Goldman Sachs Group Inc ($GS) Q1 2026 Earnings Call

Thank you, operator, and good morning everyone. Thank you all for joining us. In the first quarter, we delivered a very strong performance generating net revenues of $17.2 billion, net earnings of $5.6 billion, and earnings per share of $17.55. All three of which were the second highest in the history of Goldman Sachs. As a result, we delivered a return on equity of 19.8% and an ROTE of 21.3%. These results reflect the strength of our global franchise and the depth of our relationships and our ability to execute for clients while maintaining a strong focus on risk management in a highly dynamic environment. 2026 began with a degree of optimism. Markets hit record highs and confidence continued to build with most clients focused on growth, strategic activity, and capital deployment. As we've said, things rarely move in a straight line. And as the quarter progressed, the macro environment started to weigh on sentiment. Volatility increased meaningfully amid concerns around AI-driven disruption in sectors like software, heightened uncertainty in parts of private credit, and the conflict in the Middle East. Against this backdrop, our performance underscores the importance of having a scaled, diversified, and global franchise that can support clients across a wide range of market conditions. Operating as a leading global financial institution requires deep expertise, long-term investment, and a culture grounded in risk discipline. This is what differentiates Goldman Sachs and what clients rely on, particularly in periods of uncertainty. We pride ourselves in being a trusted advisor and providing timely and differentiated insights. This quarter we held large-scale calls and events reaching tens of thousands of clients across the firm. We also saw elevated engagement with our digital channels including Marquee with monthly average users up over 30% year-over-year and our global investment research portal which saw its second highest single day of client activity in early March. Beyond analysis and insights, our people operating as one Goldman Sachs delivered for clients in real time as conditions evolved quickly. In global banking and markets, we delivered record quarterly revenues, reflecting strong client engagement across our franchise. Elevated uncertainty led clients to actively reposition portfolios, driving strong flows across FIC and equities. We supported our clients' intermediation and financing needs across asset classes deploying our balance sheet in response to demand. In our commodities franchise, we acted as an intermediary for our clients amid significant moves in energy markets, including a record monthly increase for Brent crude in March and price surges of 60% in European gas markets. Importantly, the growth of our financing business has added further balance to our performance, reinforcing our ability to perform consistently across cycles. In investment banking, we remain the number one M&A adviser globally. Clients continue to turn to Goldman Sachs for advice and expertise regarding their most important strategic transactions amid a backdrop of accelerating technological change and industry disruption. This includes the announced $43 billion merger of Unilever's food business with McCormick, Cisco's $29 billion acquisition of Jetro Restaurant Depot, and Coterra Energy's $26 billion sale to Devon Energy. While market conditions tempered execution for IPOs and sponsor activity broadly, we believe that activity levels will rebound once conditions stabilize. As you remember, our backlog closed 2025 at its highest level in four years, even with exceptionally strong revenue production. Our quarter end backlog remained extraordinarily robust. In asset and wealth management, clients continue to choose Goldman Sachs for the quality of our advice and our long-standing investment track record. We generated $62 billion in long-term fee-based inflows, including $22 billion in wealth management flows. The consistent inflow momentum throughout the quarter, including during the heightened volatility in March, underscores the strength of our client relationships built on trust and long-term performance. We are pleased to have closed the acquisition of Innovator in the second quarter, which adds an additional $31 billion in assets under supervision across a suite of over 170 ETFs focused on defined outcome strategies, putting us in the top 10 of global active ETF providers. In alternatives, we raised $26 billion across asset classes with private credit strategies generating $10 billion. We recognize that the private credit industry has been an area of increased focus in recent months. Our 30-year track record of performance in private credit is characterized by rigorous underwriting, selective deployment, and disciplined portfolio construction. And our largest non-traded BDC, as an example, we saw net inflows of over 7% this quarter, reflecting investor demand for experienced investment managers who have navigated multiple rate and credit cycles. Looking forward, our predominantly institutional drawdown structures as well as the breadth of our origination funnel give us the flexibility to continue to patiently and selectively invest capital. Overall, we feel good about the long-term opportunity of private credit and our ability to deliver attractive risk-adjusted returns for clients. Let me spend a moment on capital and regulation more broadly. We've been consistent in our view that a strong, well-capitalized banking system in the US is essential and that strength has been clearly demonstrated across multiple stress periods. At the same time, we have also been clear that the regulatory framework needs to be transparent and calibrated appropriately to achieve its objectives. Getting this right matters for the real economy. A well-calibrated framework enables banks to provide liquidity, support lending and capital formation, and serve clients more effectively. Ultimately, a strong US banking system supports growth, competitiveness, and economic resilience. Against that backdrop, we're encouraged by the direction of regulatory reform, including the recent Basel 3 finalization and G-SIB surcharge reproposals. While the rulemaking process is still underway, and we plan to participate in the comment period, we believe this direction is positive for the banking system as a whole, better aligning regulatory outcomes with actual risk. All in, we continue to see the potential for a more constructive backdrop this year. The combined effects of fiscal stimulus in developed economies, ongoing AI-related capital investment, and a more balanced regulatory agenda in the US are powerful forces. At the same time, the geopolitical landscape remains very complex, and the ultimate impact of higher energy prices on inflation and growth is yet to be determined. We believe Goldman Sachs is extremely well positioned to navigate this current environment. Beyond the short term, we are also investing for long-term growth, including through One Goldman Sachs 3.0. As I mentioned, clients seek our views and analysis around a range of topics, including AI. And we were able to speak to these trends from firsthand experience as we thoughtfully implemented new technologies across our six initial work streams and around the firm more broadly. We remain confident that over time, 1GS 3.0 will drive stronger operating leverage, greater resilience, and improved efficiency and returns and allow us to continually elevate service to our clients. These efforts build on the strengths that differentiate Goldman Sachs. As we demonstrated this quarter, our deep client relationships, global platform, and strong risk culture position us to serve clients with excellence while creating long-term value for shareholders. With that, I'll turn it over to Dennis to walk through our financial results in more detail.

Sure. I mean, it's a big picture question and I appreciate the question and I could talk about it for a long time. You know, I think there have been attempts to try to put this in perspective. I know the media headlines have driven an enormous amount of negative sentiment around private credit. My own view is it's important to really distinguish between different markets and really try to put it all in perspective. You know, I think you guys know this that private credit in the broadest definition you could possibly come up with is about $3.5 trillion of assets. But the thing that's been getting a lot of focus is direct lending and direct lending is about 1.6 to 1.7 trillion dollars of assets of which the retail channel for that direct lending business is about 20% or about $230 billion of NAV. You know there obviously is heightened redemptions in certain pure managed funds. These pure managed funds have been concentrated in retail outflows as opposed to institutional outflows. And one of the things that we're seeing that's just interesting that's quite constructive for our business is that spreads are becoming more lender friendly. And so when you look at our first quarter 2026 subscriptions in our GS credit BDC, 40% of them were from institutions, many of whom are first-time investors on our platforms, including insurance companies, banks, pension funds. And when you look at our broad platform, it's over 80% institutional partners, very broad, very diverse and we've been growing it over a long period of time. You obviously saw our positive inflows and what we raised privately in the quarter. We feel we're very well positioned and actually the opportunity set to some degree is improving. I know people are very focused on the cycle and they should be. This has been a long period of time. You know, ex the COVID shutdown has been a long period of time without what I call a normal credit cycle, meaning a meaningful slowdown in the economy or a recession. Whenever you have a meaningful slowdown in the economy or a recession, there are higher loss levels in diversified credit portfolios. I think risk management and portfolio construction are very important. In places where people haven't followed their portfolio construction carefully and they've gotten overweighted to a particular sector, they'll obviously have more headwinds. But I think one of the things that's really not getting a lot of attention is if you do have a cycle, what does that look like? And so if you take a very tough cycle, the global financial crisis, the cumulative default rates across the entire leverage lending space during the global financial crisis was 10%. Recoveries were about 50%. So the cumulative loss was 5 to 6% against coupons of 9 to 10%. And so that is the business model of this. I think institutional investors understand that. I think there's going to continue to be some noise around the retail space. I think you should watch that carefully. But I think this continues with any sort of a medium-term or longer term view to be a very, very attractive platform for us. And we are very confident that we have significant runway to further scale our business toward our $300 billion target. We've seen significant fundraising across all platforms, including this past quarter, $10 billion in credit. And so we're going to continue to grow our institutional business and take a long-term view. But it remains, you know, I wouldn't say it's a huge growth channel for us, but it's a business that's growing and we think has good secular construct for a scaled platform like ours.

Yeah. So, thank you. Thank you for that. Obviously something we're focused on. I just I want to start by saying that cyber security has long been at the core of our business and we have for a very, very long time put enormous resources forward to think constantly about cyber security risks in our business and it's something we've invested significantly in and continue to invest in. And it's been widely reported the large bank CEOs happened to be in Washington for a regular meeting of the financial services forum and so we were asked to come over to Treasury. By the way, it is not the first meeting that that group has gone over to Treasury to talk about cyber security risks over a number of years. So my first point is this is something the industry is focused on. It's something we're focused on. And there's nothing new in that focus. Obviously the LLMs are making rapid progress and we're hyper aware of the enhanced capabilities of these new models. With the help of the US government and the model publishers, we are very focused on supplementing our cyber and infrastructure resilience and this is part of our ongoing capabilities that we have been investing in and are accelerating our investment in. We're aware of Methos and its capabilities. We have the model. We're working closely with Anthropic and all of our security vendors to kind of harness frontier capabilities wherever it is possible. And this will continue to be an important focus, but it's not new that as technology evolves, we have to continue to upgrade for cyber risk and make sure we're at the forefront of that.

Sure. And I appreciate it and I realize Erica this is getting a lot of attention and I just say first of all the environment for investment banking activity continues to be incredibly robust particularly M&A activity and I do think as I talk to CEOs of course they're watching what's going on geopolitically but that's also balanced by the fact that they see an opportunity during this period of time to drive scale and scale creation in businesses with significant technological change and they are focused on that and that candidly trumps some of the geopolitical risk because they have the opportunity to do consolidating trades and you saw that in the first quarter. You saw more large-scale strategic M&A. We highlighted at the end of the first quarter the high level of our backlog, the highest level in four years. And then you saw extraordinary accruals during this quarter in M&A and you also saw extraordinary replenishment. Okay, the backlog really did not move very significantly at all even though we had extraordinary accruals and so we continue to see significant activity on the M&A front and I don't see unless the overall environment got much, much worse I don't see that slowing based on what we see at the moment. That said there is no question that with the conflict in the Middle East IPO activity slowed a little bit particularly in March. I do think there's a very full pipeline and at the end of the day equity markets have been extremely resilient and if that resilience continues I do think you'll see IPO activity accelerate again. There's some very large IPOs that are lined up and my expectation is a number of them are going to come because it's important for those businesses and for the capital formation around those businesses for that to happen and they are also less sensitive to kind of short-term geopolitical trends. I do think that the level of uncertainty is higher and so we have to watch that carefully. Certainly talking actively to CEOs and CEOs are looking carefully at how what's going on particularly with commodity prices is translating into the economy and into consumer demand. I think it's fair to say that people did not see that really translating through in the first quarter, but that doesn't mean that people aren't extremely cautious about whether or not it will translate through in the second quarter. My guess is to the degree that energy prices remain high, you will see that translate through a little bit. But at this point, the underlying economy still remains relatively robust. But if the resolution of the conflict drags, that probably will be a headwind in some of these areas, particularly inflation trends as we get further into the second and the third quarter. And so we'll have to watch that quickly. At the moment, M&A and capital markets have been pretty resilient to that. And the environment continues to be quite constructive. But of course, I don't have a crystal ball. And also all the market participants are watching and adapting as they see things unfold.

I'm going to make a couple comments on that. Also going to ask Dennis to make a comment just about historical losses. But I think Erica you understand it right. Remember we're generally dealing with institutions and one of the things that happens if we had a slowdown in the economy or recession or credit spreads widened the business actually for institutional investors becomes more attractive and that is a point in time institutions rely on Goldman Sachs who's been at this for a long, long time to have the judgment to be more cautious on their deployment when spreads are historically tight and more aggressive on deployment when spreads are historically wide. And one of the things that I think's not been talked about a lot over the course of a number of years because we haven't seen it. A lot of the alpha that's generated in credit businesses comes from how the investors manage restructurings and buy in when things are tough but we haven't had a cycle like that. I do think we all have to recognize that this has been a very long credit cycle and when credit cycles go on longer, market participants, this is a generalization, this is not the way we think about the business, but spreads get tighter, market participants get more aggressive to deploy capital. And so when you do have a cycle turn in a recession, you will see higher losses across the space than you would have had if it was a shorter cycle. And so we have to be cognizant of that. That said, we feel very good about the way we're positioned, very good about our track record, very good about our flows, and to the degree there was a cycle, we'd actually view it as an opportunity for Goldman Sachs. Dennis, maybe you want to comment a little bit more on historical loss rates.

So first at a high level, Mike, I think people are very engaged, okay, across the franchise, corporates, investors, very, very engaged. You know, I think it's an interesting moment because there's so much going on in the world of technology and innovation. And so much around that space that people are extremely engaged in understanding how that creates opportunities for enterprise, how that shifts investment thesis. And we're not seeing any decline or pencils down as you suggested. I will say the corporate world and I highlighted this before is incredibly engaged right now because they don't operate in the short-term noise, they operate over the long term and they believe they have an opportunity to drive scale and consolidation and they haven't had it for a previous...

And so they are, you know, they're focused on that. I expect that to continue. Obviously, and as I said before, I don't have a crystal ball. If the macro situation gets bumpier for a short-term period of time, that can have short-term effects on investor behavior. But I'd say at this point people are very actively engaged. And look, we're only a couple weeks into the quarter, but the quarter has started with very significant engagement across all aspects of the business. Quarter started in a positive way. We'll see. Level of uncertainty is higher, but at the moment the engagement's pretty high.

Yeah, I mean, Brennan, this is something that continues to get lots of attention. And sponsor activity out of the private equity section of sponsors, and again, I want to highlight that that's a small universe when you think about overall capital markets activity broadly, that sponsor activity has been slower. I do think it will continue to accelerate. But when you look at the overall performance, again, I think one of the things we just want to highlight, we've been working very hard for the last seven or eight years to really build a larger, much more scaled, diversified business with more steady streams in it. And I think this quarter is a great example. Sponsor activity did not accelerate this quarter the way we might have thought given the way things felt when we had the last earnings call in January. But at the same point, it was the best global banking and markets quarter ever for the firm. And so it was a very, very good quarter even with weak sponsor activity. It's a big, broad, diversified business. Obviously, there's a tailwind that's coming when sponsor activity turns on. It will turn on. These sponsors do not own the capital. The LPs own the capital. They will have to return it to them. So, it's been slower than we'd expect, but the business is big and broad enough and diversified that, even with that slower sponsor activity, it's not had a big impact on the overall business. The other thing I would add, a lot of those comments relate to monetization and exit activity, which we're very focused on, which ripples through the firm in a variety of places. But at a certain point, you have asset price adjustments in one industry or another, and all of a sudden it presents opportunities for sponsors to actually redeploy some of the dry powder that they've been husbanding for some period of time. All of a sudden, public to private become back in focus. And so while there could be given the uncertainty of the war some slowdown in IPO type monetization, that doesn't mean that the sophisticated sponsors of the world aren't thinking much like some of the well-capitalized corporates as to whether or not they can't take advantage of some of the dislocation. So there's multiple ways to think about it.

I think it's just also, I just add Manan, it's also a lot of this has to do with expectations that are set in the research community. This FIC performance still has to be put in context. It was the 10th best FIC quarter ever out of a hundred and some odd quarters. And when I look at the scale and the diversity of the business, it's performing very, very well. So we obviously had a very, very strong comp in the first quarter last year. It is 29% better than the last quarter we had in the fourth quarter of the year. But it was close to a top decile FIC quarter. It certainly was a top quartile FIC quarter. And what you're seeing, if you go back again, I want to go back and highlight we've worked hard to scale the business, make it more diversified. If you go back 15, 20 years ago we could not have a quarter like this with a quarter where FIC looked a little bit weaker because FIC was such an important component of the business. It's now a much more diversified business. FIC performed well in the quarter. And you look at the overall performance, the overall performance was obviously quite strong. Some quarter it's going to be stronger here, stronger there.

Yeah, I appreciate the question, Devin. And I am hugely forward-leaning on the power of this technology to accelerate growth and efficiency in Goldman Sachs and allow us to more aggressively invest in growth in areas of our business where for a variety of reasons, over the course of the last five years, we've been more constrained than I think we're going to be for the next five years. I think this is true not only with Goldman Sachs, I think this is true with lots of other businesses, with enterprises broadly. And as enterprises take advantage of that, that spurs activity that feeds into Goldman Sachs' ecosystem. So I do think as in other technology super cycles this is extraordinarily constructive for Goldman Sachs. It's one of the reasons why when I think about the firm over the next three to five years and I think about the growth trajectory of the firm that we're driving for, I don't have a crystal ball to predict short-term uncertainty and short-term volatility, but I have a high degree of confidence when I look out over three to five years as to how we can continue to grow the firm, serve our clients more broadly and accelerate our investment in areas of business where we see real opportunities to grow. And then I point to one like private wealth for example where we see still very, very significant opportunities given the nature of our private wealth franchise to grow. It will not be a straight line. Whenever you have acceleration in new technology there are going to be bumps and there are going to be risk issues and there are going to be recalibrations. I'm sure we'll see that in the coming years as it scales. But the power of this technology, the ability to use it in an enterprise to remake processes, to create efficiencies, and also create more capacity to invest in growth. I can't find a CEO that's not talking about that. And all of that with a medium-term lens when you get out of the short-term moment and noise is incredibly constructive for Goldman Sachs.

Yeah, I don't, it's not a number we've disclosed, Mike, but obviously in an environment where we post an M&A quarter like the M&A quarter that we posted, it's a smaller percentage, a meaningfully smaller percentage. I'm not suggesting that it's not a meaningful business for the firm, but it's not a number that we've specifically disclosed. And I would say, it moves around based on activity levels and based on what's going on. But again, I come back to the point. Sponsors are important. It's a huge client base. We do a lot with sponsors, by the way. We did a lot with sponsors this quarter, but it is a big diverse business. And you look at the overall performance. We can have one sector be weaker than we would have liked and still have very strong performance. And so this is an example where we had very strong banking performance with a weaker sponsor performance than I might have thought three months ago, but it didn't affect the overall strength of the banking performance.

Why do they remain private? Yeah. I mean, look, a couple things. And first of all, Mike, I think one of the things that's just interesting to put in perspective is when we're talking about sponsors in this context. I think you're talking about private equity. And so remember, sponsors do a lot of things. They do infrastructure, they do real estate, they do credit. It's a bigger thing. But if we look at, they do growth equity. When you look at private equity, the rough enterprise value, meaning equity and debt of all the private equity owned companies is like $4 trillion. So it's less than one Nvidia. Let's just start there when we're talking about capital and capital flows to put that in some perspective. I think one of the reasons why the private equity firms have been slower to monetize is the economic incentives that are set up give them the optionality to wait. And we had a dynamic where values in private equity portfolios got marked up meaningfully in 2020 and 2021 because of that cycle and making no comment on where they're marked, it raised expectations around monetization and people are waiting. And by the way as the economy grows, the world grows, a lot of these businesses do grow into those valuations and the way the incentive system works, they really, the only optionality LPs have to put pressure on GPs is to not participate in the next fund. And so I do think there's some pressure that's mounting. I do think you'll see more activity. But at the end of the day they've been a little, they've been slower and they've been taking that optionality. Now, that said, I think a lot of activity will come over time. We're very well positioned for it. And again, I just wonder when you look at this whole ecosystem and how things are working. It's a pretty constructive investment banking ecosystem at the moment. Obviously, if the sponsors and private equity turned on, it would be even more constructive for us. But it's pretty constructive at the moment as we look at it.