bar. It wouldn’t surprise you that prices at the moment are high and that certainly has an impact on how we think about these things. But we are making a lot of progress organically and we continue to be focused on that organic growth.

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

Hi. Good morning.

Good morning.

Just as an incremental follow-up on everything you just said, David, how do we think about the sizing of the equity investment book that you are looking for? I totally get that mark-ups are adding to this right now. But the $1.5 billion in addition, there is lots of great opportunities out there. Should we expect that over time the equity investments book should be rising? Or is there a goal of size of this portfolio that you are looking to manage to over the next call it, two to three years?

Well, the strategy – the strategy has been to take a broad Asset Management business and particularly around alternatives that has been extremely balance sheet heavy and turn it into more of a fund-based model and we’ve only started to really tap into the relationship network and the platform that we have as a firm to really be a much bigger institutional capital manager across these strategies broadly. And as Stephen highlighted, since our Investor Day, we’ve raised $75 billion in fund structure. I think everybody on this call understands that when we do raise funds, we invest as GP alongside our institutional investors and so there will always be equity investments through our fund participation, but the cycle that we are going through is one of shifting from significant on-balance sheet investments over time to a much broader fund mix where the investment slice we have in the fund is smaller and therefore the overall equity position will be meaningfully smaller than it’s been. Now it’s a good problem if the market keeps going up and therefore the value seems to be staying the same even though we are making very, very significant sales. But over time, as we continue to grow the funds portion of the business and we continue on the path of disposing, that number will get smaller. We haven’t put out a target number, but by definition, it will get smaller. In the near-term, our balance sheet will come down and our AE target is a little less than $18 billion.

The only other thing I would add to that, Betsy, is that if you look at Page 8 in the presentation, on the left-hand side, you can see we’ve been talking a lot about the $21 billion of equity investments. But equally consolidated investment entities of $18 billion is fertile ground to continue to bring this down and reduce down the AE in the segment. And so, all of that is part and parcel of where we want to go. Obviously, the objective or the near-term target as it were of AE of getting down to $18 billion or lower remains that and we are committed to get to it notwithstanding the appreciation in the overall portfolio, because as you rightly point out, that also presents opportunity to accelerate where we can the sell-down of these positions.

Right, because I should be thinking about the $21 billion in terms of density of capital usage, kind of the old methodology when you were 25% invested in these funds to new which is more like 3% or less invested in the funds. So obviously, the latter is less capital-intensive. I guess, the other question is, in addition to Page 8, left-hand side that you mentioned, are there other things we should be thinking about for bringing the SCB down? Or would you say, hey look, Page 8 left-hand side, that’s really the bulk of the actions that we are interested in taking?

Well, look, I think, the way to think about this is that, we are not waiting for the Fed to deliver us a result that’s satisfactory, okay, much as we are petitioning them on some issues that are relevant. We are taking a lot of self-help here. We’ve been talking about one, the overall push to durable revenues, right, is going to factor into the way in which the Fed determines PPNR in the context of the overall SCB calculation. So it’s not just limited to this. It means, what do we do in the pivot to the fees that will be generated, as David spoke about and I did of $75 billion and growing in fund format. What does it mean in the context of a growing consumer business? What does it mean in the context of a growing fee set that comes out of transaction banking? All of these will prove to be more durable, viewed that way presumably by the Fed to yield a better PPNR sort of calculation in the overall test. So we are not exclusively relying on this much as this has sort of considerable consequence in the way in which CCAR treats on balance sheet investing. And then, again, we remain quite engaged with the Fed, as we put our letter in last year and we will only serve to reinforce those issues this year on issues that we think are relevant to achieving a lower SCB calculation.

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

Good morning. Thanks for taking my questions. I wanted to ask about M&A. The advisory business in banking and Stephen touched on this, but maybe I wanted to be a bit more explicit. So, we’ve seen a bit more hawkishness on the anti-trust side, not only with the recent Executive Order, but also with some of the actions tied to certain deals. What kind of an impact do you expect this might happen – have on volumes and velocity in the M&A market broadly? And I believe you touched on the fact that sponsor activity was a big – has been a big contributor to M&A volume. How much of that sponsor activity you get the sense is driven by some kind of tax motivation given all the talk about the potential for rising taxes? Thanks.

Sure. And I am going to answer the second – I am going to answer the second part first. And then I’ll circle back on the Executive Order and kind of the broader – the broader roadmap around M&A. But I don’t think the sponsor activity is driven by tax. The sponsor business at this point is a broad, diverse business. There is enormous dry powder. There is an enormous amount of money that moves in that ecosystem. There is real secular growth in the context of the capital allocators and their desire to increase the waiting to alternatives. It’s one of the reasons why the strategy we are focused as one of the leading alternative managers in the world and continuing to grow that, because there is lots of demand for our clients. And so, I don’t think that there is any overlay from a tax perspective that’s accelerating activity there. I do think that activity has accelerated, because the market environment is quite constructive and it’s been quite a constructive environment for asset prices generally. With respect to the broad M&A environment and anti-trust and the Executive Order, I mean, obviously, the Executive Order I think serves the roadmap for a whole bunch of policy priorities that the current administration would like to get done over the next four years that relate broadly to competition, consumer protection issues. This is – it’s a broad and ambitious range of ideas. It’s something that I think we’ll have to watch very, very closely. Ultimately, the order can’t direct the agencies that make the anti-trust decisions to make those decisions. But it can put a set of constructs into place that certainly could ultimately have a regulatory impact. But the agencies will have to over time, put forward or through the actions they take create more transparency on that. We’ll be watching it very closely and doing a lot of work to see how that all evolves with agencies. Certainly, I think there is a tipping in the balance that could in the margin have some impact on certain transactions. I’d certainly say broadly around large tech consolidation. There will certainly be a lot of discussion in that area. But I think it’s early and I think you have to watch it closely and I think the macro environment and the tailwinds from the macro environment, some of the things I said earlier about companies’ desire is to really strengthen their competitive positioning outweighs the regulatory overlay, but we are going to have to watch that very carefully.

Great. Thanks for that color, David. And then, for my second question, there has been a lot of press coverage recently around junior banking – junior banker frustration, and we’ve seen some competitors increase comp for the junior levels as a result. Do you think any of those developments will impact retention at Goldman? And do you have any specific plans or intentions to respond to this development yourselves? And what kind of impact do you think that might have? Thanks.

Sure, sure, sure Brennan. I appreciate the question. And as we’ve highlighted earlier in the call, we are quite proud of our leading Investment Banking franchise. It’s been a leading franchise for decades and I think one of the primary reasons it’s been a leading franchise is because of the quality of the people that we are able to attract and retain at Goldman Sachs, we serve our clients and serve our clients extraordinarily well. We have always paid very competitively. We have always been a pay-for-performance organization. We are performing. We have a normal pay cycle. For analysts that normal pay cycle happens to be in August and we’ll continue to pay competitively and pay-per-performance, but that’s part of our strategy that’s been in place for a long time and will obviously continue. With respect to salaries, we revaluate salaries in regular course every single year and when appropriate, we make sure our salaries are competitive. So, we continue to thrive by having the best people here and paying them appropriately especially when we perform, we are performing. And I would tell you to expect to see us pay appropriately during our normal cycle.

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

Hi.

Hey, Mike.

Hey, Mike.

So, it looks like revenues and profits per employee are up over the last year, last five years, even while you’ve grown employees 4% year-over-year and 17% over five years. So, I think what would be sustainable is if you are lowering unit cost and generating revenues for lower marginal costs. So my question is, how much has technology helped you to lower unit cost? And how much more is ahead? And from the outside, there is no way we can compute that. You have private equity gains. You have a lot of moving parts. But on the inside of the firm, I imagine you are tracking those in some manner.

I’ll start and Stephen will add, Mike. But at a high level - and we’ve talked about this. We’ve talked about efficiency in the firm. We’ve talked about digitization. We’ve talked about connectivity to our clients and ways the technology can leverage our ability to serve our clients, all that continues. And there is a significant investment going into that making the firm more efficient, but most importantly, levering our people’s capabilities to better serve our clients. I think that we are in the third inning of that evolution. There is more opportunity. But there have been some real gains. And Stephen can probably quantify on some basis how we think about that. But I think there is a lot more opportunity for us to continue through digitization and the way we connect with our clients and the tools we use to create more leverage broadly. And so, we continue to be focused on that. Stephen?

Yes. Mike, the way we look at it and compute it is, we look at the introduction of technology into a variety of different work streams. Take risk for example, where there is mandatory production of tens of thousands of reports, either by regulators or consumption internally and we go through a zero-based budgeting exercise where we constantly revisit what we need in the context of the introduction of technology and automation that plays forward. When I think about the forward for the firm, the real cost gains are going to happen and the production of higher marginal margins are going to play out by virtue of the achievement of scale. When we achieve scale in certain of these businesses, take Transaction Banking, take the Consumer business, even look at what we do in platforms like PFM, okay, we are building constantly higher marginal margin returns because we’ve got an embedded base that is built to scale. And those businesses will scale over time, over the medium to long-term and the effect of unit cost, if you will of producing what we do will come down. And so that’s just a sense both in the spot, zero-based budgeting, risk, et cetera, but equally on the forward in terms of how to think about the achievement of scale and higher marginal margin in the business.

And as it relates to the Executive Order from the White House with you guys positioned as a potential disruptor in the Consumer business, what do you make and what are the possibilities for you to benefit from making it easier to transport customer data from bank-to-bank?

Well, I would say couple of things. I mean, one is to repeat what David said, which is, it’s a bit early. Right, now what we came to the issuance of the Executive Order is to exactly how that plays, okay? From our perspective, we started this consumer business on a white sheet of paper. So we are not retrofitting a series of transactions or incumbent businesses. And so, as we look to continue to build the consumer platform, we are quite open to the notion that there will be shared set of data. The data will be portable. Our focus has been entirely from the customer back, which is what does the customer want? What is the customer need in the build of a very differentiated new consumer platform? And so, these products are all about the design, utilization of data. We obviously are consistent and in line with some of our other banking brethren, which is, we need to make sure that the security of customer data is paramount. We are no different than any other bank. We take that responsibility seriously. But I think on the new build, on a white sheet of paper, we are less burdened by these issues, less protective of an incumbent business and more focused on where we can take it and where we can build.

Yes, the only thing I’d add to that, Mike, is that, when we started building this business four, five years ago, it’s certainly within our vision of the world that customers would have a lot more flexibility to move their data and attach to different platforms. And so, certainly in our macro design of where we think the world is going, the direction of travel that way is not something surprising to us.

Your next question comes from the line of Dan Fannon with Jefferies.

Thanks. Good morning. I was hoping to get a bit of an update on the expense efficiency initiatives that you’ve laid out and kind of where the progress sits today and the breakout of kind of non-comp versus comp on a go-forward basis. And then secondly, if you could also update us on the funding optimization goals that you have, I think the goal of 30 basis point improvement over time. Can you just update us on where that sits today?

Yes, sure. Okay. So let me take the three pieces. First, on the $1.3 billion expense initiative, we are as ever confident in the achievement of that and you all may have heard at a recent industry conference, John Waldron indicated that we have further confidence to about $400 million above and beyond that to be achieved outside the 2022 timeline that we set for the achievement of the $1.3 billion. So confident in the existing number and giving an offering kind of a forward indication of where we can take it up from there. Again, all of this consistent actually with some of the prior questions are about creating capacity for further investment in the firm and in its people. And so, that’s where we stand as it relates to the expense initiatives. In terms of comp and non-comp and the forward, let me say this. On compensation, as David has indicated, we have always been in a pay-for-performance mode. We’ll continue to be that. As the firm performs, we will continue to sort of pay out to both attract and retain talent. I will say, as we said in the past on compensation, that the compensation as sort of a call out component to operating expense will become less and less important as and to the extent that we build out more of these scale businesses. And so, therefore, you’ll be looking more at operating expense in its total than you will as we have historically been rather pre-occupied with the compensation ratio in and of itself. That’s lesser reflection of any departure whatsoever from the way in which we want to pay talent. It is more to do with the composition of businesses that we are building and the kind of non-comp intensity of expenses related to…

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

Great. Good morning, David, and Stephen.

Hey, Devin.

Good morning.

Wanted to quickly follow-up on Transaction Banking and just trying to better understand some of the traction just given such strong growth in the quarter. And what I’d like to dig in a little bit is around, the 300 clients that you mentioned, do you have any kind of the wallet share that you are seeing? And what I’m getting at is, are clients I guess currently just testing your platform, and so there is kind of maybe significant embedded potential as those clients move more balances over? So, any flavor for that? And then, there seem to like success is going to beget more success here as proof-of-concept has obviously been established. And so, just any other color on kind of what you are seeing in the sales process and then whether there is an acceleration in bringing new customers on now that it’s fully established?

Sure, Devin. So, I would say, the process of sell-through here is better in terms of rate of growth than we anticipated, but the way in which it’s happening is as we anticipated, which is that, we are not new to any one of the corporates who are coming on to this platform. There is a longstanding corporate relationship that has opened the door. We had said from the beginning that while our ambition was to grow a very big and very profitable business, we recognize that there was a progression where you have large corporates that have a platform of three or four participating banks that our breaking point was to be number three or four and this wasn’t conditioned on us jumping to the number one spot on that platform out of the box. Now, my view is that, as treasurers and CFOs grow ever more confident in kind of their operational experience on the platform, we will grow. We will have more products and services to offer that corporate client off of the Transaction Banking platform and we will see our ranking, if you will, on that platform grow. If we began at three or four, we’ll see ourselves to two and perhaps one. And that will continue to sort of grow and expand. But these are formidable clients of the firm who place considerable confidence in the firm so that sell-through is, as we expected, perhaps faster in terms of rate of growth and that’s kind of the progression. I would also say that that will correspondingly lead to greater operational deposits on the $40 billion growing that we will see, because as a client becomes ever more operational as a percentage of their overall business, percentage of their deposits with the firm will become more operational. Therefore more valuable. And so, that I think is kind of the progression and the way to think about growth and the migration kind of up the ladder as it were for any given corporate client.

Okay. Very helpful. I’ll leave it there. Thank you.

Sure.

Your next question comes from the line of Ebrahim Poonawala with Bank of America.

Good morning.

Good morning.

Good morning.

I guess, I just wanted to follow-up on your outlook around your mid-teens ROE target. You’ve talked, David, and a lot about the revenue durability and reducing the capital density, both of which should eventually be accretive to the ROE profile. But when you look at how the market values the stock today, I think there is some skepticism around where the ROE could be if there is a downturn in the cycle. Just talk to us, if you could, in your view, where do you think the firm is over-earning versus under-earning from an ROE standpoint? And what’s the net-net outcome of those jobs?

Well, I think broadly speaking, we are performing very well across a very, very diverse platform of businesses. Certainly, I can’t predict the future. This certainly could be an environment that comes in the future where economic activity slows and where some parts of our business slow vis-a-vis the levels of activity we are seeing today. On the other hand, at times of stress or in times of decreasing economic activity, there are also parts of our business that performed quite well and have some counter-cyclicality. So, I think we have a big at scale business. We are at scale and a number of our businesses and a leader. I think those businesses will continue through the cycle to produce very, very good returns. I think we are building other businesses that as Stephen highlighted are going to be scaling. Some of them are different kinds of businesses, but they offer opportunity for more consistent modelable, more consistent returns that you can more easily model and people will view as more durable. I believe that our business activities are durable through the cycle and our job is to continue to perform and continue to prove it. And so, I believe if we continue to do that over time, the discount that exists between the way our earnings are valued and the way others and our peers are valued should narrow. But we are going to continue to focus on serving our clients, growing these businesses, expanding the platforms and my belief is the market will follow.

I mean, to some extent, if you reflect on David’s comments, ROE is nothing, but numerator over denominator. And so, we’re controlling both revenue in-take and expense in the context of the numerator and equally working hard to do what we can of our own volition to reduce down the denominator in the context of SCB. But, the reality is, we sit where we sit. We are changing kind of the dynamic of the business profile all to yield a higher ROE, which will translate, as David suggested into the potential for a much better look at the valuation of the firm overall.

And I just add broadly, the kind of environment that obviously affects our returns, certainly when you look historically, it’s affected other of our peer institutions’ returns too. There are differences in our business. But I don’t think they are as different as they are amplified from time-to-time.

Got it. And just as a follow-up on the consumer strategy. Can you achieve significant scale over the next few years without doing something inorganic? Or do you think you can build out and without having to do any meaningful M&A and still create a sizable business in a reasonable timeframe?

We absolutely think that we can build an at-scale business over the course of the next three to five years without doing something on organic. If we saw something that we thought could accelerate that or enhance that, we’d certainly consider it. But we have a detailed plan that gives us what we think is a scalable, which is an at-scale significant business over the next five years. And we are going to continue to invest and continue to execute against it. And as we’ve said a number of times, those investments and that drive to do that is not affecting our either mid or slightly longer-term return targets and thresholds that we continue to drive towards.

Your next question comes from the line of Matt O’Connor with Deutsche Bank. Matthew O’Connor : Good morning.

Good morning.

Good morning. Matthew O’Connor : So, there has been an acceleration of the electronification effect. There was a good article, I think over the weekend on this specifically within credit. And I was wondering if you could talk a bit about this. And I know you’ve invested a lot in the technology side on both sides of trading. But how does this kind of shape up for you in terms of thinking about your share going forward assuming this trend continues.

So, in the context of our credit business in FICC, this has been an area of considerable investment from a technology point of view, because we needed to and wanted to migrate from what was kind of high-touch to low-touch and pick up high volume lower margin business. And so, portfolio trading algos, the introduction of them, the development of digital platforms where asset managers, insurance companies can come and execute on those platforms using marquee has been a very, very significant and somewhat elevated prospect for us in terms of overall performance. It’s also enabling us to develop new products in credit like customized baskets and TRS strategies. It’s all in the context of where a client of the firm can come either through marquee or otherwise and through an API use data and tools that the firm is providing in order to execute. And that is a growing piece of the overall credit business in FICC and an area where we think that there is enormous opportunity for us to continue to grow. And so, we are seeing monthly users around marquee accelerate. API interaction accelerate. All in the context of kind of the underlying premise to your question. Matthew O’Connor : And then, just following up on FICC, I know it’s always annoying when you get asked about like near-term trends. But we’ve seen some unusual activity in rates in the last month with the move down, especially the longer run. We’ve seen some correction in certain areas of commodities. Has this caused clients to reposition, like change views and driving more activity or most clients view thinking specifically on rates I guess that it’s more temporary and not doing a lot of repositioning with the move we’ve had?

Well, I think, volume intake in ERP has been reasonably volatile, meaning, we’ve seen around certain rate cross currents and the overall debate around inflation, permanent or transitory expressing itself in increased client activity in ERP and then moments of a more muted activity. So ERP has been in both places over the last several months. In the Commodities business, I would say that, we have broadly expanded our business to take account of greater product dispersion in commodities to play to a greater interest of expression in view by clients. So for example, our business used to be in Commodities, almost 50% oil. And now, oil is more like 20% and we see greater product dispersion across gas, power, metals and Ags. I think that’s good for our business and it reflects our reaction to - as I say, an expression by clients and customers of greater interest across a wider sort of span of product sets within Commodities itself.

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

Thank you. Good morning, David. Good morning, Stephen.

Good morning.

Good morning.

Stephen, you touched on in your opening prepared remarks about you are positioned well for loan growth accelerating going forward, can you give us some additional color on where you see this loan growth materializing possibly over the next six to twelve months?

Yes. So, let me talk a little bit about where we’ve seen loan growth now, because I think it’s reflective of the forward. So, as I mentioned in my remarks, we are seeing loan growth in our PWM client channel where we extended about $4 billion of incremental lending in the quarter. It’s a great feeder in the context of our engagement with clients and kind of a broader fee pool that’s created by virtue of meeting the borrowings. And this is all very well credit placed in the context of the client set that’s borrowing. We’ve seen more lending in the context of our Investment Banking business, much of that relating to transactional activity. Again, it bleeds out to a larger fee pool in the context of where we are. In Global Markets, we’ve seen ourselves and I mentioned this in Mortgages around Warehouse Financing. So this is very liquid lending that I think takes on the proper credit profile in terms of what’s there. So, the positioning I’m speaking about is, both a broader view about macro risk, about individual idiosyncratic risk in the sleeves in which we’re lending, and perhaps more importantly, the returns that the firm takes in, in the context of lending into any one of those particular client segments.

Very good. And then, as a follow-up question, you’ve all seen and we’ve all seen that the reverse repo market has grown dramatically since the first of the year, in fact in less three to four months the Fed in fact raised the rate that they pay on those reverse repos by up to five basis points. Can you guys share with us your insights, what the implications are of what’s going on in the plumbing, if you will of the financial system here in the states with quantitative easing reverse repos? And how that might be affecting or impacting favorably your trading businesses?

Well, look, any time there is kind of a differentiated view on rates or the markets broadly, as David mentioned, that tends to bleed to a positive outcome for our business more broadly in Global Markets, meaning, to the extent that there is greater volatility, greater activity at wider bid offer spreads, it’s a positive outcome in the overall performance of our business. Hard for me to give you specific judgments on what’s happening specifically as it relates to the transmission of what’s going on in TRS relating to the revenue in the business itself. But I would say that it portends a positive for our business in the context of overall client activity.

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

Hey, good morning. Maybe just a question on capital management from here and how we should think about pace of buybacks, et cetera. You guys have about 100 basis point cushion over your SCB. I guess, 40 basis points on the SLR. Can you maybe just refresh us on what your management buffers you are targeting? How to think about the dynamic going forward between just balance sheet growth, loan growth versus what you are trying to do on the buyback side?

Sure. So, first on SCB and SLR. SCB is more binding to us than SLR. We don’t view SLR as being a binding constraint much as we obviously watch it and maintain an adequate buffer around it. But SCB is more binding than SLR. As it relates to SCB, we have long said that we maintain a 50 to 100 basis point buffer - management buffer above our minimum. I see no reason to sort of change that view. We do view that buffer not simply as a defensive tool, but rather an offensive tool where it leaves us with considerable dry powder in the deployment of capital when and if clients look to petition us for it. Actually, during the second quarter that was true. We participated in AT&T and Medline, both of which were momentarily capital consumptive to buffer enabled us to do that and engage. Just one obviously factual point which is we are at 13.6 under SCB for this the third quarter. We go down to 13.4 in the fourth quarter relative to the most recent CCAR outcome. As it relates to share repurchase, I would only say what I said before, which is, we’ve obviously taken the dividend up reflective of our view about the forward durability of the performance of the firm and we look to deploy capital at returns and if they continue to demonstrate mid-20% return on equity, you will see us continue to deploy capital in that direction. To the extent that that falls off for whatever reason, we will take up our share repurchase in that regard. But you should assume us to be an active participant in share repurchase in any given quarter. This is really a question of whether it moves up or down and that’s a function of the kind of return opportunities that we see.

So you – I mean, just so we have a good understanding. It’s a saying, it’s going to be pretty dynamic quarter-to-quarter in terms of what pace of buyback if you see an opportunity you’ll do it and then vice versa?

That’s precisely right. Yes.

Okay. Great. Thanks.

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

Thank you. Good morning. Just one quick follow-up, please. You talked about regulatory investigations around Archegos. You said it’s too early to know the outcome. But are you seeing other firms pulling back in prime or in equities more broadly as a consequence of the Archegos situation? Is that any part of the market share gains that you’ve been seeing?

Well, hard to tie point A to point B. But you’ve obviously seen open expressions by other firms who are looking to reduce down their prime business. We are going the other way. We want to grow that business. But as I say, we are growing that business with every element of prudence as to pricing and term structure and alike. But I suspect clients in motion around prime are coming to Goldman Sachs as they are to others and we are looking to sort of grow that business more broadly.

Okay. Thank you.

Sure.

At this time, there are no further questions. Please continue with any closing remarks.

Okay. Since there are no more questions, I would 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 again in the coming weeks and months. If additional questions arise in the meantime, please don’t hesitate to reach out to Carey and the Investor Relations team. Otherwise please stay safe and we look forward to speaking with you on our third quarter call in October.

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