高盛 (GS) 2021 Q2 法說會逐字稿

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

Ms. Halio, you may begin your conference.

Thank you, Erica. Good morning. This is Carey Halio, Head of Investor Relations at Goldman Sachs. Welcome to our second quarter earnings conference call. Today, we will reference our earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com.

Note information on forward-looking statements and non-GAAP measures appear on the earnings release and presentation. This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent.

I am joined by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Stephen Scherr. David will start with a high-level review of our second quarter performance and our client franchise. He will also provide an update on the operating environment and the macroeconomic backdrop. Stephen will then discuss our second quarter results in detail. David and Stephen will be happy to take your questions following their remarks.

I will now pass the call over to David.

Thanks, Carey, and thank you, everyone, for joining us this morning. I will begin on Page 1 of the presentation with a review of our financial results.

In the second quarter, we produced net revenues of $15.4 billion, our second highest result on record. The strength, breadth and diversity of our business remained evident this quarter as we delivered net earnings of $5.5 billion and quarterly earnings per share of $15.02.

Second quarter results contributed to our highest ever first half revenues of $33 billion and net earnings of over $12 billion, which drove year-to-date ROE of 27.3% and ROTE of 28.9%. Our performance underscores the strength of our client franchise and the constructive but more normalized market environment relative to a year ago. Our results also reflect ongoing progress on the firm's strategic priorities across all 4 of our businesses as laid out at our 2020 Investor Day.

In Investment Banking, we continue to benefit from our leading M&A franchise. Given this position, we observed certain secular changes driving strategic activity as our key clients emerge from the pandemic: the drive for scale, a push to achieve operating efficiency, the shift to a digital economy across a broader industry set. We've maintained the #1 rank and completed M&A for 19 of the last 20 years and have been the leader in equity underwriting for 9 of the last 10 years. We are broadening our transaction banking platform. In June, we launched in the U.K., and we will now focus on expanding into Japan and other geographies. Although we are early in the rollout, initial client feedback has been quite positive.

We delivered solid results in Global Markets where recent market share gains contributed to our performance. We continue to deploy balance sheet to support client activity, and we are further expanding our means of engagement with our clients across both traditional and digital platforms. A good example is our Marquee platform where we are collaborating with MSCI to deliver improved portfolio analytics for our institutional clients versus via APIs.

In Asset Management, our assets under supervision hit another record of $1.6 trillion as we serve clients by delivering best-in-class investment opportunities across a growing spectrum of traditional and alternative asset classes. We also continue to transition the business to more third-party funds where we have raised $74 billion in gross commitments across the range of alternative investment strategies since our 2020 Investor Day.

Additionally, during the quarter, we received preliminary approval for a joint venture with ICBC, China's largest bank. The JV will combine our expertise in Asset Management with ICBC's extensive access to retail and institutional clients. The partnership is a testament to our long-standing relationship with ICBC and represents a significant opportunity for us to grow internationally.

In Consumer & Wealth Management, we are seeing solid inflows in PWM from new and existing clients and ongoing synergies with our Ayco and PFM businesses. We are also advancing on our vision of creating a leading digital consumer banking platform where customer satisfaction with our products and services continues to be very high.

This quarter, we launched Apple Card family, which allows co-owners on the same account to build credit together as equals. In addition, as we grow markets invest and prepare for the rollout of checking and other services, we are building a more comprehensive consumer banking offering.

All in, the progress on our strategic priorities, combined with our continued execution, reaffirms my confidence in the strength of our franchise and the increasing durability of our revenues. Reflecting this confidence, our Board of Directors declared a 60% increase in our quarterly dividend to $2 a share. This follows an increase of over 50% in 2019. Taken together, we have increased the dividend by 150% since I took my seat as CEO. While future increases won't necessarily be of this magnitude, we continue to prioritize a robust dividend as a part of our capital management philosophy.

With that, let me now turn to the operating environment on Page 2. It's clear that we're in the middle of a significant economic rebound. This is particularly true in countries like the U.S. and China, driven by the lifting of health and safety restrictions amid comprehensive vaccination programs. The broader economic improvement has also been underpinned by unprecedented support by central banks and, in the United States, the prospect of further fiscal stimulus in the form of infrastructure spending.

A quarter ago, I mentioned my concerns about the prospect of the U.S. economy overheating, but recent commentary from the Federal Reserve indicates that the Central Bank is focused on this risk, which supports our economist view that inflationary pressures might be transitory and that any resulting risks could be adequately managed. From here, I remain concerned about the prospect of a pandemic resurgence. The Delta variant, should it spread further, could spear policy actions at slow economic growth. We are already seeing this play out in places like Hong Kong and Australia and potentially in parts of Europe. While vaccine take-up is progressing, it is not consistent across communities and nations, including parts of the United States. Widespread vaccine distribution and high vaccine rates are critical to open and thriving economies. I want to urge policymakers, government officials and business leaders across jurisdictions to do all they can to facilitate these efforts.

At Goldman Sachs, we are running programs to facilitate faster vaccinations for our people and their families in the United States, Hong Kong and India, among other locations, building on the support we are providing communities in which we operate as we all navigate the challenges of this pandemic. More broadly as risk managers, we closely monitor developments and remain attentive to a variety of potential risks away from the challenges associated with COVID. Right now, the geopolitical landscape, most notably China and cybersecurity, are top of mind. As always, we remain committed to helping our clients navigate these and other risks amid an ever-changing market backdrop.

As I look ahead, I remain optimistic about the opportunity set for Goldman Sachs. Our Investment Banking backlog is at a record level as strategic discussions with our corporate client base remain high, reflective of elevated CEO confidence and the prospect of continued economic recovery. While consumer confidence may prove more volatile as supplemental benefits expire in the U.S., corporate clients remain steadfast in their efforts to emerge stronger from the pandemic.

In our markets business, ongoing client engagement and increased market share have strengthened our competitive positioning, notwithstanding more normalized flows and spreads relative to a year ago. And across our investing businesses, the current rate environment and search for yield are driving demand for both institutional and individual investors for our world-class scaled investment platform.

Before I turn it over to Stephen, I'd like to close with a few final thoughts on the people of Goldman Sachs. We are an incredibly dedicated and resilient team, and I'm so proud of how we've worked tirelessly to serve our clients amid the challenges of the last 18 months. Again and again, I've heard from our clients that they say Goldman Sachs is ahead of the curve and that the engagement from our people has been stronger than ever.

Speaking of that, as many of you know, we formally welcomed our colleagues in New York, Dallas, Salt Lake City, Hong Kong and other locations to office this summer. With roughly 50% of our people in these offices back on a regular basis, I can tell you that seeing them in our buildings again has been completely invigorating. We recognize that various geographies are navigating different stages of the pandemic, and we'll continue to provide our colleagues with the support they need. Going forward, we look to reopen more locations consistent with health and safety guidelines of each city in which we operate.

I've heard from so many of our people over the last few weeks that they are glad to be back in the office, and clients appreciate that we are showing up. We have always given our people the flexibility they need to manage their professional and personal lives, and we will continue to do so. That said, I believe bringing us back together, forging the close bonds that support a culture of collaboration has renewed the sense of teamwork and apprenticeship that allows our people and our business to thrive.

I'm particularly excited to see nearly 5,800 interns and new hires who are joining us this summer, many in person working side-by-side with long-tenured professionals of Goldman Sachs.

I'll close by saying I'm very pleased with how our people continue to deliver for our clients and our shareholders. I'm especially confident in the strength of our client franchise amid an improving economic backdrop. Importantly, we are making progress in executing our strategy, and I believe we are on a path to sustainable mid-teens returns.

With that, I'll turn it over to Stephen.

Thank you, David, and good morning. I will start with our business performance by segment, beginning on Page 4.

Investment Banking produced its second highest quarterly net revenues of $3.6 billion. Financial advisory revenues of $1.3 billion reflected an elevated number of deal closings in the quarter and the increasing market position of our business as we have expanded our client footprint. We maintained our #1 league table position for the year-to-date, participating in $975 billion of announced transactions with a volume market share of 33%.

Activity continues to be strong across geographies, particularly in the Americas, with strength across all industry groups, reflecting the breadth of our franchise. Underwriting performance remained very strong with its second highest quarterly revenues, following on from a record performance in the first quarter. Equity underwriting performance, in particular, continued to be strong, generating $1.2 billion in revenues amid elevated IPO activity and representing our third consecutive quarter with revenues of over $1 billion. We ranked #1 globally in equity underwriting for the year-to-date with volumes in the first half climbing to $85 billion across 400 deals. That represents volume market share of 10%, up 40 basis points versus full year 2020. Notably, we led over 160 IPOs for the year-to-date more than all of last year.

In debt underwriting, net revenues were $950 million with performance supported by strong high-yield volumes and, importantly, robust acquisition financing activity, including LDOs as well as strong M&A and financial sponsor activity. This performance reflects the integrated nature of our financing and advisory businesses as well as our dominant share in financial sponsor activity. Additionally, ESG remained a focus of the market, particularly in Europe, with strong issuance volumes across sustainability-linked bonds and loans. We expect this trend to continue in future quarters.

Notwithstanding the realization of record revenue in the first half of the year, as David noted, our Investment Banking backlog ended the quarter at a fresh record high with sequential growth supported by sustained M&A activity as well as replenishment from underwriting transactions. Corporate lending results of $159 million reflect revenues from transaction banking and middle market and relationship lending, net of approximately $130 million of losses on hedges in place with respect to the relationship loan book. Transaction banking is performing well. The business is approaching 300 clients, generating roughly $40 billion in deposits, with an increasing percentage becoming operational.

Moving to Global Markets on Page 5. Segment net revenues were $4.9 billion in the quarter driven by solid client activity and a generally supportive market-making environment. Our franchise continued to exhibit strength across both FICC and Equities, notwithstanding more normalized activity versus a year ago when we experienced significant dislocation and volatility driving elevated client volumes. We remain focused on building upon recent market share gains and have made advances in digital platforms to sustain strong performance in this segment.

Beginning with FICC on Page 6. Second quarter net revenues were $2.3 billion. In rates, performance was impacted by spread compression amid lower volatility, though activity remains high with a number of macroeconomic cross currents around economic recovery and inflation. In commodities, we saw solid performance across our increasingly diversified business with contributions from oil, natural gas and power, ags and metals, and active risk management in a dynamic market characterized by healthy client flows. In mortgages, strong performance was helped by activity in our residential loan trading business, offset by lower results in agency mortgages. The business continues to diversify its revenue across market-making, loan origination and financing.

Across both credit and currencies, lower volatility, more muted volumes and spread compression led to more modest performance relative to recent quarters, though market share gains helped to offset the effects of a relatively subdued trade environment.

FICC financing revenues of $423 million were driven by mortgage lending, offset by lower repo performance.

Moving to Equities. Net revenues for the second quarter were $2.6 billion as we actively deployed our balance sheet to intermediate risk and support client activity. Equities intermediation produced net revenues of $1.8 billion with performance driven by the global scale and breadth of our client franchise in both cash and derivatives.

In cash, we facilitated client flows across high and low-touch channels. And in derivatives, we saw solid performance in EMEA, following a more orderly market in European dividends relative to a year ago and stronger results in structured products across geographies. Equities financing revenues of $815 million were strong given record average balances in our prime business. Growth in balances were a product of rising equity markets and more significant engagement among existing and new clients.

While growth in Equities financing remains a strategic priority, we nonetheless maintain a very disciplined focus on risk management, pricing and structural terms of engagement.

Moving to Asset Management on Page 7. In the second quarter, we generated record revenues of $5.1 billion. Management and other fees totaled $727 million, which rose year-on-year despite approximately $160 million of fee waivers on our money market funds. These waivers carry over from prior quarters and are consistent with industry practice in this rate environment. Incentive fees for the quarter were $78 million.

Equity investments produced record net gains of $3.7 billion amid a supportive market backdrop, particularly in growth equity, which drove roughly 1/3 of these revenues. The growth equity business has a 15-year track record of generating strong investment returns over the cycle and is focused exclusively on investments in growth stage, technology-driven companies, spanning multiple industries.

Let me break down the results more specifically. On our $4 billion public equity portfolio, we had gains of roughly $900 million driven by market appreciation on investments, including Privia Health, KnowBe4 and Flywire. We will continue to execute sales where possible as conditions permit.

Across our $17 billion private equity book, we generated gains of $2.8 billion from various positions, more than 2/3 of which were driven by events relating to the underlying portfolio of companies, including fundraisings, capital market activities and outright sales. Significant transactions in the portfolio included investments in Oncoclínicas, a Brazilian oncology business; Sterling, a provider of screening solutions; and Zipwhip, a messaging software firm. Additionally, we had operating revenues of roughly $200 million related to our portfolio of consolidated investment entities.

Finally, net revenues from lending and debt investment activities were $610 million driven by NII and gains on fair value debt securities and loans. These gains reflected modestly tighter credit spreads and idiosyncratic events on our portfolio of corporate and real estate investments.

On Page 8, we show the composition of our diversified asset management balance sheet, consistent with the information that we have provided to you in prior quarters. Staying with Asset Management, let me turn to Page 9. We included this page in today's earnings presentation to provide greater detail on the progress made in harvesting our on-balance sheet investments in Asset Management over the first half of the year. This is a critical driver of our strategy to reduce the capital intensity of our business. The message on the page is simple. While the overall balance sheet portfolio has increased modestly since the end of last year, we have been actively harvesting positions through the outright sales and IPOs of roughly $5.5 billion.

These dispositions have been largely offset by markups on the portfolio of approximately $5 billion given the supportive market backdrop mentioned as well as modest additions to the balance sheet, which include early fund facilitation and other commitments. So while the balance sheet is slightly higher, we are actively executing on our harvesting strategy. The implied capital associated with the total dispositions across both private and public equity positions year-to-date is approximately $4 billion. And at this stage, we have line of sight on roughly $3 billion of incremental private asset sales corresponding to over $1 billion of capital reduction.

As noted earlier, we will continue to pursue this disposition activity particularly given treatment of on-balance sheet equity investments under CCAR.

Moving to Page 10. Consumer & Wealth Management produced record revenues of $1.7 billion in the second quarter. Wealth Management revenues of $1.4 billion included record management and other fees of $1.1 billion as assets under supervision increased to $672 billion. Private banking and lending revenues were $260 million, with loans to private wealth clients up $4 billion sequentially, consistent with our growth objectives.

We remain focused on synergies between our PFM and PWM franchises where we continue to see referrals representing a significant AUS opportunity.

Consumer banking revenues were $363 million [in the quarter], reflecting higher deposit balances and credit card loans. The low rate environment as well as our reduced rate of loan growth in the portfolio over the past 15 months continues to impact the business, though forward growth should help to offset this.

Next, let's turn to Page 11 for our firm-wide view of assets under supervision and management and other fees. Total AUS increased to a record $2.3 trillion during the quarter. The sequential increase of $101 billion was driven by $22 billion of long-term inflows, $16 billion of liquidity inflows and $63 billion of market appreciation. Our firm-wide management and other fees grew by 13% versus the second quarter of 2020 to a record $1.8 billion.

On Page 12, we address net interest income and our lending portfolio across all segments. Total firm-wide NII was $1.6 billion for the second quarter, higher versus a year ago, reflecting lower funding expenses and an increase in interest-earning assets.

Next, let's review loan growth and credit performance across the firm. Our total loan portfolio at quarter end was $131 billion, up $10 billion sequentially, driven by wealth management and residential real estate warehouse lending as well as Apple Card. Provision for credit losses reflected a net benefit of $92 million, which includes a reserve reduction driven by improvements in the broader economic backdrop, partially offset by portfolio growth. As the credit environment remains benign, we expect loan growth to accelerate in coming quarters, consistent with our strategy to increase lending and financing across the firm.

Let's turn to expenses on Page 13. Our total quarterly operating expenses were $8.6 billion, and our efficiency ratio for the quarter was 56.1%, reflecting the operating leverage in our business and our ability to exhibit expense discipline while investing for growth. Our ratio of compensation to revenues net of provisions remained flat at 34%, though compensation expense increased year-over-year, reflecting strong results in line with our pay-for-performance culture.

Noncompensation expenses were down 43% versus last year due to significantly lower litigation costs. Excluding the impact of litigation, noncompensation was up approximately 6% relative to top line growth of 16% as increases in transaction-based and technology expenses were partially offset by lower expenses related to investment entities.

We remain focused on the $1.3 billion expense efficiency target announced at Investor Day. As we noted at a recent industry conference, we also see increased opportunity for further expense efficiencies beyond the medium term, which permits us to fund investments in growth initiatives and in the talent of the firm.

Our effective tax rate in the quarter was 19.8%. As noted previously, we expect our tax rate under the current tax regime to be approximately 21% and will monitor the impact of various proposals being made in the U.S. on the federal and state level.

Turning to our balance sheet and capital on Slide 14. On June 28, we disclosed the Federal Reserve's indicative stress capital buffer estimate for Goldman Sachs of 6.4%, which implies a Common Equity Tier 1 requirement of 13.4% effective October 1. As David mentioned, we also announced an increase in our dividend to $2 per share.

While our expectation of the Federal Reserve stress test results was for a more meaningful reduction in our SCB, the results only serve to reaffirm the importance of executing our strategy of reducing the capital intensity of our businesses.

In light of our most recent SCB, we recognize that our standardized CET1 ratio will remain elevated for this CCAR cycle. And achieving our target in the medium term, by definition, will be more challenging. That said, we continue to believe that the 13% to 13.5% CET1 target range provided at Investor Day is appropriate for our firm. Our capital management philosophy remains unchanged. We prioritize deploying capital for our client franchise at attractive returns, paying a dividend commensurate with our forward view on durability of earnings and then returning any excess to shareholders via share repurchases.

In the quarter, we returned a total of $1.4 billion to shareholders, including common stock repurchases of $1 billion and approximately $440 million in common stock dividends. Consistent with our capital management philosophy and in recognition of the accretive capital deployment opportunities across the firm, we lowered our stock repurchases in the quarter. Our book value per share rose to a record $264.90, up 6% sequentially. Total assets ended the quarter at $1.4 trillion, 7% higher versus last quarter. We maintained high liquidity levels with our global core liquid assets, averaging $329 billion. On the liability side, our total deposits rose to $306 billion, up $20 billion versus last quarter. And our long-term debt also rose by $20 billion driven by $18 billion of benchmark issuance.

Let me just spend a moment on funding. As we noted on our fixed income call in May, our year-to-date benchmark issuance has exceeded maturities and redemptions for the year, contrary to our intention at the start of the year, but responsive to client demand and attractive return opportunities for the firm. We expect to continue this issuance should more accretive opportunities requiring nonbank funding persist, albeit at a more moderate pace than the $38 billion issued in the first half. Nonetheless, we remain focused on further diversification of our funding channels and opportunities for higher utilization of deposit funding globally.

To that end, we recently completed a realignment of certain of our bank entities to facilitate more activity in the U.S. bank, bringing our banks to nearly 30% of the firm-wide balance sheet.

In conclusion, we delivered record revenues for the first half of the year, reflecting the diversification and strength of our client franchise. Looking forward, the overall opportunity set remains attractive across the firm. Given strategic progress and recent performance, we are confident around our medium-term return targets with a path to sustainable mid-teens returns as we continue to execute on our strategy.

With that, we'll now open up the line for questions.

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

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

Thanks a lot, Glenn. So on prime balances, they have grown. They've grown kind of consistent with the broader strategy that we set up. As to distinguish that growth between the environment and clients, I would say it's both. I would say the environment, obviously, by virtue of balances accreting in this market, that has grown balances. And we've obviously seen opportunity to take on new clients, and frankly speaking, to be more profound with our existing ones. But I would tell you that in the context of all of that, and I mentioned this in the script, there's a clear screen, which looks at where we are pricing, how we are structuring terms both around new entrants and equally around the back book of our prime balances. And so we're being rather judicious in the context of what we bring in to assure that this stays as accretive as we think it can become from a returns point of view, but it is both environment and clients. And our ambition is to take that share up, but to do it in a rather prudent way.

On the part of your question relating to Archegos, look, this is obviously gathered kind of an investigative purview from a number of geographies and across regulators, kind of hard to predict exactly where that yields or what that yields. I suspect that in the broad category of transparency and disclosure, both of which we would be supportive of. There will be moves by regulators to achieve that, but very hard to say kind of as to where that all plays out. As we said in our first quarter earnings call, we aim to be a constructive participant in the kind of regulatory and industry change that will come about.

Okay. Appreciate that. Maybe just to follow up on 2 of the new business builds. You mentioned the family card with Apple. I'm curious on -- in what customer segment you're going after with that? And maybe a bigger question on -- do you have any numbers for us in terms of accounts balances or new partners you want to talk about? And then maybe that same comment question for transaction banking, clients, deposits, just tracking progress. I appreciate it.

Sure. So progress on both fronts has been considerable. I would say -- let's start with Apple Card. The press around creating the family plan was, frankly speaking, to achieve a greater and more positive user experience so that people across the family were treated equally in the context of the underwriting, broadly speaking. I think that move will accelerate share, but I think more importantly -- and its objective was to create just a better overall user experience.

On Apple Card, generally, I would tell you that while we pulled back in terms of rate of growth during the course of COVID, we've seen the credit profile of Apple Card customers to prove positive, perhaps even more positive than we thought. And we've now opened up the aperture and are now accelerating that rate of growth, consistent with the tone of the consumer market that we're seeing. And I think there's more opportunities to be had with Apple using the card as a medium for engagement with the client set. So you'll start to see forward growth, and I suspect balances will be a fast follower from the increase in originations and underwriting in Apple Card, and the family plan will only serve to help that.

In transaction banking, that business continues to grow. We're upwards of now several hundred clients, $40 billion of deposits. And perhaps most importantly, when you look at that deposit base, we're starting to see an acceleration of operational deposits approaching 15%. And that's obviously the lynchpin to creating a deposit base that is more usable and more valuable to the firm.

I will tell you based on our opening expectations of that business, we have had to put less rate on deposits to attract customers. It's turning out that the user interface and the engagement with the corporate client set just in terms of what we're offering by way of experience and technology is proving to be the winning ticket. And so as both David and I mentioned in the prepared remarks, we're going to start to see geographic expansion both to the U.K. and Japan. We've set ourselves up from a bank entity point of view to facilitate that kind of growth with licenses in a variety of jurisdictions and a reorganization of the banking entities. And so I think that business will continue to play forward. And perhaps what's most illustrative of that is just the power of the corporate franchise and the open doors that are there in the context of kind of the One GS mantra and the way in which we're able to sell them through an existing client base.

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

Maybe just start off with the equity investments portfolio. And thanks very much for the roll forward on Slide 9. I guess I have a 2-parter on that slide. It's a high-class problem, but you sold out nearly $6 billion in positions, and you made basically no progress in reducing the equity investment portfolio. So just curious what else you can do to bring that portfolio down.

And then maybe more broadly, is it time to really rethink the sort of disposition strategy? Your stock is at all-time high. The market is rewarding your stock for strong revenue growth and ROE expansion, and they don't really care about capital position. So I mean should you just not just cut the buyback, focus on revenue growth rather than potentially making on economic investment dispositions?

So thanks, Christian. We appreciate the question. And on the first part of the question, we absolutely have made progress on our goals with respect to capital efficiency and the on-balance sheet investing, and I'll let Stephen highlight some of the details in the moment -- at the moment, but we continue to move aggressively to manage those positions. I think it's a very constructive environment for us to do so, and I think you'll continue to do that -- you'll continue to see us do that with intensity as we see good opportunities to monetize those positions.

We continue to be committed to both diversifying our revenue streams and also continuing to drive toward more durable and recurring revenues. And the fee-based emphasis of the fundraising that we're doing in the asset management business is one aspect of that.

On the broader question about opportunity, I think one of the reasons why we decreased our buyback in the quarter is that we see opportunities to continue to devote capital to serving our clients and growing our business. And so if we can add accretive returns in our business by deploying capital in that manner, we'll continue to do it, but we want to remain, and I think we've always been, a very, very nimble capital allocator. And so when we see those opportunities, we will make investments, and we'll continue to grow the business. If, for some reason, the environment changes and we don't, we'll return that capital appropriately to shareholders.

Stephen, you want to comment just on the progress along those sell-downs because we have made real targeted progress, and we'll continue to make progress with respect to some of the goals we've set out.

Yes. So I guess let's just start kind of with the facts. Obviously, on the new page that we showed you, $5.5 billion did come off balance sheet, producing $4 billion of capital relief. And as I mentioned, there's another $3 billion that's in sight to take $1 billion of capital down. Now that just looks narrowly speaking at the private equity portfolio. There's consolidated investment entities. There are debt positions, all of which are on balance sheet, all of which are subject to further reduction, all of which will reduce down capital.

Now why does that matter? And why do we want to stick to that strategy, Christian, as opposed to kind of abandon it? Well, first of all, obviously, we're looking to elevate the capital returns of the firm. The one way to do that is to influence the denominator. The way to do that is to reduce down the capital density of our businesses more broadly. At the same time, this is going to dramatically change over time the durable revenue forecast for the firm, which is that moving from on-balance sheet to fund format and the fact that we've raised since Investor Day $75 billion of new funds in those funds, okay, we'll increase assets under supervision and equally will increase fee revenue that's being generated by those investments in that fund format.

And so in a way, the page to watch on the forward will be Page 11 of our Investor Day presentation because what's going to play out and we promised more disclosure, which we will deliver, but firm-wide assets under supervision will go up. Firm-wide management and other fees will go up. Those will prove to be more durable and predictable and I think hold the promise of greater valuation on the back of a lower capital dense set of businesses. And I think that's the broader picture, if you will, in terms of what we're trying to achieve. What we put on Page 9 was nothing but an attempt very simply to show progress was made, much as it would otherwise be masked by, as you put it, kind of a very happy problem in terms of an appreciating equity market also providing us with an opportunity to accelerate into the strategy of disposing of on-balance sheet investments.

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

So wanted to start off with a question just on the Investment Banking outlook. First half revenues a record. You started the record backlog. We're clearly seeing continued strong share gains. One of the interesting metrics I was provided recently by John at a recent conference was that you saw a $1.7 billion benefit just from share gains in Global Markets. And just given some of the momentum in the Investment Banking side, I didn't know if you could help frame how much of a revenue benefit you've seen from those share gains, and is there any risk to the sort of disruption in the current environment, especially given the Biden executive order that was recently published?

Sure. So a couple of thoughts on that broadly. I mean the environment for Investment Banking activity, Steven, continues to be very, very constructive. And I think that there's a good chance that, that will continue to play forward in that direction for some time here as the economic expansion continues.

In my remarks, I highlighted the fact that coming out of the pandemic, there were a handful of factors that we think are structurally driving CEOs and Boards to think about how they can strategically strengthen their position in an increasingly evolving digital world. And we're seeing really, really broad engagement across our franchise with respect to the desire of companies to better position themselves on a go forward basis and a world that's actually evolving quite quickly. I'm encouraged by the fact that our backlog levels remain extremely high, record levels. And a lot of that, I think, feels like it will sustain as we move through this environment. Obviously, if there was some sort of a disruption or an economic slowdown sometime in the future, that would wear on confidence and slow that, but that doesn't seem likely given where we are positioned today.

With respect to Global Markets, we picked up 160 basis points of market share through quarter 1, and that's allowing us to take greater share of whatever the broader trading market provides us. I don't have specific market share KPIs on Investment Banking to share right on this call. We can certainly follow up more broadly on some things.

Obviously, we tracked our -- we track our league table position both in M&A and equity and debt. And there, we've been strengthening our position over time, and it's consistently at the top of those league tables.

What I do say is affecting our wallet share in banking is part of our Investor Day process to serve a broader array of clients was to really expand that footprint. And the footprint of available clients that, let's say, are in the $500 million to $3 billion enterprise value has been significant. It's grown, and we've continued to expand that footprint, and we're quite effective at penetrating that. And so that's been a very good opportunity for us, and I actually think that opportunity will continue.

I think our Investment Banking business is positioned incredibly well. I think we continue, as we have been, to be a leader in that business over the course of the last decades. And the quality of the talent we have in that business continues to be strong, differentiated and very, very front footed with our clients. And so there certainly could be macro events over 12-, 24-, 36-month period that slow down the current momentum. But at the moment, it feels quite constructive.

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

At a high level -- and I appreciate the question, Steve. And I don't think our views on transformational M&A have evolved. Call after call, quarter-after-quarter, I've said and I'll say again that the bar would always be extremely high for us to do something very, very significant, but I've also said that our drive to diversify our revenues and create more durable revenues comes, as both Stephen and I have highlighted in our remarks, from continuing to invest in and grow our Asset Management business, continuing to invest in and grow the opportunity in our Wealth Management business and for broadening our digital consumer banking platform.

There may be opportunities from time to time that can accelerate the direction of travel on those. We look at things constantly. If we see things that can accelerate the direction of travel in those businesses and accelerate our goals in those businesses, we'll certainly consider them, always with a high bar. It wouldn't surprise you that prices at the moment are high, and that certainly has an impact on how we think about these things, but we're making a lot of progress organically, and we continue to be focused on that organic growth.

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

Just as an incremental follow-up on everything you just said, David, how do we think about the sizing of the equity investment book that you're looking for? I totally get that markups are adding to this right now, but the $1.5 billion in addition, there's lots of great opportunities out there. Should we expect that over time, the equity investments book should be rising? Or is there a goal of size of this portfolio that you're looking to manage to over the next, call it, 2 to 3 years?

Well, the strategy has been to take a broad Asset Management business, and particularly around alternatives, that has been extremely balance sheet heavy and turn it into more of a fund-based model. And we've only started to really tap into the relationship network and the platform that we have as a firm to really be a much bigger institutional capital manager across these strategies broadly. And as Stephen highlighted, since our Investor Day, we've raised $75 billion in fund [structure].

I think everybody on this call understands that when we do raise funds, we invest as a GP alongside our institutional investors. And so there will always be equity investments through our fund participation, but the cycle that we're going through is one of shifting from significant on-balance sheet investments over time to a much broader fund mix where the investment slice we have in the fund is smaller, and therefore, the overall equity position will be meaningfully smaller than it's been.

Now it's a good problem that the market keeps going up. And therefore, the value seems to be staying the same, even though we're making very, very significant sales. But over time, as we continue to grow the funds portion of the business and we continue on the path of disposing, that number will get smaller. We haven't put out a target number. But by definition, it will get smaller.

In the near term, our balance sheet will come down, and our AE target is a little less than $18 billion.

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

Right. Because I should be thinking about the $21 billion in terms of density of capital usage, kind of the old methodology when you were 25%, invested in these funds to new, which is more like 3 or less percent invested in the fund. So obviously, the latter is less capital-intensive.

I guess the other question is in addition to Page 8 left-hand side that you mentioned, are there other things we should be thinking about for bringing the SCB down? Or would you say, hey, look, Page 8 left-hand side, that's really the bulk of the actions that we are interested in taking?

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

And then, again, we remain quite engaged with the Fed as we put our letter in last year, and we'll only serve to reinforce those issues this year on issues that we think are relevant to achieving a lower SCB calculation.

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

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

Sure. I'm going to answer the second part first, and then I'll circle back on the executive order and kind of the broader road map around M&A. But I don't think the sponsor activity is driven by tax. The sponsor business at this point is a broad, diverse business. There's enormous dry powder. There's an enormous amount of money that moves in that ecosystem. There's real secular growth in the context of the capital allocators and their desire to increase their weighting to alternatives. It's one of the reasons why the strategy we're focused as one of the leading alternative managers in the world and continuing to grow that because there's lots of demand for our clients. And so I don't think that there's any overlay from a tax perspective that's accelerating activity there. I do think that activity has accelerated because the market environment is quite constructive, and it's been quite a constructive environment for asset prices generally.

With respect to the broad M&A environment and antitrust and the executive order, I mean, obviously, the executive order, I think, serves the road map for a whole bunch of policy priorities that the current administration would like to get done over the next 4 years that relate broadly to competition, consumer protection issues. This is a -- it's a broad and ambitious range of ideas. It's something that I think we'll have to watch very, very closely.

Ultimately, the order can't direct the agencies that make the antitrust decisions to make those decisions, but it can put a set of constructs into place that certainly could ultimately have a regulatory impact. But the agencies will have to over time put forward -- or through the actions they take create more transparency on that. We'll be watching it very closely and doing a lot of work to see how that all evolves with agencies. Certainly, I think there's a tipping in the balance that could, in the margin, have some impact on certain transactions. I'd certainly say broadly around large tech consolidation, there'll certainly be a lot of discussion in that area. But I think it's early, and I think you have to watch it closely. And I think the macro environment and the tailwinds from the macro environment and some of the things I said earlier about company's desires to really strengthen their competitive positioning outweighs the regulatory overlay, but we're going to have to watch that very carefully.

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

Sure, Brennan. I appreciate the question. And as we've highlighted earlier in the call, we're quite proud of our leading investment banking franchise. It's been a leading franchise for decades. And I think one of the primary reasons it's been a leading franchise is because of the quality of the people that we're able to attract and retain at Goldman Sachs who serve our clients and serve our clients extraordinarily well. We have always paid very competitively. We've always been a pay-for-performance organization. We are performing. We have a normal pay cycle for analysts that normal pay cycle happens to be in August, and we'll continue to pay competitively and pay for performance. But that's part of our strategy that's been in place for a long time, and it'll obviously continue.

With respect to salaries, we evaluate salaries and regular course every single year. And when appropriate, we make sure our salaries are competitive. So we continue to thrive by having the best people here and paying them appropriately, especially when we perform. We're performing. And I would tell you to expect to see us pay appropriately during our normal cycle.

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

So look, it looks like revenues and profits per employee are up over the last year, last 5 years, even while you've grown employees, what, 4% year-over-year and [17%] over 5 years. So I think what would be sustainable is if you're lowering unit costs and generating revenues for lower marginal costs. So my question is, how much has technology helped you to a lower unit cost and how much more is ahead? And from the outside, there's no way we can compute that. You have private equity gains. You have a lot of moving parts. But on the inside of the firm, I imagine you are tracking this in some manner.

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

Yes. Mike, the way we look at it and compute it is we look at the introduction of technology into a variety of different work streams, take risk, for example, where there's mandatory production of tens of thousands of reports, either by regulators or consumption internally. And we go through a zero-based budgeting exercise where we constantly revisit what we need in the context of the introduction of technology and automation that plays forward.

When I think about the forward for the firm, the real cost gains are going to happen, and the production of higher marginal margins are going to play out by virtually the achievement of scale. When we achieve scale in certain of these businesses, take transaction banking, take the consumer business, even look at what we do in platforms like PFM, okay, we are building constantly higher marginal margin returns because we've got an embedded base that is built to scale, and those businesses will scale over time over the medium to long term, and the effective unit cost, if you will, of producing what we do will come down. And so that's just a sense both in the spot, zero-based budgeting, risk, et cetera, but equally on the forward in terms of how to think about the achievement of scale and higher marginal margin in the business.

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

Well, I would say a couple of things. I mean one is to repeat what David said, which is it's a bit early, right now a week into the issuance of the executive order as to exactly how that plays, okay? From our perspective, we started this consumer business on a white sheet of paper. So we're not retrofitting a series of transactions or incumbent businesses. And so as we look to continue to build the consumer platform, we're quite open to the notion that there will be shared set of data. The data will be portable. Our focus has been entirely from the customer back, which is what does the customer want, what does the customer need and the build of a very differentiated new consumer platform. And so these products are all about the design, utilization of data.

We obviously are consistent and in line with some of our other banking brethren, which is we need to make sure that the security of customer data is paramount. We're no different than any other bank. We take that responsibility seriously. But I think on the new build, on a white sheet of paper, we're less burdened by these issues, less protective of an incumbent business and more focused on where we can take it and where we can build.

Yes. The only thing I'd add to that, Mike, is that when we started building this business 4 or 5 years ago, it certainly was in our vision of the world that customers would have a lot more flexibility to move their data and attach to different platforms. And so certainly, in our macro design of where we think the world is going, the direction of travel that way is not something that's surprising to us.

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

I was hoping to get a bit of an update on the expense efficiency initiatives that you've laid out and kind of where the progress sits today and a breakout of kind of noncomp versus comp on a go forward basis.

And then secondly, if you could also update us on the funding optimization goals that you have. I think the goal of [30] basis point improvement over time. Can you update us on where that sits today?

Yes. Sure. Okay. So let me take the 3 pieces. First, on the $1.3 billion expense initiative, we are as ever confident in the achievement of that. And you all may have heard at a recent industry conference, John Waldron indicated that we have further confidence to about $400 million above and beyond that to be achieved outside the 2022 time line that we set for the achievement of the $1.3 billion. So confident in the existing number and giving an offering kind of a forward indication of where we can take it up from there. Again, all of this consistent actually with some of the prior questions are about creating capacity for further investment in the firm and in its people. And so that's where we stand as it relates to the expense initiatives.

In terms of comp and noncomp and the forward, let me say this. On compensation, as David has indicated, we've always been in a pay-for-performance mode. We'll continue to be that. As the firm performs, we will continue to sort of pay out to both attract and retain talent. I will say, as we've said in the past on compensation that the compensation as sort of a call out component to operating expense will become less and less important as and to the extent that we build out more of these scaled businesses. And so therefore, you'll be looking more at operating expense in its total than you will as we have historically been rather preoccupied with the compensation ratio in and of itself. That's less a reflection of any departure whatsoever from the way in which we want to pay talent. It has more to do with the composition of businesses that we're building and the kind of noncomp intensity of expenses related to it.

On noncomp expense, I would say we have in virtually every one of the recent quarters been quite focused on ensuring that we demonstrate operating leverage in the business. That is our noncomp expense, normalized for kind of excessive one-off litigation or the like, trends at a level which is inside rate of growth to the top line of the firm. So this quarter, as I noted, while the as-reported noncomp expense is down about 43%, that's influenced very heavily by the $2.9 billion of litigation that appeared in the second quarter of last year. When you look at it like-for-like, our noncomp expense is up 6% against the 16% top line revenue growth. I think that should be a guidepost for how we're going to continue to sort of carry ourselves on the forward.

On the third question, you asked about funding optimization. Here, I would say we are -- we remain committed and confident in the achievement of $1 billion in funding optimization. Bear in mind that as I spoke about increased nondeposit funding or increased wholesale funding, the overall funding mix or the funding taken in total for the firm is going up. It's going up in the context of accretive opportunities we see inside the firm. In as much as we grow nonbank or wholesale funding, we are equally growing the deposit base. We're doing that now at a lower price point than where we were before. It's indicative of NII growing in the firm. And so we're confident that the growth in that deposit funding on a price times volume basis is going to continue to sort of bear fruit and take us to $1 billion of run rate savings within the time frame.

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

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

Sure, Devin. So I would say the process of sell-through here is better in terms of rate of growth than we anticipated, but the way in which it's happening is as we anticipated, which is that we are not new to any one of the corporates who are coming on to this platform. There's a long-standing corporate relationship that has opened the door. We had said from the beginning that while our ambition was to grow a very big and very profitable business, we recognized that there was a progression where you have large corporates that have a platform of 3 or 4 participating banks that our break in point was to be #3 or 4, and this wasn't conditioned on us jumping to the #1 spot on that platform out of the box.

Now my view is that as treasurers and CFOs grow ever more confident in kind of their operational experience on the platform, we will grow. We will have more products and services to offer that corporate client off of the transaction banking platform, and we will see our ranking, if you will, on that platform grow. If we began at 3 or 4, we'll see ourselves to 2 and perhaps 1, and that will continue to sort of grow and expand. But these are formidable clients of the firm who place considerable confidence in the firm. So that sell-through is, as we expected, perhaps faster in terms of rate of growth, and that's kind of progression.

I would also say that, that will correspondingly lead to greater operational deposits on the $40 billion growing that we will see because as a client becomes ever more operational as a percentage of their overall business, percentage of their deposits with the firm will become more operational, therefore, more valuable. And so that, I think, is kind of the progression and the way to think about growth and the migration kind of up the ladder as it were for any given corporate client.

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

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

Well, I think broadly speaking, we're performing very well across a very, very diverse platform of businesses. Certainly, I can't predict the future. There certainly could be an environment that comes in the future where economic activity slows and where some parts of our business slow vis-à-vis the levels of activity we're seeing today. On the other hand, at times of stress or in times of decreasing economic activity, there are also parts of our business that perform quite well and had some counter cyclicality. So I think we have a big at scale business. We are at scale in a number of our businesses as a leader. I think those businesses will continue through the cycle to produce very, very good returns. I think we're building other businesses that, as Stephen highlighted, are going to be scaling.

Some of them are different kinds of businesses, but they offer opportunity for more consistent, modelable, more consistent returns that you can more easily model and people will view as more durable. I believe that our business activities are durable through the cycle, and our job is to continue to perform and continue to prove it. And so I believe if we continue to do that over time, the discount that exists between the way our earnings are valued and the way others and our peers are valued should narrow. But we're going to continue -- we're going to continue to focus on serving our clients, growing these businesses, expanding the platforms. And my belief is the market will follow.

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

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

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

We absolutely think that we can build an at scale business over the course of the next 3 to 5 years without doing something inorganic. If we saw something that we thought could accelerate that or enhance that, we'd certainly consider it. But we have a detailed plan that gives us what we think is a scalable -- which is an at scale, significant business over the next 5 years, and we're going to continue to invest and continue to execute against it. And as we said a number of times, those investments and that drive to do that is not affecting our either mid- or slightly longer-term return targets and thresholds that we continue to drive towards.

Your next question comes from the line of Matt O'Connor with Deutsche Bank.

So there's been an acceleration of the electronification of FICC. There's a good article, I think, over the weekend on this specifically within credit. And I was wondering if you could talk a bit about this. And I know you've invested a lot on the technology side on both sides of trading, but how does this kind of shape up for you in terms of thinking about your share going forward, assuming this trend continues?

So in the context of our credit business in FICC, this has been an area of considerable investment from a technology point of view because we needed to and wanted to migrate from what was kind of high touch to low touch and pick up high volume, lower-margin business. And so portfolio trading algos, the introduction of them, the development of digital platforms where asset managers, insurance companies can come and execute on those platforms using Marquee has been a very, very significant and somewhat elevated prospect for us in terms of overall performance.

It's also enabling us to develop new products in credit like customized baskets and TRS strategies. It's all in the context of where a client of the firm can come either through Marquee or otherwise, and through an API, use data and tools that the firm is providing in order to execute. And that is a growing piece of the overall credit business in FICC and an area where we think that there is enormous opportunity for us to continue to grow. And so we're seeing monthly users around Marquee accelerate, API, interaction, accelerate, all in the context of kind of the underlying premise to your question.

And then just following up on FICC. I know it's always annoying when you get asked about like near-term trends, but we've seen some unusual activity in rates the last month with the move down, especially in the longer run. We've seen some correction in certain areas of commodities. Has this caused clients to reposition, like change views and driving more activity? Or are most clients' view thinking specifically on rates, I guess, that it's more temporary and not doing a lot of repositioning with the move we've had?

Well, I think volume intake in [ERP] has been reasonably volatile, meaning we've seen around certain rate cross currents and the overall debate around inflation, permanent or transitory is expressing itself in increased client activity in ERP and then moments of more muted activity. So ERP has been in both places over the last several months.

In the commodities business, I would say that we have broadly expanded our business to take account of greater product dispersion in commodities to play to a greater interest of expression in view by clients. So for example, our business used to be in commodities, almost 50% oil. And now oil is more like 20%, and we see greater product dispersion across gas, power, metals and ags. I think that's good for our business, and it reflects our reaction to, as I say, an expression by clients and customers of greater interest across a wider sort of span of product sets within commodities itself.

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

Stephen, you touched on in your opening prepared remarks about you're positioned well for loan growth accelerating going forward. Can you give us some additional color on where you see this loan growth materializing possibly over the next 6 to 12 months?

Yes. So let me talk a little bit about where we've seen loan growth now because I think it's reflective of the forward. So as I mentioned in my remarks, we're seeing loan growth in our PWM client channel where we extended about $4 billion of incremental lending in the quarter. It's a great feeder in the context of our engagement with clients and kind of a broader fee pool that's created by virtue of meeting the borrowings. And this is all very well credit placed in the context of the client set that's borrowing. We've seen more lending in the context of our Investment Banking business, much of that relating to transactional activity. Again, it bleeds out to a larger fee pool in the context of where we are.

In Global Markets, we've seen ourselves, and I mentioned this in mortgages, around warehouse financing. So this is very liquid lending that I think takes on the proper credit profile in terms of what's there. So the positioning I'm speaking about is both a broader view about macro risk, about individual idiosyncratic risk in the sleeve in which we're lending and perhaps, more importantly, the returns that the firm takes in, in the context of lending into any one of those particular client segments.

Very good. And then as a follow-up question, you've all seen and we've all seen that the reverse repo market has grown dramatically since the first of the year. In fact, in the last 3 to 4 months, the Fed, in fact, raised the rate that they pay on those reverse repos by up to 5 basis points. Can you guys share with us your insights, what the implications are of what's going on in the plumbing, if you will, the financial system here in the states with quantitative easing, the reverse repos and how that might be affecting or impacting favorably your trading businesses?

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

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

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

Sure. So first on SCB and SLR. SCB is more binding to us than SLR. We don't view SLR as being a binding constraint, much as we obviously watch it and maintain an adequate buffer around it, but SCB is more binding than SLR. As it relates to SCB, we have long said that we maintain a 50 to 100 basis point buffer -- management buffer above our minimum. I see no reason to sort of change that view. We do view that buffer not simply as a defensive tool but rather an offensive tool where it leaves us with considerable dry powder in the deployment of capital when and if clients look to petition us for it. Actually, during the second quarter, that was true. We participated in AT&T and Medline, both of which were momentarily capital consumptive. The buffer enabled us to do that and engage. Just one obviously factual point, which is we're at 13 6 under SCB for this -- the third quarter. We go down to 13 4 in the fourth quarter relative to the most recent CCAR outcome.

As it relates to share repurchase, I would only say what I said before, which is we've obviously taken the dividend up, reflective of our view about the forward durability of the performance of the firm, and we look to deploy capital at -- returns. And if they continue to demonstrate mid-20% return on equity, you will see us continue to deploy capital in that direction. To the extent that, that falls off for whatever reason, we will take up our share repurchase in that regard, but you should assume us to be an active participant in share repurchase in any given quarter. This is really a question of whether it moves up or down, and that's a function of the kind of return opportunities that we see.

So you're -- I mean just so we have a good understanding. It's just saying it's going to be pretty dynamic quarter-to-quarter in terms of what pace of buybacks. You see an opportunity, you'll do it and vice versa.

That's precisely right. Yes.

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

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

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

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

Okay. Since there are no more questions, I would like to take a moment to thank everyone for joining the call. On behalf of our senior management team, we look forward to speaking with many of you again in the coming weeks and months. If additional questions arise in the meantime, please don't hesitate to reach out to Carey and the Investor Relations team. Otherwise, please stay safe, and we look forward to speaking with you on our third quarter call in October.

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