高盛 (GS) 2012 Q4 法說會逐字稿

(audio in progress) Also, this call is being recorded today January 16, 2013.

Thank you.

Mr. Holmes, you may begin at your conference.

Good morning, this is Dane Holmes, Head of Investor Relations at Goldman Sachs.

Welcome to our fourth-quarter earnings conference call.

Today's call may include forward-looking statements.

These statements represent the firm's belief regarding future events that, by their nature, are uncertain and outside of the firm's control.

The firm's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements.

For a discussion of some of the risks and factors that could affect the firm's future results, please see the description of risk factors in our current annual report on Form 10-K for our fiscal year ended December 2011.

I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to our investment banking transaction backlog, capital ratios, risk-weighted assets and global core access.

And you should also review information on the calculation of non-GAAP financial measures as posted on the Investor Relations portion of our website at www.GS.com.

This audiocast is copyrighted material of the Goldman Sachs Group Inc.

and may not be duplicated, reproduced or rebroadcast without our consent.

Harvey Schwartz will now review the firm's results and David Viniar and he will make a few closing remarks.

Harvey?

Thanks, Dane.

I would like to thank all of you for joining us today.

I will give an overview of our fourth-quarter and full-year results and then David and I will take your questions.

Full-year net revenues for 2012 were $34.2 billion, net earnings were $7.5 billion, earnings per diluted share were $14.13, and our return on common equity was 10.7%.

Fourth-quarter net revenues were $9.2 billion, net earnings were $2.9 billion and earnings per diluted share were $5.60.

The operating environment in 2012 was defined by a few significant trends, substantial Central Bank activity, improved economic data in the United States and continued political uncertainty.

For example, actions and commentary by the European Central Bank played a significant role in moderating concerns about a European-linked tail event.

At the end of 2011, the ECB announced that it would enhance its long-term refinancing operations to provide term liquidity.

The ECB further demonstrated its commitment during 2012 by affirming its support for the euro and its willingness to outright purchases in the secondary bond market.

In the United States, the Federal Reserve also took steps to support markets and economic growth, announcing further increases in monetary stimulus during the year.

In 2012, the US economy posted stable to improving economic data, particularly with developments in unemployment and housing.

Over the course of the year, the US economy added nearly 2 million jobs and the Housing Price Index increased by 4% over the past 12 months.

Despite the systemic benefits of Central Bank activity and improved economic data, our clients continue to struggle with a complex set of issues facing the global economy and the political backdrop.

The most obvious recent example was the debate in the United States surrounding the fiscal cliff.

These factors (technical difficulty).

Global debt issuance increased by 11% year over year, with [high-yield] issuance increasing 38%.

In contrast, global equity underwriting volumes were only up 1%, and completed global and merger and acquisition volumes actually decreased 18% in 2012 and remained very low as a percentage of market capitalizations.

We experienced lower activity levels in most of our businesses and general risk aversion by our investing clients.

This was offset by improving asset prices and lower volatility, which created a more favorable market-making environment.

Although equity and fixed-income asset prices trended up over the course of the year, (technical difficulty) generally declined given the previously mentioned factors.

For example, US listed equity bonds declined 18% in 2012, and as we all know, the S&P 500 climbed by 13%.

While macroeconomic challenges persist, our leadership teams remain focused on enhancing our returns.

Drivers of our long-term success include focusing on our clients, prudently managing our risk profile and being disciplined about capital and expenses.

I will now review each of our businesses.

Investment Banking produced fourth-quarter net revenues of $1.4 billion, up 21% from the third quarter.

The increase was due to higher equity underwriting revenues following a weak third quarter and continued strength in debt underwriting.

For the full year, Investment Banking net revenues were $4.9b, up 13% from 2011 due to a robust environment for debt issuance.

Within Investment Banking, fourth-quarter advisory revenues were $508 million, flat with the third quarter.

Goldman Sachs ranked first in worldwide announced and completed M&A for 2012.

We advised on a number of significant transactions that closed during the fourth quarter, including Kraft's $36.1 billion spinoff of its North American grocery business; Walt Disney's $4.1 billion acquisition of Lucasfilm; and Dollar Thrifty's $2.3 billion sales to Hertz.

We also advised on a number of important transactions that were announced during the fourth quarter -- Ralcorp Holdings [$6.8] billion sale to ConAgra; the $4.5 billion sale of eAccess to Softbank; and Gambro's $4 billion sale to Baxter International.

Fourth-quarter underwriting net revenues were $897 million, up 37% sequentially, as issuance improved relative to the third quarter.

Equity underwriting revenues of $304 million increased 61% compared to the third quarter, reflecting increased deal activity.

Goldman Sachs was ranked first in worldwide equity and equity-related and common stock offerings for 2012.

Debt underwriting revenues increased 27% to $593 million, due to our involvement in several significant transactions and a favorable new issue environment.

During the fourth quarter, we participated in noteworthy underwriting transactions, including AIG's $6.4 billion sale of its remaining stake in AIA; Avalon Lake [Communities'] $2.2 billion follow-on offering; and Clear Channel Outdoors' $2.7 billion high yield offering.

Our Investment Banking backlog increased compared with the end of the third quarter, and was also higher than year-end 2011.

Let me now turn to Institutional Client Services, which is comprised of FICC and equities client execution, commissions and fees and securities services.

Net revenues were $4.3 billion in the fourth quarter, up 4% from the third quarter.

Net revenues within Institutional Client Services improved, as the fourth quarter included an approximately $500 million gain from the sale of our hedge fund administration business.

Full-year net revenues of $18.1 billion for Institutional Client Services were up 5% relative to 2011 and included a $714 million DVA loss.

Excluding the impact of DVA, revenues were up 13% year over year and benefited from the improving market environment with tighter credit spreads, higher equity prices and lower levels of volatility.

FICC client execution net revenues were $2 billion in the fourth quarter, including a DVA loss of $79 million, and were down 8% sequentially, as certain businesses reflected seasonally lower levels of activity.

Credit revenues increased significantly, as client activity was supported by a favorable market backdrop, which included a relatively benign macro environment.

Robust primary issuance and tighter credit spreads also helped.

Currency revenues also increased.

Commodities' revenues were higher compared to weaker third-quarter results, although absolute levels of client activity remained pretty low.

While rates in mortgages were lower sequentially, both businesses were strong contributors to the franchise.

For the full year, FICC client execution net revenues of $9.9 billion were up 10% relative to 2011.

Excluding the impact of DVA, revenues were up 20% compared to 2011, as markets in 2012 were less turbulent and benefited from an improved backdrop in Europe, modest growth in the US and strong Central Bank activity.

In Equities, which includes Equities client execution, commissions and fees and security services, net revenues for the fourth quarter were $2.3 billion, up 18% sequentially, and included $47 million in DVA losses.

Excluding the impact of DVA, revenues were up 12% relative to the third quarter.

Equities' client execution revenues decreased 10% sequentially to $764 million, reflecting fewer client-driven opportunities in our cash market-making business.

Commissions and fees were $722 million, roughly flat with third-quarter levels.

Securities services net revenues of $818 million reflected the $500 million gain on sale that was previously mentioned.

For the full year, Equities produced net revenues of $8.2 billion, consistent with 2011.

Turning to risk, average daily VAR in the fourth quarter was $76 million, down from $81 million in the third quarter.

Now, I will review Investing & Lending, which includes both direct investing and investing through funds across very asset classes, as well as lending activities.

Investing & Lending produced net revenues of $2 billion in the fourth quarter.

Our investment in ICBC produced a $334 million gain in the quarter.

Other equity investments generated $789 million in gains, reflecting realized and unrealized gains on private equity investments and markups related to public equity investments as equity markets were stronger in Asia and Europe.

Net revenues from debt securities and loans were $485 million, largely driven by tightening credit spreads and net interest income.

Other revenues of $365 million consist primarily of operating revenues from our consolidated investment entities, and are largely offset by equivalent expenses.

For the full year, Investing & Lending generated net revenues of $5.9 billion, driven by a $408 million gain on our investment in ICBC, $2.4 billion in gains from other equity investments, $1.9 billion of net revenues from debt securities and loans and $1.2 billion of other investments.

In Investment Management, we reported fourth-quarter net revenues of $1.5 billion, up 26% from the third quarter, primarily as a result of $344 million in incentive fees generated from the firm's alternative asset products.

Management and other fees were 5% higher at $1.1 billion.

For the full year, Investment Management net revenues were $5.2 billion, up 4% from 2011 levels on stronger incentive fees.

During the fourth quarter, assets under supervision increased $14 billion to $965 billion, largely due to net inflows of $15 billion into other client assets, mainly as a result of advisory mandates.

Total assets under management were essentially unchanged.

On a full-year basis, assets under supervision increased 8%, as other client assets received $39 billion of net inflows.

We ended the year with $111 billion of other client assets.

Assets under management increased 3%, reflecting net market appreciation that was partially offset by outflows.

Now let me turn to expenses.

Compensation and benefits expense, which includes salaries, bonuses, amortization of prior-year equity awards and other items, such as benefits, increased 6% to $12.9 billion for 2012, and translated into a compensation to net revenues ratio of 37.9%.

It is important to note that our lower compensation ratio in 2012 is in part a byproduct of our efficiency efforts that began in early 2011.

Fourth-quarter noncompensation expenses were $2.9 billion, 24% higher than the third quarter.

Other expenses were significantly higher, reflecting net provisions for litigation and regulatory proceedings of $260 million, an increase of approximately $200 million over the third quarter.

Based on the provision taken this quarter combined with previous reserves, we have fully accounted for the independent foreclosure review settlement.

The fourth quarter also included $157 million donation to Goldman Sachs Gives, our donor-advised charitable fund.

Finally, depreciation and amortization increased by approximately $100 million, driven by impairments to certain investment entities and our New York Stock Exchange designated market-maker rights.

For the full year, non-compensation expenses were down 4%.

Total staff at year-end were approximately 32,400, down 3% from year-end 2011 and 9% from year-end 2010.

Our effective tax rate was 33.3% for 2012.

During the quarter, we repurchased 12.7 million shares of common stock for a total cost of $1.5 billion.

For the full year, we repurchased 42 million shares for a total cost of $4.6 billion.

Historically, our financial success has been a function of broad and deep client relationships, our best in class people, a disciplined approach to allocating financial and human capital and a culture of collaboration and partnership.

The value of this partnership is highlighted in challenging market environments and drove our results in 2012.

Looking forward, we believe that we are well-positioned to expand on our client franchise globally.

For corporate clients, we will continue to leverage our strong M&A, equity and debt underwriting positions.

For investing and other institutional clients, we will continue to rely on the quality of our content and execution.

We will remain very disciplined in our approach to expenses, balancing near-term benefits to our margins against longer-term revenue opportunities.

As we gain greater clarity on regulatory changes, particularly capital requirements, we will respond accordingly.

For example, given the Basel III capital changes that we incur as an owner of our own reinsurance business, we are considering a potential sale of a majority stake in the business.

We have strong risk-adjusted capitalization, which provides protection to shareholders against tail events.

In addition, our capital levels also create opportunities.

First, it positions the firm to help our clients navigate an uncertain economic event.

It also allows us to provide capital where capacity is diminished.

We are committed to effectively deploying our capital and maintaining dry powder to meet future client needs.

We will also return capital to shareholders when appropriate returns aren't available.

Our capital trend in 2012 reflected our measured approach, as our estimated Basil Tier 1 capital ratio increased from approximately 8% to nearly 9%, despite returning $5.5 billion to shareholders via share buybacks and dividends.

We are encouraged by the early signs of improvement in the markets and economy, but remain cautious given the complexity of the risks and challenges.

The quality of our advice and execution in today's challenging markets serves as a foundation for maintaining long-term client relationships and ultimately meeting the needs of all of our stakeholders.

Everyone at Goldman Sachs remains steadfast in their commitment to serving our client franchise.

We have a deep appreciation for our responsibility to all of our constituents, clients, shareholders, regulators, our employees, and of course, the broader financial system.

We believe that there is a shared interest among our constituents to manage the firm in a way that supports economic growth and sustainability.

Our firm is fully committed to filling that responsibility.

With that, I'd like to take a moment to thank David on behalf of the firm for his significant contributions to Goldman Sachs over his 32-year career.

There is no doubt that our clients, employees, regulators and shareholders have all benefited from his unwavering commitment, sound judgment and devotion to the firm's culture and principles.

As a personal note, I really want to thank you.

You have been a tremendous partner, David, and not only during this transition.

I truly can't thank you enough.

I look forward to working with you as a member of our Board of Directors.

For those of you who weren't keeping track, this is David's 55th consecutive earnings call.

It is only fitting that he provides some closing comments.

David?

Thank you, Harvey.

As many of you know, I have spent my entire career at Goldman Sachs, so it is all I know.

I always believed that it was a special place.

That is a perception which has been validated over the last several years, given my experiences during this period of stress.

I witnessed the strength of our client franchise, the quality and dedication of our people and the commitment of our shareholders.

It was an honor to be asked to join the Board of Directors.

I look forward to continuing to serve as a steward for shareholders in that role.

It is a responsibility I take with full confidence in the strength of the client franchise, the financial health of the Company and the caliber and devotion of our people.

I would also like to thank all of our shareholders, debt investors and research analysts for their support of the firm and me personally.

I leave knowing that I am turning the role over to Harvey, who has the skills and judgment to warrant that same level of support.

Thank you again for listening today, and now Harvey and I are happy to take your questions.

(Operator Instructions) Howard Chen, Credit Suisse.

I think everyone would acknowledge 2012 was a pretty tough year for the industry, but yet when all is said and done, the firm posted a nearly 11% return on equity.

Just given where revenues and (inaudible), can you discuss the significance of that 11%?

Is that a threshold ROE that we should think about that you don't want to fall below in a challenging environment?

So, what I would say about 2012, obviously, as you mentioned, certainly some elements of the marketplace were particularly challenging.

What put us in a position to achieve the ROE really were the steps we took over the last two years in terms of managing expenses and being quite disciplined.

But in terms of what we are able to achieve in the future, we are going to have to see what the market opportunity brings to us.

But this was a year where, like all years, we took everything into account, performance, the competitive dynamic.

And, as I said, we benefited from the steps that we took over the past two years, but quite frankly I don't think -- while we are pleased with the performance in the environment, it is not particularly aspirational.

We would like to do better.

Okay, thanks.

And then switching gears, Harvey, with respect to Investing & Lending, you noted the improved, the realization environment in mix.

As many of your investments have been in the ground for a few years now, I was hoping you could provide us some thoughts on how you think about the realization pipeline, give us a little bit more detail on that appetite to sell today if markets were cooperative.

So, the ability to monetize, as you know, is really driven by two factors.

Obviously, it's market performance, but it's also the idiosyncratic nature of your own portfolio.

So in the past year, obviously there were opportunities.

You could argue that our performance exceeded that of the marketplace in terms of what you might have expected, but that was this past year and you know our portfolio performed well.

I think in some quarters, it will perform well; in some quarters, we won't perform as well relative to the marketplace.

But the market will drive that.

Certainly over time, with events around the world, we feel like we will see attractive investment opportunities.

But in terms of the scheduled monetization, it is difficult to predict.

Okay, great.

And then just finally for me.

I realize we are now 10 trading days into the new year, but just given all that happened at the end of 2012, with the fiscal cliff and so forth, just curious how the year has begun.

Too early to tell, with only 10 business days into the quarter.

You know, you could paint a picture of concern given events in Europe and certainly events in Washington that could be disruptive.

If you talk to our economists, our economists would say that we will see pretty modest growth for the first half of the year in the developed economies, and it will exceed that in the growth economies in maybe the second half of the year.

But it is difficult to anticipate that.

We do feel pretty well-positioned from a business point of view, whether it is in our Investment Banking franchise and certainly across the firm, to capitalize on opportunities.

But too early to tell.

Okay.

I had to give it a shot.

Thanks for taking the questions and congratulations again, David.

As the new guy, I appreciate it.

Glenn Schorr, Nomura.

I think risk-weighted assets were down 8% quarter on quarter, but GAAP was down only about 1%.

I know those are different animals.

Just curious what drove the RWA in the quarter, and then if you had any thoughts on, as we look forward, obviously just on what is the path going forward for RWA.

So, I wouldn't focus so much on the quarter-over-quarter move; more so really on the end of last year to the end of this year.

So that is roughly 100 basis points, 8% to nearly 9%.

And as we have said before, as we get visibility into the rules, we will deploy our teams with tools and will be able to react.

So what we are really seeing over the course of the year is the effort to be more efficient with capital, and of course the earnings performance.

And so we will continue to react as we get more visibility into all the rules.

So is that a way of saying as the rules come out -- I think this quarter many companies have been pushing through, getting other model approvals -- this was a little more driven by that versus actual assets going out the door?

We are not in a position to comment on any model approvals.

Okay.

How about in a different way -- and I understand the sensitivity.

As the rules come out, I think Goldman has historically been very good at pushing out whatever the new rules are to the trading desks, on the technology, on the desktop, and it makes the Company more efficient in that manner.

Can you just maybe comment where are we in that process?

Am I correct to say that that is how we can envision higher ROEs going forward?

Well, the way I would think about it is performance is going to drive the ROEs, and that will be about our competitive position and ability to deliver our franchise to our clients relative to others in the context of what the market provides.

With respect to managing our capital, I think you should expect us to continue to be disciplined.

And when we get visibility around rules, we will look to be particularly responsive.

But we want to be very careful not to overreact before we have a rule and we don't want to underreact after we have a rule.

So we hope to do more.

Excellent.

On the positive side, the competitive landscape has definitely has shifted a little bit.

I think there is a lot of pressure under some of the European investment banks to do some form of shrinkage, small or large.

Do you view that as big opportunity?

I know that over the past year or so or two, during the European crisis, you guys have commented that it might be your best near-term opportunity.

Is that still in motion and how you going about positioning for it?

I wouldn't say that it's the best near-term opportunity; I think those things are always difficult to weigh.

But I think if you are thinking about sort of longer-term strategy across multiple years, certainly capacity leaving the industry broadly, and specifically opportunities in Europe, we think we are well-positioned and they look attractive to us, but we will have to see what materializes.

I think -- the reason why I focus on near-term, it's very difficult to be too precise about how these things unfold and certainly when.

Got you.

Last one is a quickie.

If you are schooled in David Viniar answers, I know it is going to be a quick answer too.

But this year, revs were up 19%, comp dollars were up 6% and non-comp was down 4%.

That is a fantastic mix for shareholders.

I know we can't predict the future, so let's just make believe for a second that revenues will be flat on the go-forward basis.

In a flat revenue world, does comp ratio stay and non-comp expenses keep trending lower?

So, I think you have to go back again to how we manage the Company and how we think about compensation specifically.

So there are a whole host of factors that go into that.

One is going to be how our performance is, and certainly that is going to be reflected in compensation.

The competitive dynamic is certainly in there.

And then of course this is a balance issue obviously in terms of providing returns to shareholders.

And this year, we hope we got the balance right.

As I said, we are not satisfied, we would like to do better.

But again, it will be determined by what the market opportunity provides us in the future.

Okay, awesome.

Thank you for all that, Harvey.

Michael Carrier, Bank of America Merrill Lynch.

Thanks, guys.

So we've seen two quarters where core revenues have probably come in a bit better than expected, not only for you but the industry.

It feels like activity may be stabilizing, hopefully improving.

But when we look at the liquidity reserve, it still seems pretty high.

I think in the past you said when the environment gets better, you could see that trend down.

So I guess basically, does that relationship still stand?

Do you sense any improvement?

Or are there still enough regulatory uncertainties on the liquidity and funding side to remain ultra conservative?

Well, I think what I would say is, just as a matter of principle, we are always going to be conservative with our liquidity.

I like to say there is two core lifebloods to the firm, one is our clients and the other is our liquidity.

And so we are going to stay very focused on both.

Look, there is a lot of uncertainty in the world, and I agree with you, when you look back over the past six months, certainly the world feels a bit better.

Clients generally, although there was a fairly significant amount of risk aversion, got better towards the end of the year.

And we will see how this year goes.

But there is still a lot of things in front of the world.

So I wouldn't expect any significant shift.

Okay.

And just a follow-up on Glenn's question on the RWAs.

Maybe just when you look at the rules and trying to manage the assets and the capital, what percent -- I know it is an easy question; probably tougher to answer -- but what percentage of the rules do you feel like you have clarity on?

Meaning like what inning are we in that process, fully getting clarity so you can manage your assets?

That is a hard question.

I would say that -- I'll try and be as narrow as possible.

I would say that on capital, I don't know, maybe we are in the sixth inning in terms of capital rule visibility.

Maybe some people could argue the seventh, but that is kind of using a baseball analogy.

I think the broader issue is the collective visibility into all rules, whether it is Volcker, the impact of Dodd-Frank, things that impact globally.

And so -- and there, I don't think we have a lot of collective visibility into the weight of that.

And actually, I think it is difficult for the regulators to really assess all of that, which, quite frankly, is a concern for the industry, and obviously it is a concern for the global economy.

Right, okay.

And then last one.

You mentioned just the reinsurance business, maybe putting that up for sale.

Just wondering -- it might be too early -- but any size of that business?

Maybe same thing on Investing & Lending.

You guys have said in the past there is areas of that business where it is on the lending side, so you will continue to operate that business; and then there is other areas that will wind down over time.

So any update on the assets or the revenues related to those businesses, and then capital that would be released and redeployed elsewhere?

So, not in a position to comment on the reinsurance business beyond what is in the release.

What I would say with respect to Investing & Lending is those are core competencies of the firm, and so when we've -- for example, when we had visibility on part of Volcker Rule, we took steps around certain businesses.

But at this stage, this will be about how we adapt to rules as we get further visibility.

And so I don't know necessarily that we would say we would deemphasize anything in Investing & Lending at this stage.

Now, of course, over time, as businesses like the reinsurance business are maybe better held in other peoples' hands and we can be a minority owner because of capital reasons, then we will make those decisions.

But that will be on a business by business basis.

Okay, got it.

Thanks a lot.

Brennan Hawken, UBS.

One question to follow up on that.

I'm just sort of assuming that if you guys hold a minority stake then in the reinsurance business, it would probably be below the Basel III threshold to avoid a hickey?

Yes, sure.

Okay.

And then also, how should we think about -- I'm not sure how much color I'm going to get from this, but I'm going to give it a shot -- how should we think about a comp ratio on I&L revenues?

My guess is that that would be at a lower rate than it would be for other businesses in the firm.

But can you maybe provide some color to help us out on that front?

You know, I think it is really important to emphasize the point that when we think about the comp ratio, we think about it in terms of the aggregate of the firm.

And then within that, we compensate across the various business units and we build it up individual by individual.

Okay.

So -- but you will clearly take into account the revenue mix when you start to think about those allocations, right?

Because that's basically what is the sum of the parts.

I would say it more simply -- we don't look to overpay anybody.

Okay.

So then with that in mind then, you could easily say that given the competitive environment right now for talent on the Street that the improvement in the comp ratio should be at least somewhat sustainable for the benefit of shareholders here in the near term?

Is that fair?

Well, you know, I guess you could surmise that.

As far as I can tell, even as capacity has been leaving the industry, there has been a huge demand for Goldman Sachs people.

And so the competitive dynamic in aggregate may feel much better, but for very talented people at Goldman Sachs, they are very attractive.

That's fair.

Brennan, it's David.

You have heard me say this many times before, so I will just say it again.

We don't set a comp ratio.

We don't start the process and say, here is the comp ratio.

We compensate our people individually and we take into account the performance of the firm, the competitive environment all the time.

And we are always looking at those things.

So it is hard for us to say what it is going to be going forward.

No, that is fair.

Unfortunately, we have to set a comp ratio in our model.

So I got to give it a shot.

We appreciate that.

And then I guess last one for me.

Any color on deferrals?

I mean, it has been sort of my understanding that you guys have historically had less deferred comp than peers, which clearly gives you greater flexibility.

We are hearing a lot of noise around deferrals here, given the calendar and where we are.

But do you intend to try to keep that flexibility?

What is your view on that front?

So, there are no deferrals.

And I think you are right to say that you have to be very thoughtful when you do that, because there is a bit of mortgaging the future.

And so, no, there have been no deferrals.

Oh, sorry -- no additional deferrals.

Okay, I was going to question (multiple speakers).

I got my last bit of mentoring from David there.

Thanks, Harvey.

Guy Moszkowski, Autonomous Research.

The CFTC obviously pushed back timing of some of the OTC reforms with respect to central clearing, at least to pretty close to the middle of the year.

I know this is kind of a narrow question, but I am just interested in how you think about it.

All else equal, would you expect that revenues in FICC from -- or broadly from OTC derivatives transactions -- would be higher in the first half as the result of just that change, or is that not the right way to think about it?

I think it's a good question.

I think that the only case study we have is really history.

And when you look back over history, history has proven that -- a couple of things.

One, it has proven that rule changes and the ultimate impact on market structure are incredibly difficult to predict.

I would say -- and I didn't really feel this way about a year ago -- I thought that the rule delays or uncertainty around rules I didn't think was having an impact in terms of client activity.

I do think as we get more clarity on rule certainty, it may ultimately impact client activity to the positive.

Having said that, I wouldn't trade off that delay for bad rulemaking, and I think the CFTC and other regulators have been pretty thoughtful about taking the steps to delay rules, because the single most important thing is that the market has an opportunity to adapt.

Because we don't want to increase systemic risk while the regulators try and put new rules in place.

So I think all these delays have been quite thoughtful.

And from a competitive perspective, just to one of the points that you just alluded to, as the changes in the regulatory environment, for example, Basel III capital requirements, get better understood and your competitors move closer to full adoption, do you feel like the pricing dynamic for transactions that have a big slug of capital that has to be priced into them has become more rational?

I'm not so sure it's necessarily capital rules.

I think broadly speaking, it is a level playing field, and so we all have the same rule set.

The way we have to differentiate ourselves is by leaning into our strengths.

And we have a history of our clients wanting capital, and we want to differentiate ourselves by providing capital.

And so, I think it is really how you execute.

Everybody is going to live with the same rule set.

But do you feel like over the last couple of years competitive pricing has really been rational with respect to what those medium to longer-term capital requirements are?

And if it hasn't been as much so as you would have liked, do you feel like it has gotten closer?

I think that -- and now we are getting into more art than science.

I think that competitive response as relates to things like capital changes, that is a very -- that is something that plays out over the intermediate to long-term.

In the short run, you can see irrational your rational behavior by competitors which can't be explained by any capital rule.

I would say -- and I am not sure this is related at all to capital, but I do think that the crisis itself at the margin had made people much more disciplined about their capital deployment.

And so, for example, I don't even know if this is an indicator that you could extrapolate into your question, but in the fourth quarter there was an amazing amount of [block] activity.

There were days where David and I were working with our teams in banking and the financing group on sometimes four or five inquiries.

If you ask me on that particular day in December did pricing feel a bit more rational?

Yes.

But I couldn't tell you if that same day occurred this January whether or not it would be as rational.

But over years, the market makes people more rational.

Yes, that's helpful.

And then one last question, which follows up a little bit on something that was being talked about before.

In Investing & Lending, as you said, when it became very, very clear that proprietary activities were going to be precluded, you shot a bunch of that down.

What other business adjustments -- not necessarily shutdowns, but significant changes to parts of I&L -- are you either doing or contemplating, for example, in the lending and distressed debt trading parts of the business?

Well, I would say there are obviously a number of rules that can have incremental impact there, Volcker being one of them.

But we will see Volcker when it comes out and we will respond accordingly.

But also, those businesses obviously tend to draw more capital.

And so we have no immediate plans for any changes, but to the extent we need to respond, again, we will do it.

Okay, thanks very much for taking the question.

And David, farewell, thanks again so much for all your help over the years.

Thanks, Guy, appreciate it.

Roger Freeman, Barclays.

Maybe I will just pick up there on Guy's question.

On I&L, I mean, you have kind of got, I think you said, a decent amount of clarity on the capital portion.

There is still other pieces, including Volcker, outstanding.

But in some more of the sort of traditional sort of equity investments area, I mean, is that -- that is an area that presumably you'd continue to invest in or maybe even pick up again, because I think that's been somewhat of a lull -- if the returns are there, right?

I mean, you would look at this just like any private equity investor, just with a return threshold based on the capital requirements, right?

Yes, it would be just like that.

Okay.

And then separately, on comp, so some of the reduced ratio sounds like it kind of came out of the restructuring efforts over the past year and a half or so.

How much of that decline in the ratio do you attribute to that versus the market environment, competitive environment?

Yes, we don't think about it that way in terms of parsing it.

I understand why you would ask the question.

I think that what we would say is the following.

Obviously, there was a lot of operating leverage in the business this year, and you see the translation of that in terms of the increased revenues into all the metrics.

But in terms of how we think about commenting, David discussed it earlier, it is going to be performance-driven, and then we take all those other factors into account, including the balance and what our shareholders need.

Okay.

And then I guess you kind of touched on this, but the liquidity -- your liquidity levels remain still at the highs.

With the environment more stable at this point, what do you kind of look for to bring that down, if you have any plans there?

Have no plans to bring it down, so haven't looked at it.

Okay.

That's it for now.

Okay, thanks.

And good luck to you, David.

Thank you.

Betsy Graseck, Morgan Stanley.

One kind of nitpicky question, but on the Investing & Lending in the debt side, can you give us a sense as to realized versus unrealized?

Yes, I think it's like a little more than half.

On the debt side, remember, there is (multiple speakers).

I'm sorry, on the debt side.

There is interest in there as well.

Sure.

And I would think that it would be more unrealized on the debt side than realized.

We can come back to the breakdown, but remember, a big part of that is interest also.

Right.

I'm definitely taking the interest piece out; just asking on the non-interest piece.

Okay, and does that --

We can follow up with you.

I don't think I am far off, but we will doublecheck for you.

All right, cool.

And then on the equity side, we can follow up on that too?

I'm sorry, could you repeat the question?

Oh, on the equity side, the realized versus unrealized?

Is that mostly unrealized?

Is that fair?

Yes, it is a bit more than half on that also.

Okay.

All right.

And then I know we discussed the clearing question.

I just wanted to understand how you are thinking about managing the potential outcomes here.

Because as initial margin does get charged to the buy side, whether or not it goes on schedule or is a little bit delayed, how are you thinking about setting yourselves up for what could be a changed behavior on the client side when initial margin comes through?

So this is an important question, because you can extrapolate it in some respects our strategy and philosophy around reg reform pretty broadly in this context.

So it's incredibly important for us to serve our clients as best we can today.

And so, hard to truly anticipate what any rule change, initial margin for example, will have on their behavior; but we know we need to be there for them today.

And so we will adapt as they adapt.

And again, this is a very careful balance, because our view is you need to be incredibly focused as the rules come into frame, clearly; I think that is obvious.

But there can be quite a penalty, I think, paid for overreacting.

And so if you ask me -- if I answer the question very narrowly, we have no explicit plans to adjust around that.

But when we see the rules and we work with our clients, we will work with them as closely as possible to adapt and make sure that their needs are fulfilled.

Right.

So we have some example of this in the energy market, right, because we have already seen some rule change and had some behavior move from swaps to futures.

And so I am just wondering if that has given you any sense of experience with regard to how you might behave as the other products come online.

I don't think it is as much, for example, swaps to futures, although it could be, and it could end up looking just like the energy markets.

But clients of course have been large users of futures for many, many years.

And so they always could have used futures, so that was always a choice.

I think a good example of regulatory reform impact would be the collection of rules, whether it was decimalization or Reg ATS, et cetera, in the equity markets, in 1999, I think it was, in 2000, in the early part of the decade.

And I think that had transformational effects obviously on the equity markets.

We all know that now in retrospect.

And that forced us to make significant changes in our business.

We had to reduce staff significantly.

Back in the day, a very small portion of what we did in the equity business was electronic.

Now on any given day, the vast majority of what we do will be done electronically.

And so I think it is hard to predict.

But the key issue is staying very close to our clients during that period, but it is really about how we adapt.

And so I'm not trying to evade your question; I'm just saying it's too early to speculate on how we would adapt.

But we just have to execute.

Right.

So, be nimble and carry some capacity to manage through it?

Yes.

I mean, I can't imagine reducing capacity and then trying to rebuild it.

That would be really hard.

I hear you.

Thanks.

Chris Kotowski, Oppenheimer.

Just kind of always believing that people's actions speak louder than what they can say sometimes, looking at your share buybacks, and going back to 2010, every single quarter kind of the share buyback has been in the range of somewhere between $1 billion and $1.5 billion.

And conversely, every single quarter since late 2010, your tangible common equity at the end of the period has been $63 billion or $64 billion.

So I am curious, which is the target and which is the plug?

Is it that you have decided that at this kind of level of profitability, $5 billion or $6 billion a year is the right amount of buyback?

Or is it just that $63 billion, $64 billion is all you need to run a world-class investment bank and anything above that you can return to shareholders?

Yes, so I wish the science was that precise.

But unfortunately, -- unfortunately for you all and for us, it is not that precise.

It is much more dynamic.

And the way I would frame it is we want to be very conservative about our capital.

And that is the first priority.

So we will evaluate it on a quarter-by-quarter basis.

And certainly now, we think our -- we work hand-in-hand with our regulators to make sure that we have a conservative capital plan.

Okay.

But just as a follow-up to that, I guess in the context of JPMorgan allocating about $40 billion to its investment bank, BofA, I think, is in the same area code, and obviously all the other banks and European banks generally have less than that.

What would be the argument that you need more than $63 billion, $64 billion of tangible common to run a world-class investment bank?

Well, as it relates to us, like I said, we want to be conservative about our capital, but we also want to be positioned, because capital can make us -- can put us in a very competitive offensive position.

I don't know how JPMorgan and BofA allocate their capital, but probably a better question for them.

Okay.

Fair enough.

Thank you.

Matt O'Connor, Deutsche Bank.

If I could circle back to the OTC derivative topic here, just as we think about the FICC businesses specifically, have you talked about the mix of cash versus noncash?

I'm sorry.

Did you say can I talk about it?

I couldn't hear the exact question.

I apologize.

Sorry.

The question is within the FICC trading businesses, have you talked about what's driven by cash versus noncash?

No, we have not.

Because I had one large investment bank when I was talking to them about the whole potential revenue give-up from swaps, they had noted to me that probably only about 15% of FICC revenues were noncash.

And obviously within that, there would be some structured stuff that wouldn't be at risk.

Yes, so we haven't talked about it.

I will give you the following observation.

Certainly post-2008, there was a real desire -- I think a very rational desire and a natural shift by the whole industry, driven by the clients, to really focus on simplicity away from complexity.

So you lost some of the most -- what I will call the most complex aspects of derivatives, the correlation businesses and things like that.

And I don't see those returning.

So I don't see those as lost revenue opportunities, although, who knows, maybe someday far away they will.

But I think that because of that, you've seen a mix shift that was to cash.

But that feels to me like it has been in place for a while.

Okay.

And just done a comment on whether it's for you or you think for the fee pool overall about 15% is noncash?

No, no comment on that.

Okay.

And then just separately, as we think about kind of FICC revenue drivers, whether it is this year or beyond, you know, I get a lot of questions that debt issuance has been so strong the last couple of years; how can that be repeated.

Credit spreads have tightened so much; how can that be repeated.

And then obviously, when we talk to people in the business, they remind you that secondary trading has been weak and it's been very low-margin business or a lot of low-margin business.

Can you just talk a little bit about the puts and takes, and if there is any way to quantify the drag from weaker secondary trading or some of the opportunity as you move away from lower-margin areas to higher-margin areas?

Well, I think that in all these businesses -- and let's just take the securities division, because you are talking about, for example, cash bond trading and secondary market activity -- we benefit from basically the diversity in the collection of businesses.

So, the credit business may be busier than the mortgage business in a particular day or a particular month.

So that is how we think about it.

In terms of secondary volumes, it is not really particularly surprising to me -- although maybe if you had asked me this question a year ago, I would have gotten the answer wrong -- that just given the incredible influx of capital into the bond space, that managers themselves are not rotating positions as much.

It has been very directional.

And so I don't know, I wouldn't be making any forecast that secondary bond trading levels would be dramatically lower or dramatically higher the second half of this year, for example.

Okay.

And then just lastly, on the reinsurance business -- and apologize if you disclosed this in the Q -- but within the equities business, you talk about in a footnote there is $1 billion of reinsurance revenues for 2012.

Is that all one -- driven all by one company or the one stake that you are talking about, or would there be a couple other pieces in that as well?

At this stage, I really can't comment beyond what is in the footnote.

Okay.

All right, thank you.

Jim Mitchell, Buckingham Research.

I just would like to get maybe your thoughts longer-term -- I think if we look at the return profile, certainly double digits is positive, but I think a good contribution came from private equity, which under the Volcker Rule may shrink over time, and the core business being dragged down by still pretty low returns in fixed income.

So when we think not just the next year or so, but look further out, do you see -- whether it's long-dated derivatives, things like that -- is it -- are we dismissing that there is significant amount of RWA mitigation over time, rather than just looking out the next year or two, but beyond that, that is significant enough to get returns up?

Or do we have to see some material improvement in the business mix to get the returns up in FICC?

So, again, I'm going to sound kind of redundant here.

I think predicting multiple years in the future is really hard.

Actually, I think predicting six months in the future is really difficult.

And so again what I would say is the following.

We are going to focus on making sure that our institutional clients can deal with us in any business they want, and we want best-in-class.

And we are far from perfect, so there is certainly businesses we need to work on and we can be better and we can take advantage of our improvements as well as to competitors.

But you should have a view, though, (multiple speakers) -- I'm sorry -- you should have a view, though, at least internally of what you're say long-dated high-RWA type products that you expect to roll off and if there is a lot.

Do you have any sense or can you give us any sense of is that a lot, a little or just -- you know -- that would be helpful.

I don't have that data with me.

But if you are talking about sort of additions that are on the books with clients --

Right.

-- versus rolloff, passive rolloff, which we have disclosed previously -- if we obviously -- I think you should rest assured we study all that.

Okay, maybe just on the liquidity.

Have you given us any thoughts on with the new LCR ratio language how you guys feel you are positioned for the LCR?

So, again, we finished with a strong liquidity position with $175 billion in GCE.

We have no immediate concerns regarding the LCR.

We thought it was good; actually, like a lot of these rules, that the regulators revise the rules and the process and the final rule seemed more thoughtful and well-considered than the proposed rule.

But no immediate concern.

Okay, thanks.

Kian Abouhossein, JPMorgan.

I just wanted to come back to capital, and apologies if I missed it.

But have you given the Basel III risk-weighted assets for the quarter as well as the ratio?

And if you could -- if you have, could you please repeat it?

No, we haven't yet.

But we did talk about the fact, obviously, that we finished near 9%, up 100 basis points over the year on Basel III.

Okay.

And you have -- in terms of you have given a risk-weighted asset guidance in the recent presentation November of $700 billion relative to about $725 billion in the third quarter.

And it sounded to me like a very small number.

I know you don't include proactive mitigation in your number.

But I wonder in the $700 billion, how much growth of risk-weighted assets have you included there, between that number in the third quarter and the fourth quarter -- and 2013 year-end that you have given?

Is there material growth in that number?

No, there is no material growth in that number.

And in terms of mitigation, can you give us any more details of how we should look at that, considering that you are talking about how your systems are built in order to allocate capital more efficiently.

How should we think about the $700 billion versus what is really achievable, even if you talk more in terms of subjective measures?

I'm not quite sure what you are trying to get at.

But if you really want details of all this, we are happy to follow up with you later.

We are very focused on this and you can see we increased where we are about 100 basis points over the course of the year.

Yes.

But if you want more details on that, we are happy to follow up with you later.

Yes, because it looks like --.

I think the reason why we are struggling a bit with your question is because, quite frankly, you will see this as we do it.

And so it is difficult for us to forecast in a way obviously that you would like us to.

Yes, but you are constantly beating expectations, and you kind of -- your mitigation seems to be much well ahead of the curve than I think what you are clearly alluding to in the $700 billion, which doesn't include any mitigation for your proactive measures.

And I get the impression that the number that could be achieved is significantly lower, and that is kind of what I am trying to get to.

But we can discuss it afterwards.

On the -- just on the Investing & Lending expenses, to be honest, I don't understand that line.

I mean, you have expenses of about $2 billion to $3 billion, I always think about this business like a private equity business, and your cost/income ratio, however, is significantly higher and your expense line is higher.

What is in these expenses?

I would have thought this should be more like a 25%, 30% cost/income ratio business, but obviously I don't understand it.

So can you explain to me what these expenses are?

I mean (multiple speakers) only a few hundred people -- I assume there are a few hundred people in this division.

Are you referring to the segment?

Yes, yes, sorry, the segment Investing & Lending, where you expenses on the filing -- in the filings?

You know, I don't know that off the top of my head, so why don't we come back and follow up with you?

But I assume there are only a few hundred people running --.

(multiple speakers).

I mean, there are only a few hundred -- I assume there are only a few hundred people running in this division.

I can't believe there is thousands of -- I would be even surprised if it is 1000 people.

So I'm just wondering why you having $2 billion to $3 billion of expenses.

Is it interest expense or is it something else?

I just don't understand why there is such a big expense level.

Yes, we will come back to you on it.

Okay.

Last question, staffing.

Can you talk about -- you have done a great job on reducing staffing this year.

But can you talk a little bit about staffing trends that you would expect to see in your business this year and maybe business or geography if there is maybe a mix change?

No, so, there are no plans one way or another, I think worth discussing.

That will all be driven bottom's up by the businesses, as it always is, in terms of the opportunities they see and how they are investing around the world in talent.

And does that mean staffing -- it sounds like it is fair to say that staffing levels today are not -- shouldn't be too dissimilar to the end of this year?

That will be very driven by the environment.

Okay.

All right, thank you very much.

And I will follow up.

Matt Burnell, Wells Fargo Securities.

Just a couple of, I guess, quick questions for you, Harvey.

First of all, in terms of the net outflows in the non-money market side of things, in the fourth quarter, they were negative net 18.

That is down pretty visibly from the third quarter, but more in line with the fourth quarter.

Is that just a seasonal trend or is there something else going on there?

Are you talking about in asset management?

Yes, on page 12 of the release.

Money markets had inflows in the fourth quarter.

I'm sorry, I meant non-money market flows.

Oh I'm sorry, I'm sorry, okay.

No, I don't think there was anything particular there.

I think that just related more to a decline in investor activity, but there is nothing significant in that.

Okay.

And then I guess in the bigger picture, Harvey, you mentioned that the backlog was up a bit versus third quarter and up a bit year over year.

I guess I am just curious in terms of your outlook if you care to provide it on M&A.

There seems to be a lot of media attention and I think some client attention on the potential opportunities for M&A, given the potential slowdown in the US and possibly in Europe, in those economies, and the cash balances.

Is there any greater instance of M&A volumes coming in -- announced M&A volumes coming in 2013 than you have seen in 2012?

Whether or not things are going to be announced, obviously, very difficult to predict.

And I think it is -- when you talk to our investment bankers and our clients, what they will say is that the uncertainty in the economic environment globally and certainly the political backdrop in the large economies has left CEOs in a position where they have been quite conservative.

And as you see, it has translated into all the things that you describe -- large cash holdings, lots of efficiencies.

And so I think that will be -- my own opinion -- that will be a lagging outcome in terms of when people really feel there is confidence and certainty, then there will be more motivation to consummate transactions.

But it is very difficult to predict that, as you know.

Yes, okay, thank you very much.

Mike Mayo, CLSA.

Hi, what is the dollar amount of the backlog quarter over quarter?

We don't disclose that, sorry.

Okay.

What is Goldman's ROE target?

Is that a question for David or is that a question for me?

Well, we want to go with the guy who is going to be around to try and achieve it.

Sorry, I didn't mean to make light of that question.

You'd get the same answer.

I apologize.

So, look, with respect to the ROE target or the absence of an ROE target, quite frankly, over the past several years, there just hasn't been enough information in the marketplace, whether it was capital rules, clarity on Volcker, Title VII, et cetera.

And so at this stage, we just don't feel we have enough information to give you a target.

Having said that, what you should expect from us and you will continue to see from us is that we remain committed to superior returns over the long term, and we want to provide absolute superior returns and relative superior returns.

So that is our focus.

But we have no target.

When do you think you will have enough information on the capital rules, Volcker, and anything else that is holding you back from having a formal target?

You know, I think if you had been sitting here a year ago, you probably would have felt like maybe you would have more clarity.

But as I said earlier, I think the regulators have done a very, very smart thing, locally and globally, by delaying the implementation.

Because it is so much simultaneous change.

Even in Title VII itself, which is one suite of rules, the regulators have an enormous task in front of them in terms of rolling out these rules.

And so that is just one set.

And so we will have to see.

The assets are down 2% quarter over quarter.

What is happening there and should we extrapolate that downsizing of the balance sheet?

There is nothing meaningful in that.

I wouldn't read anything into that.

The buybacks, you certainly got some great prices during the year.

But you would up buying back 8% of your stock, but shares only declined by 5%.

Is there any way to narrow that gap?

No, but I think if you want to go through sort of the mechanics of share count, I'm happy to have Dane and the team follow up with you.

And then compensation, this is lower than last year, if you look at the entire year.

How should we think about the comp ratio?

I'm talking about the ratio, by the way -- how should we think about the comp ratio going forward?

So, you know, as we said earlier, we are going to evaluate compensation on a year-by-year basis, and we are going to incorporate everything that you would expect us to, which is performance of the firm, most importantly, and then the competitive dynamic and all the other factors that go in.

And of course, we have to get the balance right with the shareholders.

So we will evaluate it as the year progresses.

And then last question, David's line was live to fight another day.

So, Harvey, we want to hear your line.

But if you look at the VAR, it's down again, but you have the election over and it seems like sentiment has improved in certain areas.

I noticed the equity VAR is up; the other areas are down.

So what is Goldman's thought process on taking risk as of today?

Right.

So I wouldn't read too much into the decline in VAR, because virtually all of that is attributed to the decline in market volatilities and not actual positions on the desk.

And in terms of deploying our capital, we feel quite confident in our ability to do that.

And so -- but that VAR at number is going to really be driven by client demand and activity, all else being equal.

And so as we continue to see a pickup in client activity, positions may change.

Now, they may translate into lower things in the number, given offsets, et cetera.

But the bulk of what you are seeing in a decline is market volatilities; it is not a reduction in risk or capital deployment.

Just a clarification on that last point.

VAR is what we have to go on; it is the best indicator in your release.

And you are saying we shouldn't really rely on that.

What else can we rely on?

I guess do you have an apples-to-apples VAR number that adjusts for the decline in market volatility?

Or if I simply ask you the question, did you guys position yourselves for more risk, absent what VAR is telling us?

Yes.

No, first of all, I wasn't saying you can't rely on the disclosure.

So I want to be really clear on that.

I was actually trying to give you extra information by saying the following.

There are factors that go into VAR, one being the position that we have, and then obviously a big contributor are volatilities in the marketplace themselves.

And so all I am saying is in this particular instance, the decline was mostly attributed to decline in volatilities.

It was no top-down directive, for example, to take less risk.

Our risk-taking, as I said, will be reflective of the client flows and demand for capital.

Got it.

That clarifies it.

Thank you.

Thanks, sorry about that.

Eric Wasserstrom, SunTrust Robinson Humphrey.

Harvey, I hate to come back to the Basel I risk-weighted asset question that Glenn put out several minutes ago, but I am afraid your answer was maybe too nuanced for me to understand.

But it looks like over the past few quarters, your RWAs were in a fairly narrow range of between $430 billion and $440 billion, and then have fallen quite significantly in this particular quarter.

Can you just help me understand better why that occurred?

So, the movement there is -- I think what you are going to see there -- and we will double confirm -- but I think what you are seeing there is probably the knock-on effect of our Basel III mitigation efforts having an impact on the ratio.

Okay.

Just (multiple speakers)

You asked about Basel I, correct?

Correct.

Yes.

No, so it's the Basel III capital efficiency efforts that are having a knock-on effect on the Basel I ratio.

Okay.

Thanks very much.

Christopher Wheeler, Mediobanca.

A few questions, if I may.

The first one relates really perhaps not just to you, but to your peer group in the United States.

Having seen [Basel III] in terms of capital pushdown really to next year, obviously, if we look at Europe, that is not really the case.

There is a much closer scrutiny by the regulators, particularly say in Switzerland, of the Basel III ratios as they stand.

And obviously, a lot of European banks continue to deleverage.

I mean, do you see the opportunity to actually carry out some trades, look pretty unattractive under Basel III, but would look attractive under Basel I, while we go through this kind of -- this period of transition?

Or will your regulator actually find that is something they would rather you didn't participate in?

I don't think that -- I don't think that the pace of development, for example, of rulemaking, whether it is the Basel capital rules, or for example in the US, much further ahead on derivatives, et cetera -- I don't think that will drive -- I could be wrong, by the way -- I don't think that will drive material differences in how firms compete in opportunities.

I think a lot more of that is going to be driven by relative competitive position in aggregate.

And so if you are well-positioned in a particular business, at the margin capitals input, but it doesn't strike me that the gap is so wide.

But in some cases, we are seeing competitors -- for example, in Europe, exit businesses.

There, for sure, there will be opportunities.

But I think for people that are competing and electing to stay in businesses, you know, you work within the rules that you have and you try and bring your competitive advantage to bear.

I suppose what I'm really thinking is that, for example, if, as they are, a number of European banks are trying to sell securitized assets which have very high risk weightings, because they are being scrutinized slightly more closely by the market, but as I said also by the regulators, surely in terms of the US banks, there is opportunity to say actually in terms of reporting we don't have to worry about that from a short-term perspective, and the ability to buy some quite attractive assets.

And then obviously place them out to your clients.

I'm just thinking that might be actually quite an interesting opportunity for you.

Or do you think it is something that might lead to sort of some unattractive commentary in the press?

No, we look at Basel III over the long term too, and like I said, I think it is not the pace.

Having said that, do I think Europe -- some European banks and just many institutions around the globe have maybe been a little slower to sell assets than they might otherwise have wanted to be in retrospect?

And I think there is opportunities there, but those are opportunities that our clients are very focused on.

If we can be the firm that can bring the collective resources to bear to actually deliver those assets to our clients, then that is a good opportunity for us.

But like I said, I'm not sure it is so much rule-driven as it is situation-specific.

Okay.

And then a second question.

(inaudible) last year and I guess it is a rhetorical question for that reason.

But could you give us any clues as to what your Basel III -- or what portion of your Basel III risk-weighted assets for the moment are deployed in Investing & Lending?

No.

I think that was a pretty much expected question.

But thanks for thinking about it at least.

Yes.

At least I paused.

Yes, you did indeed.

And just a final question really.

Obviously, one of your closest competitors sheared a number of jobs in the last few days.

And what was intriguing was I think something like a 6% reduction in their investment banking staff, but something like 15% in Asia.

And I was just wondering, you obviously had another quarter where you were very tight on staff numbers.

But is Asia the market you are still investing in, or is it one where maybe you are also thinking -- have we perhaps overlicked the pudding at this stage, and we need to also look at our staffing there, as you obviously are in the developed markets?

No, as we look at it today, we think the growth markets broadly and Asia specifically look quite attractive, and we are comfortable with our level of investment.

Okay, thanks very much.

I appreciate it.

I will caveat that, and of course if the world got much brighter or turned the other way, then we would adjust.

But we feel pretty comfortable.

Again, thank you very much.

And at this time, gentlemen, there are no further questions.

Great.

I would like to thank everybody for joining us for our fourth-quarter 2012 conference call.

If you have any questions, please feel free to contact us in the Investor Relations Group, and otherwise, have a nice day.

Ladies and gentlemen, this does conclude the Goldman Sachs fourth-quarter 2012 earnings conference call.

You may now disconnect.