Goldman Sachs Group Inc ($GS) Q3 2025 Earnings Call

Thank you very much, operator, and good morning everyone. Thank you all for joining us. We delivered very strong results in the third quarter and generated net revenues of 15.2 billion, earnings per share of $12.25, an ROE of 14.2%, resulting in an ROE of 14.6% and an ROE of 15.6% for the year to date. This performance reflects the strength of our market-leading franchises where we continue to harness the power of one Goldman Sachs to serve our clients with excellence. In investment banking, we've seen increased momentum in our number one M&A franchise as clients turn to us for their most consequential transactions. Recently, we hit the milestone of advising on over 1 trillion in announced M&A volumes for 2025 year to date. This is $220 billion ahead of our next closest competitor and underscores our dominant position as the adviser of choice for clients. We've built this leadership position through decades of investment in our dedicated teams across the globe. This allows us to advise our clients on their most important transactions. We were the exclusive adviser to Electronic Arts in its $55 billion sale to a consortium comprised of the public investment fund of Saudi Arabia, Silverlake and Affinity Partners. We were also the lead adviser to Baker Hughes on its strategic acquisition of Chart Industries for $14 billion and advised and provided financing to Toma Bravo for its $12 billion leverage buyout of Dayforce. Importantly, given our one Goldman Sachs operating approach, increased M&A activity creates a real multiplier effect. Whether it's bridge financing, derivative hedging, or investment opportunities for asset wealth management clients, our advisory relationships are often the genesis for client activities across the firm. Looking forward, it's important to recognize the tailwinds behind our optimistic outlook for investment banking. We're encouraged by the steady build in sponsor activity, which is now tracking 40% higher versus last year. And considering that sponsors have over 1 trillion of dry powder and 4 trillion of private equity assets in their portfolios, coupled with the expected rate cuts in the US, the setup remains constructive. For corporates, it's clear from our conversations in boardrooms that after a period of heightened uncertainty and volatility early in the year, many of our clients have navigated and adapted to the current state of play. Though near-term policy considerations are still relevant, many CEOs have shifted their focus back to long-term and strategic decision-making, particularly amid a more supportive regulatory environment. Scale and investing for growth remain paramount, especially in the context of harnessing AI capabilities. In addition to a robust investment banking backdrop, we have seen continued strength across our leading FICC and equities businesses, which in total rose on a year-over-year basis for the seventh consecutive quarter. Much of the momentum from the first half of the year persisted through the summer and into September, contributing to our record year-to-date performance for equities and notable strength in our rates business within FICC. All in, our markets businesses continue to demonstrate resilience that comes from having a global, broad, and deep franchise. Taking a step back, there is no question that there's a fair amount of investor exuberance at the moment with US equity markets consistently hitting record highs over the last several months. Much of this has been fueled by a tremendous amount of investment in AI infrastructure, which has driven significant capital formation. But as students of history, we know that following periods of broad-based excitement around new technologies, there will ultimately be a divergence where some ventures thrive and others falter. While I feel good about the forward outlook on balance, the market operates in cycles, and disciplined risk management is imperative. We are especially vigilant in times like these to proactively manage risks as we continue to serve clients with our best-in-class execution capabilities and insights. In asset and wealth management, we are relentlessly driving forward our growth strategy. Assets under supervision rose to a record 3.5 trillion. We again delivered record results across our more durable revenues and management and other fees in private banking and lending. In alternatives, we raised a record 33 billion in the quarter. As a result, we now expect to raise approximately 100 billion in alternatives this year, substantially exceeding our prior full-year fundraising expectations. In wealth, client assets rose to a record 1.8 trillion as we continue to grow our advisor footprint and expand our suite of client offerings. It is clear that we've been making very strong progress in enhancing our business mix by growing our more durable revenues in AWM. We are also accelerating our growth via innovative partnerships and acquisitions. Yesterday, we announced the acquisition of Industry Ventures, a leading venture capital platform with a track record of strong investment performance and the proven ability to invest across all stages of the VC life cycle. This transaction complements our market-leading secondaries investing franchise. We have been a pioneer for over 25 years and adds a highly attractive technology investment capability to the platform. This business will sit in our external investing group or XIG which has over 450 billion in assets under supervision across asset classes and is a market leader in investing in alternative manager strategies, secondaries, co-investments and GP stakes. Importantly, facilitated by a one Goldman Sachs approach, Industry Ventures' deep relationships across the VC ecosystem have the potential to drive new opportunities for the firm, particularly in investment banking and wealth management. Additionally, last month we announced a strategic collaboration with T. Rowe Price to deliver a range of public and private market solutions designed for the unique needs of retirement and wealth investors. We are thrilled to partner with T. Rowe Price which, like Goldman Sachs, has a strong brand with a long track record of success across investing in capital markets and in producing strong investment returns for clients. With our 30 years of experience in private markets and an ability to blend asset classes to address outcome-oriented objectives, we can help bridge the gap between growth opportunities in private markets and the needs of individual investors. As we drive growth across our businesses, operating efficiency remains one of our key strategic objectives. Although we review our operations on an ongoing basis, it is also important to make long-term decisions that best position the firm for the future, especially as rapidly accelerating advancements in technology present significant opportunities. To this end, earlier this morning, we announced to our people the launch of one Goldman Sachs 3.0, propelled by AI. This is a new, more centralized operating model that we expect to drive efficiencies and create capacity for future growth. This is a multi-year effort that we will build over time. And we plan to measure our progress across six goals: enhancing client experience, improving profitability, driving productivity and efficiency, strengthening resilience and capacity to scale, enriching the employee experience, and bolstering risk management. To start, we are drilling in on a handful of front-to-back work streams that can significantly benefit from AI-driven process re-engineering and will help inform our longer term approach. These include priorities such as sales enablement and client onboarding that directly impact the client experience as well as other critical areas that have touch points across the firm. For example, our lending processes, regulatory reporting, and vendor management. We have been successful by not just adapting to change, but anticipating it and evolving the firm's operating model is part of the long-term discipline that our people, clients, and shareholders expect of Goldman Sachs. We will provide you with an update with additional details on our call in January. While we've made significant progress on our strategic priorities, we will continue to execute. The foundation we've laid to grow and strengthen the firm coupled with our market-leading franchises and best-in-class talent give me confidence in our ability to deliver for clients and drive strong performance for shareholders. I will now turn it over to Dennis to cover our financial results for the quarter.

Sure, Glenn. Thanks for the question. Look, there have been a number of articles on those transfers including naming us. I would say that our practice is pretty unchanged. We are constantly looking to dynamically risk manage our portfolio of credit exposures. We have a variety of different tools that we use to risk manage and hedge that risk. SRT is one of those tools that's available to us. We're basically trying to ensure that the firm is in a position to continue to be able to support ongoing levels of client activity and prudently risk managing the existing portfolios we think gives us the capacity to do that.

This is ordinary course risk management for us.

Yeah, thanks Glenn. I appreciate the question. You've got it right. I think we're at a place where the evolution of the technology is allowing enterprises broadly, and I find this as I'm talking to CEOs all over the world, all businesses are focused on this because the technology actually allows you to take a fresh look front to back at certain operating processes and really reimagine. This has nothing to do with the firm's performance. The firm's performing, the firm's growing. We feel very good about the execution, but we see this as an opportunity to use technology to automate, drive scale, create efficiency, and actually give us the capacity to invest more in the growth of our business. Our responsibility to shareholders is to grow earnings and to run the firm the best that we can. That doesn't matter whether it's good times or bad. In order to execute on something like this at scale in the organization, you have to bring the organization along. Part of the purpose of putting this out is it now allows us to talk more broadly and create a framework for the organization to understand the process that we're going to go through. I think there's enormous upside for our business here to allow further investment and growth. By the way, I think you're going to hear this from lots of companies and lots of industries that people are very focused on taking advantage of this acceleration in technology to really allow automation, efficiency, and therefore investment. This is one of the reasons why we're optimistic about the forward productivity gains in the economy from enterprises finding ways to do this. I think they're going to be very meaningful over the next few years, and that creates a good tailwind that will balance other macro factors that may or may not come into play.

Yeah, I'll start and Dennis could add some more granular detail, maybe comment on some of the things that have been in the press more recently. First of all, we're in business to serve our clients, finance our clients, but all of this is underpinned by the fact that we have a very strong risk management culture and strong underwriting is really central to everything that we do. It's important to take a step back. You asked about NDFIs. It's a very broad category. There are all sorts of different activities. We have a very diversified book of lending exposure. The vast majority of our lending is collateralized financing in investment grade rated structures. So the vast majority of it is investment grade rated. But we're constantly risk managing, constantly trying to create more capacity to do other things to support our clients. We think about it as a broad, big diversified portfolio. Obviously, if you got into a period where we had a credit cycle, which we have not had in quite some time, there'd be headwinds for all the banks. But I think we feel very good about our processes, our collateral, the structure of the book. A little bit back to the question that Glenn Shore started with, we have a whole series of risk management processes that we constantly execute on to try to make sure we're being prudent at times like this. Dennis, you want to comment a little on some of the specific things that have been in the press and add anything to what I said?

Sure. On the second point, I absolutely think that the regulatory direction of travel is improving our competitive position significantly. On the timeline, it's harder to give you an exact timeline, but I'd say you're going to see continued progress. We're encouraged by the dialogue with regulators and the Treasury. We think the overall framework is moving in a direction that recognizes the importance of a strong, competitive banking system. We'll continue to engage constructively.

See real progress this fall and real progress during the first half of 2026. I would expect we'll have a very, very clear picture of a bunch of the regulatory issues that we're all focused on collectively over the course of the fall and the first half of 26, into the end of the cycle, next summer. I think we're certainly going to see SLR relief. I think we're certainly going to see more transparency around SECAR and a continued recalibration because of that. I think we're going to see a recalibration of GIB. I think we're going to see a much more constructive Basel 3 endgame and obviously the regulatory tone and the focus of resources that we have to direct toward regulatory is shifting in a way that we can redeploy those to other things that create avenues of growth. So I would say quite constructive, these things take time but it's happening real time. And I do, going back to where I started, I do think this improves our competitive position relative to others that are outside of the regulatory landscape.

Sure. So, I think we've talked about this a lot, Erica, but at the end of the day, our strategy remains the same. We continue to invest in global banking and markets and are very focused on share and wallet share. We believe through the cycle that is a mid-teens business. That doesn't mean there couldn't be a year or environment where that business is different in a different capital markets environment, but we believe consistently through the cycle we now have that business operating as a mid-teens return business. And we've been clear that asset and wealth management remains a very attractive growth channel for the firm. And you can see us improving margins and uplifting returns there. But there's still more to go. And we are highly confident in our ability to uplift the returns in asset and wealth management over the next couple of years. That obviously strengthens and enhances the overall return profile and durability of the firm. We are executing against that, and I think you can see through TRO and also through our acquisition of Industry Ventures, this gives you an idea of how we're thinking about strategically accelerating that growth and strengthening that overall platform. We're going to do it thoughtfully, carefully, prudently, but we're going to make investments that strengthen the platform and allow us to continue on that trajectory. So when you think about the firm, two big businesses: banking and markets, asset and wealth management. Banking and markets, mid-teens through the cycle, and as we execute on asset and wealth management and continue to enhance the returns, that should produce a significantly higher return than it currently produces, and we're confident in our ability to deliver that. That therefore gives you a more durable targeted return.

Sure, Christian. So, as you say at the beginning of your question, the overall strength of our equities platform remains in excellent condition. We're having our best year-to-date performance ever for that business. The cash component of equities intermediation was softer; in the prior year period, that activity was up almost 30%, and the prior quarter was a top decile quarter. So our comps were difficult, and we had slightly less robust performance in the cash portion of the business. But the rest of the franchise continues to perform extremely well across the derivative components of intermediation. The financing piece was a record. And in aggregate, the franchise feels extremely well positioned. We're seeing high levels of client engagement and feel good about how it's set up for the forward.

Sure. This will sound familiar to some of my previous remarks, but the process for us is to make sure we have a consistent set of underwriting standards, robust upfront due diligence, ongoing monitoring and reporting, that we diligence underlying collateral, that we manage the granularity of our portfolio within our own internally set diversification and concentration limits, and that we have consistent standards for what we expect the risk-return characteristics to be. Some of those idiosyncratic names that you reference, we didn't have direct exposure to those names. Part of the key to credit underwriting is to make sure that you miss some of the more challenged credits. That all comes down to upfront diligence and having a long-standing track record and an ability to be selective. We have a very big market presence here. We see a lot of opportunities. There's a lot of demand from clients for us to support them, and we have the ability to be selective with respect to where we extend our balance sheet, making sure it complies with our own standards of risk management.

Good morning.

Yeah, I mean, first of all, Betsy, I appreciate the question, and some of this will sound familiar to things I've said on other earnings calls and in my public comments. We're obviously focused on accelerating the asset and wealth management business. Our wealth management business is an ultra-high-net-worth franchise, and I would say it is scaled. Unlike other peers, we are not looking to directly control client relationships in the broad high-net-worth space or in other broad wealth channels. That's not really our strategy. Our strategy is to continue to grow and be the leading ultra-high-net-worth high-touch wealth platform and to have it married with our extraordinary manufacturing capability and product offering in our asset management business. The acquisition that you saw today of Industry Ventures adds to that, giving our very wealthy clients access to other investment opportunities and products that are hard to access in different channels. So we feel very good that it's on strategy. Are there larger acquisitions that could enhance our wealth platform? Absolutely. But as I've said before, the bar to do more significant things is always going to be very high. When you look at the best companies and the best businesses around asset and wealth management, they're generally sold, not bought. Most of the best ones are not for sale and not available. But if we saw something that could accelerate our journey in asset and wealth management, we'd certainly consider it, but always with a very high bar. At the moment, what we're seeing are interesting things that enhance our distribution and our ability to offer very unique products to our client base already, and we'll continue to capture opportunities through third-party wealth channels to use our manufacturing capability in asset management more broadly.

We've been clear that credit cards are not a go-forward focus for Goldman Sachs. I don't have anything more to say on the Apple Card program at the moment. You saw us completely exit from the GM card platform. When there's something more for me to report on the Apple Card, I guarantee that this broad group on the call will be among the first to know it.

Sure. You heard correctly. Our backlog is the highest level in three years. That backlog that we report comprises the advisory, equity underwriting, and debt underwriting components in aggregate. We made a point that it stands at that position notwithstanding very high levels of closures over the course of the previous quarter, and it gives you a sense for our optimism on the outlook and our expectation for other types of activity to come through our franchise broadly. You're also correct in your understanding of the contribution of FICC financing and equities financing as a combined component of the FICC and equity lines combined. So we continue to focus on growing those durable and predictable financing revenue streams and are reporting the marginal contribution they represent within the overall FICC and equities business.

This has been an activity that we have been steadily growing over the last couple of years as we think about the durable revenue profile of the firm. Those components of global banking and markets together with management and other fees, private banking lending, and asset wealth management, those are the areas we've been consistently deploying resources against and focused on. It has been steadily growing, so I don't think there's a new step function change in that contribution; it's been a constant commitment and steadily growing over the last couple of years.

I think, Brendan, on a high level, to boil this down, we've been pretty consistent. We continue to fundraise and grow the scale of the platform. As that fundraising goes on, it adds to management fees, and the marginal margin as you scale the business continues to improve significantly. So we are very confident that as we continue to fundraise and scale the platform, there's more room on the margin side as we shift our strategy and finish with the HPI portfolio. That will free up a bit of capital, but at this point, most of the margin and return improvement is coming from the continued growth and scaling of the platform.

Appreciate the comment on non-comp. We continue to have all the same programming and discipline around managing overall non-comp growth. The biggest driver for us again was transaction-based expenses, which is correlated with the elevated levels of activity we're seeing across the board. We did call out the charitable expenses. You are correct that traditionally we recognized most of those expenses in the fourth quarter. This year, we're making an effort to spread them out over the course of the year, so it won't be showing up only in the third quarter.

Sure. Fair point, Dan. Your question also helps answer the question on how asset and wealth management migrates towards a higher return profile over time, because it's another contributor to topline and has significant marginal margin contribution. You're right to ask because the unrealized balance of incentive fees as of the last quarter is now at $4.6 billion. So we still have visibility and expectation that significant amounts of incentive fees will pull through the P&L over the next several years. Ultimately, it will be a function of the way in which certain of those vehicles are able to finally monetize their investments and return carry to their investors, enabling us to recognize the incentives. But the overall environment, dealmaking environment, monetization environment, proportion of sponsor activity, all of that is trending in the right direction and should help propel us closer to our medium-term target of a billion of incentive fees per year.

Sure. Over the last five years, we've been raising about $65 billion a year, which was a healthy clip. Our expectations now for this year are a step function higher, approximately $100 billion. But the contribution is broad-based across multiple different asset types. It's a combination of having certain vehicles that are larger than previous vintages, as well as launching new types of fundraising vehicles. So it's pretty broad-based contribution across the board.

A couple of aspects to it. First on the cycle, we've been talking about an improvement in M&A all year because one of the things we see inside the firm is great transparency into all the transactions in progress and what CEOs are doing and thinking. In my prepared remarks, I said that after a little bit of volatility early in the year, CEOs are really focused on strategically where they want to go. We're in an environment where CEOs think the opportunity to get things done strategically is now possible after a period where they felt it was not possible, so that's turning them all to focusing strategically. We have significant activity in the shop. Our backlog gives you a sense for the sustainability. I think we are going to see a very constructive M&A environment through the end of the year into 2026. I would expect 2026 to be a stronger M&A environment unless there's some macro disruption. There has been a meaningful improvement in where we are in the cycle, but I still think, given market cap expansion, growth, and the fact that we were underpenetrated in terms of activity because of the regulatory environment for the last four years, I expect a pretty healthy environment. Sponsor activity is up 40%, and we see more of that in the pipeline, so I think you're going to see an acceleration there. Quite constructive.

Sure. This business definitely benefits from the underlying environment. Balances are very correlated with overall levels in the markets, which is an attractive feature of the business. But there's the composition of the portfolio and the nature of the activities and flows. You can calibrate more or less growth relative to the underlying backdrop based on how you manage your portfolio of credit extension. Together with FICC financing, it has been a good source of stable revenues across the franchise. It's a product highly valued by our clients, and there's a lot of demand for us to provide more prime brokerage services. So it's something we are very strategically focused on continuing to provide to meet client demand.

Gerard, I appreciate the question. In my prepared remarks, I said that in the first quarter, we'll give you a further update on this. If you go back and think about the way we've operated in the past, we give you information and then hold ourselves accountable to that. Part of the reason we made this announcement today is to do these kinds of things in an organization like Goldman Sachs. We have to bring the organization along and create a roadmap. When we are in a position to give you more concrete metrics that you can track and we can quantify and proportionalize, we have good ideas on those things now, really good ideas. We're not prepared to lay that all out specifically for you, but I promise you that as we go into the first quarter and the second quarter, you'll have more transparency on what we're doing, the opportunity, how to think about it, and how it drives further earnings growth for the firm.

The way to think about a buffer is it depends on the clarity you have in the capital regime. I think there is a good chance that after operating in a period where there was a lot of capital volatility and firms had a hard time planning their capital on a year-to-year basis, we're going to be in a regime where we have more clarity on our capital for a multi-year period of time, certainly within a tighter range. That would lead to narrower buffers than what we and others on the street have been running with over the last five years when there has been more capital volatility. If you go back and look, most institutions have been running larger buffers because of more capital volatility through the CCAR process. With more transparency around that process and the introduction of something like averaging, there will be less volatility on a year-to-year basis. I think most firms, including ourselves, would be comfortable running with buffers that are less than the buffers you've seen on average over the last few years. As we have more clarity, the direction of travel is quite positive. We'll give you more of a sense of how we think about the buffers, but that's a big macro way to think about it. This is another thing that's actually quite constructive for Goldman Sachs and others in the industry.