高盛 (GS) 2020 Q4 法說會逐字稿

Good morning. My name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Fourth Quarter 2020 Earnings Conference Call. This call is being recorded today, January 19, 2021. Thank you. Ms. Miner, you may begin your conference.

Good morning. This is Heather Kennedy Miner, Head of Investor Relations at Goldman Sachs. Welcome to our fourth quarter earnings conference call.

Today, we will reference both our strategic update and the earnings presentation, which can be found on the Investor Relations page of our website at www.gs.com. No information on forward-looking statements and non-GAAP measures appear in both presentations. This audiocast is copyrighted material of the Goldman Sachs Group, Inc. and may not be duplicated, reproduced or rebroadcast without our consent.

I'm joined by our Chairman and Chief Executive Officer, David Solomon; and our Chief Financial Officer, Stephen Scherr. This morning, we are pleased to review the firm's fourth quarter and full year performance in addition to providing an update on the strategic plan we outlined at last year's Investor Day. David and Stephen will be happy to take your questions following their remarks.

I'll now pass the call over to David. David?

Thanks, Heather, and thank you, everybody, for joining us this morning. Let me begin with Page 1 of our strategic update presentation. I'm pleased to report that 2020 was a year of strong performance for Goldman Sachs as we successfully navigated unexpected operating backdrop, characterized by near-record volatility and correspondingly high client activity.

This year was marked by an extraordinary decline in economic activity in the second quarter brought on by COVID-19 and a dramatic reversal in the third and fourth quarter as economic output and unemployment partially reversed course. This volatility contributed to severe dislocation across asset classes, which was met by profound fiscal and monetary action taken across the globe. Goldman Sachs met the needs of our clients relying on dynamic management of the firm's liquidity and balance sheet to provide complex risk intermediation, financing solutions, advice and innovative thought leadership.

Momentum remains strong into year-end as we produced record revenues for the fourth quarter of $11.7 billion, resulting in record quarterly earnings per share of $12.08. For the full year, we grew revenue by 22% to $44.6 billion, our highest revenue production in more than a decade, which allowed us to generate meaningful operating leverage.

We delivered a full year ROE of 11.1%, notwithstanding a nearly 4 percentage point impact of litigation expense. This revenue growth was clearly driven by a larger opportunity set given the extraordinary activity throughout 2020. While industry wallet grew, we also took meaningful market share across businesses and geographies.

We continued to demonstrate the strength of our diversified business. We maintained our leading global position in completed M&A as we have for 19 of the past 20 years and strong leadership position -- strong REIT table positions and underwriting, including a #1 ranking in equity and equity-linked offerings and a top 3 ranking in high yield.

We delivered robust performance in global markets in both FICC and equities and solid client activity across our global platform and grew market share across businesses and client groups. Our next-generation trading talent now in positions of leadership demonstrated strong risk management discipline and client focus in executing against an expanding opportunity set.

In Asset Management, we had record management and other fees as well as continued growth in our assets under supervision. We also generated solid revenues from on-balance sheet investments driven by public marks and event-driven gains on our portfolio. We continued our broader effort to reduce the balance sheet intensity of this business as we transition to more third-party investing. We continue to provide high-quality advice to our wealth management clients, producing record revenues and generated strong growth in our consumer business.

Finally, and perhaps most importantly, we maintained a resilient and highly liquid balance sheet and demonstrated agility in the deployment of capital to serve clients amid high levels of market volatility and evolving regulatory constraints.

While we are cautiously optimistic given improving macro trends, we recognize that the operating backdrop will continue to evolve. Although we are now seeing the initial rollout of vaccines in the U.S., U.K. and other nations, there remains significant uncertainty in the path forward related to virus resurgence, vaccine distribution and further fiscal stimulus and geopolitical risks.

Let me underscore that progress on economic growth is contingent on an effective vaccine rollout program globally. I urge political leaders at all levels and across all jurisdictions to do everything possible to implement a coordinated and comprehensive distribution plan. In its absence, economic recovery will be unnecessarily delayed.

Economists continue to anticipate a mixed outlook for near-term growth. The expectation is that we'll take until at least the second quarter return to pre-pandemic levels of output. Our economists expect GDP growth this year of roughly 6.5%, both globally and in the U.S., which would suggest a more rapid recovery. So circumstances around COVID-19 remain fluid, and we remain vigilant about risks in the markets and potential weaknesses in the broader economy.

Looking ahead, the extreme volatility of 2020 is unlikely to repeat given the government actions taken last year. Nevertheless, I'm confident that Goldman Sachs will continue to benefit from the established wallet share gains made in 2020 and across an expanding client set, particularly in investment banking and global markets and continue to develop more durable revenue sources across asset management and consumer wealth management.

With that, let me turn to Page 2. In the 12 months since our Investor Day, we have made steady progress towards our medium-term goals, and we remain confident that we will achieve these targets as well as our longer-term goal of mid-teens or higher returns. Our 2020 ROE, when adjusted to exclude the impact of litigation, comfortably exceeds our 13% medium-term target.

We are pleased with our progress on funding diversification as we grew deposits by $70 billion in 2020. While the Fed funds rate declined faster than the reduction in our deposit rates, we have since adjusted our pricing, which should allow us to achieve our funding optimization goals by 2022. We are making headway in realizing expense efficiencies throughout the organization and have achieved approximately half of the $1.3 billion initial target we presented at our Investor Day. We will continue to make progress from here, and we'll evaluate additional opportunities for further expense savings.

Finally, with respect to capital, our CET1 ratio stands at 14.7%. This positions us well to serve clients and accelerate capital returns to shareholders in the first quarter. We continue to believe that a 13% to 13.5% ratio is appropriate for the firm over the medium term.

We are encouraged by the results of the recent mid-cycle stress test. That said, we will continue to proactively reduce the stress capital intensity of our businesses, including through continued sales of our on-balance sheet private equity investments.

As John, Stephen and I have emphasized many times, we are committed to holding ourselves accountable and being transparent with our stakeholders on our progress. We are tracking roughly 30 firm-wide KPIs and many additional business-level metrics on a regular basis to measure our success as we execute on all aspects of our strategy.

Let me now turn to Page 3. While last January's Investor Day seems distant given the events of the past year, the pillars of our strategic direction remain unchanged. Our strategy is simple: first, to grow and strengthen our existing franchise and capture higher wallet share across a wider client set; second, to diversify our products and services in order to build a more durable earnings stream; and third, to operate more efficiently so that we can drive higher margins and returns across the organization. We are seeing early success in each category.

Moving to Page 4. The strength of our firm's culture is the foundation for our performance as individuals and the firm and is central to the success that we achieved in 2020. Delivering the entire firm to our clients through our One Goldman Sachs approach is crucial to our mission, and clients remain at the center of everything we do. The investments we made to break down internal silos and motivate better collaboration across the firm have been critical and will continue to guide our approach going forward.

Equally, core to our mission is delivering on our firm's purpose to advance sustainable economic growth and financial opportunity. This purpose is fundamental to our 10-year $750 billion sustainable finance commitment that cuts across 2 broad pillars: climate transition and inclusive growth.

During the year, we have worked closely with our clients to deepen knowledge and expertise, develop capabilities and accelerate commercial activity. We are delivering integrated ESG solutions across our client base, and I'm proud of the firm's leadership on this topic and optimistic about the benefits that these opportunities will bring to our clients.

As we pursue these ambitious goals, we will also continue to focus on our people. Diversity is an imperative for our organization. For Goldman Sachs, it is about bringing diverse people, perspectives and abilities together to best serve our stakeholders and fosters more creative thinking and supports the inclusive, sustainable growth that is core to our long-term business strategy.

While our recent progress is encouraging, including the most diverse campus analyst class ever to join the firm this past summer and improved diversity of our most recent partner and managing director classes, the events of the past year have reinforced how much further we have to go to enhance diversity and inclusion throughout the firm. This remains a personal priority for me, and we will continue to hold ourselves accountable to make further advancements, including through our new aspirational goals to drive diverse hiring at more levels of the firm.

Let me now take you through each of our 4 operating segments. I will start with Investment Banking, where we remain the adviser of choice for corporations around the world. In 2020, as measured against the goals set out at our Investor Day, we maintained our #1 ranking in announced and completed M&A and equity and equity-linked offerings. We also ranked in the top 4 for wallet share in global debt underwriting through the third quarter. We spoke last January about our aim to grow share in our core business. We began to execute on this goal in 2020 as announced M&A deal count was up along with our equity underwriting wallet share.

Our footprint expansion efforts -- on our footprint expansion efforts, we have met our Investor Day target for client coverage. We generated in excess of $800 million of revenue in 2020 from this client set, and we expect this to be an important source of growth going forward. Across the business, we have added approximately 2,700 net new clients since 2017, and we will continue to add new clients to sustain this space. We are cautiously optimistic on the outlook for Investment Banking, given the robust activity levels in the capital markets and the elevated strategic activity on the back of improving CEO confidence reflected in our near-record backlog at the end of the year.

We are also pleased with the early success of our transaction banking platform, with -- which, since its launch last June, has attracted roughly 225 corporate clients and nearly $30 billion of deposits and is well positioned to drive growth and more durable revenues for the firm. Combination of our attractive product offering, strong client receptivity and tailwinds created by the macroeconomic environment drove deposit growth ahead of expectations. As we work to deliver greater functionality to clients and continue their onboarding, we will convert more of these deposits to operational, providing increased funding utility to the firm.

We also continue to look for innovative ways to expand the reach of our platform to new clients as we did with our recent partnership with Stripe, which embeds our transaction banking, payment and deposit solutions directly into Stripe's platform, making these products available to its millions of small business customers.

Let me now turn to Page 6. In 2020, our Global Markets business posted its strongest net revenues in a decade, exceeding the return targets laid out for the business at Investor Day. Global Markets is a business that many believed should have been downsized when John, Stephen and I took our seats. While it's only a single year, the performance of the business in 2020 is an early validation of our decision to stay the course. Our teams worked diligently to serve our clients through the challenges of 2020, providing liquidity across asset classes, intermediating risk and engaging in structured solutions while also supporting significant volumes across expanding digital platforms.

We also advanced on our Investor Day objective of moving into a top 3 position with more of the top 100 institutional clients. We are now in the top 3 across 64 of these firms, up from 51 a year ago. We gained 120 basis points of wallet share through the third quarter of 2020, which we intend to maintain through our deepened client relationships, superior risk intermediation and ongoing investment in technology platforms.

We set a goal in January to increase our client financing activity. Our record FICC financing revenues for 2020 demonstrate our ability to meet this target. Additionally, we continued to strengthen our prime business, where we closed the year with record balances, the result of a multiyear investment in platform enhancements and other client-oriented initiatives, particularly in the quant space.

Finally, while we saw meaningful revenue growth in global markets, we remain focused on operating efficiency. We achieved roughly $400 million in expense efficiencies last year and allocated $1.25 billion of capital in that business to more accretive opportunities, both ahead of schedule. Across any level of industry wallet, the progress that we have made in Global Markets has improved the business' structural return profile.

Let me now turn to Page 7. Our asset management business experienced solid performance in 2020 marked by continued growth in assets under supervision, driving record management and other fees. Our status as one of the world's leading global asset managers has served us well during this volatile period.

Our Asset Management business provides clients with offerings across the spectrum from liquidity to alternatives. And we will continue to grow this business opportunistically by serving our clients' needs and differentiating our offerings with holistic advice, investment solutions and portfolio implementation. We are progressing well towards our longer-term objectives of $250 billion of growth in traditional equity and fixed income products and $100 billion of net inflows to alternatives.

To that end, we spoke at Investor Day about growing our third-party alternatives business, and we are pleased with our early achievements. We have raised approximately $40 billion in commitments to date across asset classes, including private equity, private credit and real estate. This is good progress toward our goal of $150 billion in gross fundraising over 5 years. Additionally, we are encouraged by the expanding number of institutions that are investing with Goldman Sachs. Many pension funds and international institutions participating in recent fund offerings are new investing clients to the firm.

As we shift towards a greater emphasis on third-party funds, we also continue to work to optimize the capital consumption of our Asset Management business. To that end, we sold or announced the sale of over $4 billion of gross equity investments in 2020 with a related $2 billion of expected lower capital. We will continue to advance the sell-down process in 2021 and beyond to achieve the objectives we set out in our Investor Day. Importantly, as we highlighted at Investor Day, incentive fees on portfolio remain unrecognized until investments are sold and fund return thresholds are achieved. Our estimated unrecognized incentive fees currently stand at $1.8 billion.

Turning to Page 8. We made meaningful advancements this year in growing our Consumer & Wealth Management segment, particularly in expanding our customer base, building our technology platform and leveraging our corporate franchise. We remain committed to delivering tailored advice and simple and transparent financial solutions to our individual clients across the wealth spectrum. And our goals here remain integral to our strategic priorities.

Our Wealth Management franchise remains a crown jewel for the firm. Revenues grew 10% year-over-year to a record $4.8 billion as our clients largely remained invested through uncertain market conditions. In our Private Wealth Management business, this success has long been built on the strength, depth and trust of client relationships, which became even more relevant as COVID-19 limited face-to-face interaction.

Throughout this period, our private wealth advisers have continued to maintain high levels of client engagement and deliver trusted advice. While the environment has caused us to slow some of our hiring efforts in this area, we remain committed to the growth potential of this franchise.

We also continue to expand our high net worth platform through Ayco and Personal Financial Management, our rebranded United Capital business. Our Ayco platform achieved its annual goal of bringing more than 30 new corporate clients onto the platform in 2020 as corporates of all types increasingly look to Ayco for financial planning and wellness solutions.

We remain well positioned to meet this ongoing need given Ayco's broad spectrum of offerings as well as connectivity with our Investment Banking franchise and our new Personal Financial Management capabilities. We have already begun to see significant synergies as a result of these advantages with over 4,000 referrals in 2020, representing over $7 billion of AUS opportunity across these channels.

Moving to Page 9, I want to provide some additional detail on our consumer business, which continues to perform well and deliver strong growth. The pandemic has reaffirmed our view that traditional banking has not kept up with the way people live their lives today and that Goldman Sachs is uniquely placed to step into this gap. We've had early success launching online savings, lending and credit card, and we are now moving to the next phase of our growth plan, taking us from a series of singular products to a more comprehensive offering.

We are particularly excited about the launch of Marcus Invest platform in the U.S. this quarter, which for the first time, brings the investing expertise of Goldman Sachs directly to mass affluent customers. Following our U.S. launch, we plan to expand to the U.K. in the second half of the year. Marcus Invest will offer individuals the ability to invest as little as $1,000 in our proprietary asset allocation strategies, with options raising from index funds to ESG-focused ETFs. Digital investing features will be integrated into the Marcus app and website and will combine the accessibility, simplicity and transparency of Marcus with our leading investment advisory capabilities.

In addition, our new digital checking offering also scheduled for launch this year will deliver an enhanced customer experience that is simpler and more transparent than what traditional banks have historically offered, providing smart money management tools that help consumers take control of their financial lives. As we will grow -- as we grow, we will not only serve customers directly through the Marcus platform, but we will also serve customers through our growing partnership channels.

In 2020, we launched 4 new partnerships with Amazon, Walmart, JetBlue and AARP, all following our first partnership with Apple. We also recently announced our second co-branded credit card with General Motors, another sign of our ability to be the banking partner of choice for leading corporations across a variety of industries.

Our partners value our scale, innovation, engineering prowess, robust infrastructure, regulatory status and importantly, the power of the Goldman Sachs brand. The opportunity set here is very large with each partner reaching tens of millions of individuals through their existing customer bases.

With that as background, let me also comment on 2020 consumer performance, which exceeded our expectations, but which also has implications for our financials as we go forward. We proactively adjusted our strategy beginning in March as the impact of COVID-19 and the evolving market conditions began to take shape. We tightened underwriting standards to reduce risk, deliberately slowing our consumer loan growth across both unsecured loans and Apple Card. Given the economic outlook, we also significantly grew our reserves for potential future losses. At the same time, we continued to raise deposits at a pace meaningfully higher than we had expected as clients remained attracted to the value of our products and the strength of our brand.

Taken together, our pretax loss in consumer, excluding reserve build, was reduced versus 2019 levels and lower than our expectations for 2020. Looking forward, we have a clear opportunity to achieve breakeven, excluding reserves for our existing product set, including checking and investing in 2022. That achievement would be 1 year later than initially anticipated due to business adjustments driven by COVID.

For 2021, pretax loss for our consumer business, excluding the impact of reserves, is likely to be higher and look more like what we had initially expected for 2020. This is driven by lower value on deposits, tighter credit standards and additionally, the investment in our new General Motors credit card.

Beyond 2021, we will continue to invest where appropriate and opportunities to build additional functionality with our digital bank as well as to pursue further growth in our partnership channel. In terms of broader functionality, we may look to develop additional products to drive a more comprehensive customer experience over time. These investments, if pursued, may delay our planned breakeven for the business. I want to emphasize, however, that should we choose to invest in additional products to broaden our consumer capabilities, it will not affect our ability to meet our enterprise-level targets.

With respect to partnerships, these opportunities with corporate clients of the firm allow us to commercially engage with a broader consumer population and are designed to build on the platform-based architecture that we have built for our proprietary Marcus business. Just as we did with Apple Card, our intent is to develop differentiated products and services -- service offerings that are embedded in our partners' ecosystems and tailored to the spending, borrowing and investing needs of their customers.

From an economic perspective, these opportunities are designed to materially reduce our customer acquisition costs and leverage the embedded cost base of our systems. Furthermore, partnerships we seek to pursue offer the firm potential for mid-teens returns at scale. Each partnership is intended to extend beyond a single product and bring scale to our business on favorable economic terms.

Goldman Sachs has a history of building businesses with a long-term orientation. Our investment in our consumer business will continue to be dynamic and appropriately sized to support our ability to achieve our long-term financial targets. And in the interim, it will not prevent us from reaching our medium-term firm-wide goals.

Before I close, let me share that I am incredibly proud of the progress we've made in 2020, which was a transformative year for Goldman Sachs. Our success could not have been achieved without the extraordinary efforts of our people who continue to put clients at the center of everything we do.

I am humbled by the level of commitment I see across our organization every day, knowing many of the personal and professional challenges our people are navigating. As we look forward, I know there will be further challenges, but I am optimistic about the potential for Goldman Sachs in the coming years. I believe in our strategic plan and our leadership team and our culture and in the raw talent of our people. Taken together, these attributes will better enable us to achieve higher and more sustainable returns for our shareholders.

Let me now turn it over to Stephen to review funding, expenses and capital as a part of the Investor Day update.

Thank you, David, and good morning. Let me continue the presentation on Page 10. We are pleased with the progress made to date on the diversification of our funding. The achievement of our medium-term funding goals remains a significant source of forward value for the firm. As you will recall, our ambition is to achieve $1 billion in annual revenue uplift over the medium term from growth in deposits, enhancement to our asset liability management and the optimization of our liquidity pool.

Along with the broader industry, we experienced a material shift in the rate environment in 2020. With Fed funds declining over 150 basis points, the relative value of our deposits remained positive but lower than projected at Investor Day. What's more, since we are modestly asset-sensitive as a firm, our assets repriced more quickly than our liabilities.

As 2020 progressed, we were able to adjust our deposit pricing to reflect the broader downward movement in rates. While we did not achieve savings in 2020, with greater volume and now updated pricing in the consumer channel, we remain on track to achieve our $1 billion run rate savings target. We also remain well positioned to capture further savings as we expand our offerings in markets, deepen our client relationships and rely less on pricing as a lever for customer acquisition.

While the focus has been on consumer deposits, our total deposits grew by $70 billion in 2020 across multiple strategic channels, including particularly strong flows in transaction banking. Importantly, deposits comprised approximately 50% of our total unsecured funding base at year-end, in line with our medium-term target. As the recent environment has helped accelerate our deposit gathering efforts, growth will likely be more moderate in the near term in light of our entity funding needs.

We continue to grow assets within our bank entities, where we have traditionally lagged our peers. We now have approximately 1/4 of the firm-wide balance sheet held in the firm's bank entities versus roughly 15% in 2017. We have also made improvements in our asset liability management that we continue to employ a conservative funding approach focused on term and diversification.

Let me now move to Page 11 and expenses. We remain on track to achieve the target laid out at Investor Day of $1.3 billion in expense savings over the medium term, accomplishing approximately half of our goal over the past year. The achievement of these efficiencies has enabled us to partially offset the cost of investment in our business and our people in 2020.

Our experience over the past 12 months has given us even greater confidence in several of the key elements of this plan. In particular, we are already seeing important benefits from our investment in automation and consolidation of platforms, including increased straight-through processing rates and reduced cost per trade. In addition, we continue to generate efficiencies from structural adjustments to our employee base through our front-to-back realignment, location strategy and evaluation of pyramid structure.

On the non-compensation front, consolidation of offices in London and Bengaluru, focus on transaction-based expenses and more centralized expense management processes have all contributed to early success.

The remote work environment has also catalyzed an increased focus on our location strategy. Last January, we expected that 40% of our employees would ultimately work from one of our strategic locations, and we will continue to evaluate the potential for that number to grow over time. We will also look to expand into new strategic locations around the globe as well as consolidate our footprint, where appropriate, in keeping with our evolving business mix.

Now turning to Page 12 and capital. Our capital management philosophy remains unchanged. We seek to deploy capital on accretive terms, both in our incumbent businesses and in areas of growth investment and otherwise return excess to our shareholders. While our ratios initially declined in early 2020 as we committed capital to support clients navigating the pandemic and we received an SCB result in the 2020 CCAR process that was higher than anticipated, our standardized CET1 ratio at year-end was 14.7%, accomplished through strong earnings, lower capital return and disciplined balance sheet management.

Importantly, we are pleased with the results of the recent interim stress test, and we intend to resume share repurchases this quarter. As in the past and as permitted, we will continue to reassess our dividend commensurate with the strategic direction of our business. We will be dynamic in our approach, both to reflect proactive steps to reduce capital consumption in the business and as a function of capital requirements more in line with the results of the interim CCAR examination.

As such, we continue to target a CET1 ratio of 13% to 13.5% over the medium term, which will inform our capital deployment decisions. As we look ahead, we remain engaged with the Federal Reserve to improve stress modeling in CCAR.

As David mentioned earlier, we have already sold or announced the sale of $4 billion in assets with $2 billion of related capital reduction. That said, in the first quarter, we will adjust our equity attribution across our segments to more appropriately reflect the firm's higher SCB based on the results of CCAR 2020.

Given the higher stress loss intensity of our equity positions, the capital attributed to asset management will be larger and so will the capital reduction associated with our intended sell-down of assets. This change will not impact our stated medium-term targets. And in fact, we intend to increase the size and accelerate the pace of asset sales beyond that anticipated at Investor Day so as to further reduce the capital intensity of the segment beyond our original ambition.

Speaking more broadly, there are several key drivers affecting capital requirements for the firm overall: first, our stress capital buffer, which we expect to improve as I have noted; second, our GSIB surcharge, where we ended the year at 3% to meet client demands, the impact of which will take effect in 2023; and lastly, our management buffer, which we plan to run between 50 and 100 basis points, accounting for volatility and client activity.

Before turning to our earnings report, let me finish on Page 13, with a slide that David first presented at Investor Day 1 year ago. Our strategic direction is guided by these objectives. We are pleased with our progress to date in strengthening our existing businesses, growing our new businesses and operating the firm more efficiently.

Early success in 2020, however, does not diminish our focus on forward execution. We have work to do from here, and we'll continue to drive more durable earnings and enhance returns for our shareholders. In all cases, we will continue our commitment to transparency and accountability, and we look forward to updating you further on our progress in the year ahead.

With that, let me now switch gears to our separate earnings presentation to cover the fourth quarter and full year results. First, to quickly recap our financial results on Page 1. Fourth quarter net revenues were $11.7 billion, resulting in $44.6 billion for the full year, a growth rate of 22%. In the fourth quarter, we delivered net earnings of $4.5 billion and record quarterly earnings per share of $12.08. As David mentioned, the firm delivered full year ROE of 11.1%. Litigation burdened our full year returns by nearly 400 basis points.

Turning to Page 2 and our individual segments. As we noted earlier, Investment Banking delivered outstanding performance in 2020. In the fourth quarter, net revenues were $2.6 billion. Advisory revenues were $1.1 billion, more than double third quarter levels, reflecting growth in the number of completed M&A transactions. We advised on over 350 transactions that closed during the quarter, representing over $1 trillion of deal volume, roughly $150 billion ahead of our closest peer.

Equity underwriting produced a record $1.1 billion of revenue in the quarter as industry volumes remained elevated and we continued to gain market share. This drove record full year revenues in equity underwriting of $3.4 billion, supported by $115 billion of deal volume across nearly 600 transactions. In an extraordinary year for equity issuance, we participated in 120 traditional IPOs, 70 private transactions and a number of SPAC IPOs, providing clients advice and access to capital in innovative forms.

Turning to debt underwriting. Net revenues were $526 million, down 8% sequentially, reflecting lower investment-grade transactions, partially offset by strength in leveraged finance. Full year revenues of $2.7 billion were a near record and up 26% versus 2019. Our franchise remains well positioned as evidenced by our #3 high-yield league table ranking for the year.

Looking forward, as David mentioned, our investment banking backlog is at near record levels, significantly higher versus the third quarter and a year ago. Client dialogues remain robust, and we are optimistic on activity across a broad set of sectors, including TMT, FIG and health care.

Fourth quarter net revenues from corporate lending were negative $119 million, reflecting roughly $250 million of hedge losses against the relationship loan book as credit spreads tightened. Recall that for risk management purposes, we maintained single-name hedges on certain large relationship lending commitments. Of note, in relationship lending, the total notional drawn or funded on revolvers is now back down to pre-COVID levels.

Moving to Global Markets on Page 3. Net revenues were $4.3 billion in the fourth quarter, up 23% versus last year. For the full year, Global Markets generated $21.2 billion of net revenues, up 43% versus 2019, driven by stronger FICC and equities intermediation performance. This represents the highest yearly revenues for the segment in a decade.

Turning to FICC on Page 4. Fourth quarter FICC net revenues were $1.9 billion, up 6% year-over-year. Our growth versus last year was driven by higher FICC intermediation revenues where we saw increased client activity, while FICC financing revenues were roughly flat. 3 out of 5 FICC intermediation businesses posted higher fourth quarter net revenues versus the prior year, reflecting the continued strength and breadth of our business. In credit, we saw significantly better performance helped by elevated activity and market share gains, driven in particular by outperformance in portfolio trading, notably across our digital platforms.

In commodities, net revenues were driven by stronger performance across most assets, including metals and agricultural products. In currencies, net revenues rose on solid performance in emerging markets as volatility rose across most currency pairs. In mortgages and rates, net revenues were lower year-on-year, though client activity remained solid, particularly in mortgages around CMBS and mortgage intermediation. And in rates, activity remained elevated as a consequence of a number of macro events, including the U.S. election and COVID and the overall reflationary theme.

Moving over to equities. Net revenues for the fourth quarter were $2.4 billion, up 40% versus a year ago. Full year revenues of $9.6 billion were the highest since 2009. Fourth quarter Equities intermediation net revenues of $1.8 billion reflected stronger results in derivatives across all regions as well as higher cash revenues helped by strong performance in program trading. Equities financing revenues of $591 million were down 19% year-over-year due to higher net funding costs, including the impact of lower yields on our liquidity pool. Importantly, as David mentioned, client balances rose to record levels.

Moving to Asset Management on Page 5. Our asset management activities produced net revenues of $3.2 billion in the fourth quarter. For the full year, Asset Management generated net revenues of $8 billion, down from a strong 2019 as equity and debt investment performance was challenged in the first half of 2020. Fourth quarter management and other fees totaled $733 million, up 10% versus a year ago on higher average assets, contributing to record full year net revenues of $2.8 billion. Across the Asset Management segment, our AUS stood at a record $1.5 trillion at year-end.

Our equity investments generated $1.8 billion in the fourth quarter on gains on our public and private investments. More specifically, on our $3 billion public equity portfolio, we generated roughly $745 million in gains from investments, including FASB and Sprout. And on our $17 billion private equity portfolio, we generated net gains of approximately $775 million from various positions, substantially all of which were driven by events, including corporate actions such as fundraisings, capital market activities and outright sales. Additionally, we had operating revenues of $250 million related to our portfolio of consolidated investment entities.

Net revenues from lending and debt investment activities in Asset Management were $637 million on revenues from net interest income and gains on fair value debt securities and loans. This reflected tighter credit spreads on our portfolio of corporate and real estate investments.

On Page 6, we show the composition of our Asset Management balance sheet, consistent with the information that we have provided to you in prior quarters. On equity and CIE portfolios remain highly diversified by sector, geography and vintage. And our debt investment portfolio is also diversified with segment loans largely secured.

On Page 7, turning to Consumer & Wealth Management, we produced $1.7 billion of revenues in the fourth quarter. Full year net revenues were $6 billion, up 15% versus a year ago, driven by higher management and other fees and strong consumer banking growth. For the quarter, wealth management net revenues included record management and other fees of $1 billion. Full year revenues of $4.8 billion rose 10% year-over-year and assets under supervision rose to a record $615 billion at year-end. Total client assets in the segment exceeded $1 trillion at the end of 2020.

Consumer banking revenues were $347 million in the fourth quarter, contributing to full year revenues of $1.2 billion, which rose 40% year-over-year and were diversified across lending, card and savings. Consumer deposits remained stable during the quarter despite an additional rate reduction, ending the year at $97 billion across the U.S. and U.K., up $37 billion versus last year.

Funded consumer loan balances were $8 billion, of which $4 billion were from Marcus consumer loans and $4 billion from credit card lending. Importantly, the credit behavior of our loan and credit card portfolio outperformed our expectations. The portfolio benefited from improved underwriting as well as the consequences of our consumer assistant plans.

Next, let's turn to Page 8 for firm-wide assets under supervision. Total AUS rose to over $2.1 trillion during the quarter and are up nearly $290 billion versus a year ago. The sequential change was driven by $17 billion of long-term inflows, $6 billion of liquidity inflows and $86 billion of market appreciation.

On Page 9, we addressed net interest income and our lending portfolio across all segments. Total firm-wide NII was $1.4 billion in the fourth quarter, up versus a year ago, primarily reflecting growth in the firm's balance sheet, particularly in Global Markets as well as the benefit from credit card balances and repricing of deposits in Consumer & Wealth Management. Equally, this activity is reflective of the decision to allow our GSIB surcharge to increase to 3%.

Next, let's review loan growth and credit performance across the firm. Our total loan portfolio at quarter end was $116 billion, up $4 billion sequentially, largely driven by modest growth in loans in Consumer & Wealth Management and real estate warehouse lending. Our provision for credit losses in the fourth quarter was $293 million, roughly flat sequentially and down versus a year ago.

The quarter's provisions were driven primarily by continued growth in lending in our consumer business and wholesale impairments, offset by some reserve leases driven by improving macroeconomic conditions. Given our announced partnership with General Motors and the planned acquisition of the current loan receivables from Capital One, we expect to recognize approximately $200 million of associated provisions in the first quarter.

At quarter end, our allowance for credit losses for both loans and commitments stood at $4.4 billion, including $3.9 billion for funded loans. Our allowance for funded loans was flat versus last quarter at 3.7% for our $103 billion accrual portfolio, including an allowance for wholesale loans of 2.7% and for consumer loans of 15.9%. For the full year, we recognized firm-wide net charge-offs of $907 million, resulting in an annualized net charge-off ratio of 0.9%, up 30 basis points versus last year.

Next, let's turn to expenses on Page 10. Our total operating expenses were $5.9 billion in the fourth quarter. For the full year, our efficiency ratio was 65%, which includes a nearly 800 basis point impact from litigation expense. On compensation, our philosophy remains to pay for performance, and we are committed to compensating top talent. While compensation expenses were up 8% year-over-year relative to growth in revenue net of provisions for credit losses of 17%, our full year compensation ratio is at a record low, reflecting the operating leverage in our franchise. As we have said in the past, we view the compensation ratio metric as less relevant to the firm as we build new scale platform businesses.

On noncompensation expense, our cost for the full year 2020 rose 25% versus last year. Excluding litigation, our full year operating expenses grew by only 8%, inclusive of investment spend across the business and higher variable expenses associated with transaction volumes. Growth was partially offset by efficiency savings and lower travel and entertainment costs due to the circumstances of COVID-19.

Finally, on taxes. Our reported tax rate was 18.7% for the fourth quarter and 24.2% for the year, reflecting the impact of nondeductible expenses. We continue to expect our tax rate over the next few years to be approximately 21% under the current tax regime.

Turning to our capital levels on Slide 11. As previously discussed, our Common Equity Tier 1 ratio increased to 14.7% at the end of the fourth quarter under the standardized approach, up 20 basis points sequentially. Earnings were largely offset by higher RWAs as we stepped in to serve our clients. Our ratio under the advanced approach increased 50 basis points to 13.4%.

Turning to the balance sheet. Total assets ended the quarter at $1.2 trillion, rising 3% versus last quarter as we deployed resources to facilitate client activity, particularly within our Prime Brokerage business. We maintained very high liquidity levels with our global core liquid assets averaging $298 billion, reflecting the current backdrop. On the liability side, our total deposits were roughly flat at $260 billion as planned roll-off of higher-cost broker deposits was partially offset by modest growth in consumer, private bank and transaction banking deposits.

In conclusion, our strong fourth quarter and 2020 results reflect the diversification of our client franchise, resilience of our business model, strong risk discipline and flexibility in our balance sheet deployment. David, John and I are proud of our people for their efforts this year in serving our clients and delivering on our strategic goals, especially given the challenges of COVID-19. We look forward to furthering our progress on our medium- and long-term targets, and we remain confident that execution of our strategic plan will drive better client experience, more durable revenues and higher returns for our shareholders over time.

With that, thank you again for dialing in, and we'll now open the line for questions.

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

I'm curious, on Slide 6, on the strategic update, you went back and reminded us of the medium-term target of 10% for Global Markets and you get a 14.1% in 2020. Obviously, 2020 was just a time of repositioning and need for your assistance. But is that just you being conservative on your best guess of normalized trading like nothing changed there?

And I'm just curious in the way capital is being reshifted towards asset management for private equity. I just didn't know if we should be reading anything more than the obvious into the medium-term trading target.

Glenn, it's Stephen. No, there's nothing more to read. We were just on this slide reiterating the medium-term target that we had set at 10%. I would point out that while reported ROE in 2020 for Global Markets was 14.1%, the performance ex litigation that's otherwise allocated to the segment was 18.1%.

I think the other point I would make here is that as we look forward and as we've commented several times, impossible to know what 2021 and beyond hold in terms of what the industry is presented. But I think there have been some fairly profound structural shift in that business. One, of course, is the expense base is being reduced. The second is we're much more attuned to the sort of agile deployment of capital across.

But I think perhaps most important is the improvement of wallet share and the focus on clients. And David commented a couple of times on the improvement in overall wallet share, growing by 120 basis points through 3 quarters, and we'll see what played out for the full year.

But I'd also say that a step-up in where we stand with the objective of being top 3 across the top 100 institutional clients in Global Markets, I think, also reflects that we'll capture at or better than our share on a going-forward basis, again, acknowledging that the market may not look as robust on the forward as it did in '20 for this business, but the structural changes are important.

I appreciate that. Maybe the same kind of concept for the follow-up related to investment management. So I get the allocation of more capital. I get the capital that you freed up on the announced sales. I know that when you're initially going down this path, I felt optimistic of your ability to raise lots of third-party money and you have. Just wonder if you have a thought process on '21 or it's just continued marching towards the $150 billion.

And in the same regard, I was concerned about selling down private equity would leave an earnings pickup at some point. But being that you have almost $2 billion in unrecognized incentive fees, do you feel like you can continue down this free up capital, sell down private equity, raise third-party path without a big earnings there to pick up?

Sure, yes. So let me take both of those. First, on fundraising, I think what's gratifying about the progress made in 2020 was a comment David made about an increasing number of clients new to the firm that are investing with Goldman Sachs. And so that leaves us optimistic about the prospect of the fundraising pipeline in 2020, which will be across a range of different investing sleeves, and we'll start to see that growing number of investing clients, look across a range of different product offerings that we have.

On the sell-down, we're very attentive and have always been to the prospect of creating kind of a canyon. And we don't anticipate that to happen, and we'll continue to manage with that in mind.

Now you draw the right observation, which is there's $1.8 billion of embedded fees to take, which we will take when gains become irrevocable or irreversible, and so that will buffer. But the point here is that our objective is to reduce the stress loss intensity of that segment. And so we've spoken about $4 billion in balance sheet sales to yield $2 billion of capital relief. We equally have line of sight into another $2.5 billion of sales, which could generate another $1 billion of capital relief.

And I'd also point out, though it's not obvious in the way in which the results play, but over the course of the year, we sold $2.1 billion of public equities to offset about $1.9 billion of appreciation in market value. And so that equally has capital consequence for us. And so you'll continue to see us move along that road.

Finally, on the question or the observation you made about what I was speaking to about what we will do in terms of attributed equity to that segment. That has no bearing on what our objective is, which is to bring capital down. But as CCAR 2020 was higher, more capital came to the firm. We don't keep a corporate segment, so we allocate or attribute that equity out to the segments.

By definition, because of its intensity, Asset Management will pick up more capital. Obviously, on a unit of balance sheet reduction, more capital will come out as we reduce positions, which is why we're confident that we'll maintain at or better than what we're indicating in terms of capital reduction in the segment overall.

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

Maybe I'll start on Marcus and the digital bank. Thanks for the strategic update there. But stepping back a bit, how do you think your digital bank's current and future offerings stack up against the very successful fintechs like a SoFi or a Chime. And then just given the very big valuations those companies have gotten, is there a way for you as a management team to better unlock maybe the value of the institutional bank for shareholders?

So Christian, I'll start with that. Thank you for the question. I -- and we tried to highlight this in the update that we're working to go from a product structure with a handful of products to a much more integrated offering for our customers. And so when you ask about comparison to some of the fintechs, I just say the fintechs are much more narrow in scope in terms of what they offer and don't have the broad capabilities that we have and we're embedding and we're expanding on for our clients.

So just in the context of the 2 examples that you gave in highlighting SoFi or Chime, when you think about spending across both checking and credit cards, when you think about borrowing across credit cards and loans and you think about savings and also investing and the investment capabilities that we have as a wealth manager, we have a much broader integrated offering. And we continue to get feedbacks that the state-of-the-art product platform and the digital applications that we have are really excellent by any standards. So we're going to continue to move forward with that long-term strategy.

I don't really have a comment on the valuation of these businesses, although I'm watching with everyone else, and I'm looking at what we have, the number of clients we have, the number of customers, the size of our business, the scale that we have as we continue to move forward. And I'm looking at that opportunity, the growth that we have. And if people like those businesses, I think at some point in time, they should like and value our business more fulsomely, but we'll continue to execute and wait on that.

We really like our model of having a proprietary platform for Marcus. But then also given our corporate relationships, the potential for partnerships is very, very strong for us. And I think you saw that in our execution this year by adding 4 more partnerships, by capturing the GM card. And I think you'll continue to see us do more on this front. And so we feel good about it.

But as I said in my comments, we're taking a long-term view in what we're doing, and none of this will affect our medium-term targets that we're working toward at the end of 2022. Gets a lot of attention, but it won't affect our targets.

Okay. Maybe the question I was asking really around the valuation was, is there something you can do, I don't know, spin out the division or something to get better valuation, better currency to build the business? But I hear your points.

Maybe my second question, and apologies, this one is a bit of a nitty question. But I'm trying to understand the impact of interest rates on the Markets business. I guess in the earnings release, you called out higher funding costs and lower yields on the liquidity reserves as a headwind to the Markets business. But also in the actual deck, we saw a really big step-up in Global Markets NII quarter-over-quarter.

So maybe just step back here, remind us how interest rates impact the business, whether it's the current level of interest rates, the yield -- the shape of the yield curve and then some of the liability management actions you've taken, how does that impact the markets business, I guess, over the coming year.

Sure. So NII, Christian, as you noted, grew. It was at $1.4 billion for the firm in the quarter. That was driven largely by balance sheet growth, notably in growth markets and most especially in prime. So our prime balances were up.

The challenging aspect for us and the reference made in the context of funding is that our liquidity grew over the quarter. We were slower to adjust, particularly on the retail deposit side, the pricing of our liabilities. And so we didn't capture quite what we wanted. Obviously, we've now brought rates down, and so we're able to sort of allocate that cost out to the business.

So liabilities are important. NII expanded because of balance sheet and impacted overall net funding costs. And so that's the reference, if you will, to the headwinds. Notwithstanding prime balances growing, funding costs were higher than we wanted. That notwithstanding, NII grew because of overall balance sheet growth over the course of the quarter in prime and by virtue overall of moving to a higher GSIB in the context of meeting client demands.

Your next question is from the line of Michael Carrier with Bank of America.

First, as we get some moderation in Global Markets, can you provide some color on what areas of the business and strategic initiatives are best positioned to potentially create some offset over, say, like the next 1 to 2 years? I think it seems like Asset Management could be one of those while some of the initiatives may be further out. But any color on timing of growth away from some expected moderation in Global Markets?

Sure. I mean I think that, first, obviously, what we've been speaking about within the Asset Management business and the growth of third-party alternatives and forward durability of those revenues is one area. There's obviously growth in some of the growth initiatives, including transaction banking as well as what we're doing on the consumer side. And so you'll continue to see pickup and share pickup.

None of those are necessarily meant to be compensating factors for what could be a shortfall in Global Markets. I think within Global Markets, we will buffer, structurally speaking, what might be a less impressive opportunity set on the forward relative to '20 by virtue of what we've done around market share gains and equally what we're doing around the cost base.

And I'd say also, if you look within the Global Markets business, what we're seeing in terms of the growth in low-touch, high-volume activity around Marquee and the digital platforms, particularly growth in portfolio trading across, I think all of those will spell sort of improved performance as a general matter, notwithstanding the market.

Finally, I'd point out that the investment banking footprint continues to expand. And that too will provide an offset to the extent that -- again, the assumption to your question, that we see lower opportunity as an industry matter within the trading or Global Markets business.

Okay, great. And then just on the capital side, given your CET1 ratio of premium above your expected buffer, how are you thinking about either need for the business, either organic or M&A, versus capital return? And just your commentary on the Asset Management business and understanding maybe the models a tad -- a bit more, like how significant could that be longer term as you kind of reposition that?

Sure. So on capital, look, our capital philosophy really remains unchanged, which is we look for opportunities for accretive return on investment in capital in the business and equally meeting client demands that are there. Separate from that, it's my expectation that we will hit our first quarter repurchase expectations, which based on the calculation of the Fed will be about $1.9 billion in the quarter, plus neutralizing equity-based compensation expense. And so we will fulfill that in the first quarter.

I'd also repeat a comment I made in the prepared remarks is that we'll continue to reevaluate our dividend in the context of the shape and form of the business being more durable going forward. Obviously, that's not a first quarter proposition given the Fed rules, but you can certainly rely on the repurchase expectations and our fulfillment of them.

In terms of Asset Management, this is all about an overall reduction in the balance sheet intensity of that business. It is being mindful of revenue in the near term. It's driving down on-balance sheet investing and moving that into third-party activity, doing that across more sleeves with more clients of the firm.

And I think that will continue to take down our capital and I suspect based on the progress we made in 2020 of taking $2 billion on $4 billion of sales. And as I mentioned, our forward view on what's within line of sight, incremental capital will come out at or better than the expectations we carried at the Investor Day itself.

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

So wanted to start off with a question on the trading business. Your share gains in trading for 2020 were quite impressive. It will likely represent the strongest gains across the entire global IV cohort. And historically, you've been the dealer of choice for clients during periods of macro stress, given your risk intermediation expertise, and those clients' needs are magnified this year due to COVID, raising questions as to whether the share gains will be sustainable as those client needs moderate.

I was hoping you can give some perspective on what gives you confidence that you could sustain the recent share gains in Global Markets as activity normalizes? And any differences you're seeing across high versus low touch might be very helpful.

Okay. Thanks, Steve. I'll start. And I appreciate the question. And I'll just -- to take your framing, you said historically, at times of severe stress, you've been a dealer of choice. And you really -- you make that statement by going back and looking at one window, which was the financial crisis. And there's no question in the financial crisis, we had very, very significant share gains. But I would highlight that one of the reasons that we had very significant share gains during the financial crisis is that a lot of the people that would be in our core competitive set were in a position of very, very weak structural financial performance at the time, and it definitely inhibited their ability to intermediate with clients.

So one of the things I recall hearing at that time is a lot of firms did not show up during the financial crisis, and we benefited from that. I think, hopefully, we benefited for other reasons, but there was a different component.

We have a very, very different situation right now. Banks have been a source of strength during the pandemic. All of our competitors have showed up in spades and yet we had very, very significant share gains. Now maybe some of that is a branded reputation that we're a dealer of choice during a pandemic. But I would argue, a bigger impact in really affecting how we performed, and I've heard this consistently from our Global Markets clients, is a change strategically in our approach over the last few years in terms of how we're facing clients, our One GS approach and what we're trying to do.

We talked a little bit in the strategic update in talking about how, for the first time over the last couple of years, we have a targeted approach in evaluating our wallet share with the top 100 clients. Seems relatively straightforward, but this is not something we had ever done historically. And that we advanced that considerably over the course of 2020 by going from top 3 with 51 of the clients to top 3 of 64 of the clients.

We have a much more client-centric approach. I got a lot of feedback calls this year from our clients noticing what they said was a very different approach in the way Goldman Sachs interacted with them now and versus 10 years ago. And so I would argue, across the platform, that orientation is helping our wide share gains.

Now I'm not going to sit here and say that in a different environment, when the world is more even and we're not in a crisis, that there's not going to be a flattening. In fact, I'd say that across all our businesses. We tend to outperform in investment banking during times of stress, and the market share gains collapsed a little bit in times when everything is very, very easy. And so I'm sure there'll be some of that. But we have a very, very clear strategy, very, very clear client-centric strategy that's different, and I think it's led to enhanced wallet share gains.

I'd also say, and we highlighted this in the context of looking at that business, this goes back to one of the earlier questions, we've made structural improvements not just in the client approach, but also in the cost base of that business and in our capital allocation in that business. And the results are, even if we have a different available client wallet, we have a structurally more profitable business on a go-forward basis. And so that's the way we're thinking about that. I hope that's helpful.

The one other thing I would add to the part of your question you asked about kind of high touch and low touch, which is if you look at our credit business in FICC over Q2, 3 and 4, what's interesting is in Q2 and Q3, you saw a mixed very high volatility, a lot of the sort of bespoke, idiosyncratic block-like activity that we've long been known for. What's interesting is if you look at Q4, we started to see very high portfolio trading going on, rebalancing among asset managers, pension funds, a lot of that going on across our digital platforms.

I just offer you that Q2, 3 and then through 4 as a reflection of kind of a more -- a broader, more robust business that's better equipped, better capable, better positioned to capture what we've long been known to do as we did in the second and third quarter and some of the more technology-driven, platform-driven trading that is newer and quite sticky in the context of what we can keep.

Yes.

That's really interesting color. I appreciate the perspective from both of you. And just for my follow-up on efficiency, you spoke of your continued efforts to evaluate additional opportunities for further expense savings. I was hoping you can just give some perspective on what some of those opportunities might be, especially as we think about the need to potentially flex in a tougher macro backdrop.

And just one clarifying point. Is the $650 million of savings -- should we be thinking about the savings already captured versus the 4Q '20 baseline? Or is that versus the full year '20 expense base?

Well, I'll start on that. I'll let Stephen answer the second point about -- the second point with respect to the $650 million. But I just -- what -- Steven, I think the way you should understand that we're thinking about this, is we've been reunderwriting the firm and trying to do what we can across the platform to operate more efficiently. We set out a target in our Investor Day, and we had a very clear view on the path to that target when we said that a year ago at our Investor Day, and we're marching through and we're executing on that.

With respect to other opportunities, we continue to evaluate other opportunities and will be hard-pressed to say that we didn't learn a lot this year in the context of the operating environment that we've -- that we've looked -- that we've been operating this year. And so that's giving us new insights into other places across the platform where things can be more efficient.

In addition, our business, like lots of businesses, is digitizing. And in the context of that, it's allowing us to digitize processes that historically we've used -- we've executed with more manual personnel, so to speak. So we're going to continue to focus on that. We do think there are other opportunities. When we have more to say to be more specific with our continued focus on transparency, we'll give you more specifics.

Yes. To the first part of your question, achieving $1.3 billion was annualized savings. So we would realize these savings each and every year. And this was as against kind of entry-level expenses, meaning entering into 2020 when we announced them at Investor Day. But this is achieving a $1.3 billion annual run rate savings, of which about half has been achieved.

The only other thing I would add on the forward is, obviously, COVID has accelerated our own thinking about moving populations and taking aggregations of people into different areas. And so I think we feel more assured and confident at our ability to do that, the pace of it, and you'll continue to see that play forward in the achievement of the $1.3 billion or beyond.

Your next question is from the line of Jeff Harte with Piper Sandler.

Sorry about that. Am I coming through now?

Yes, we're hearing you fine.

How are you thinking about the cyclical outlook for capital markets activity levels broadly? I guess I come from, there's a belief out there that the strength in 2020 was really just a stimulus-driven anomaly and that maybe we're headed back to 2019 levels. But when I look at historical cyclicality and activity level indicators, it suggests potential sustainability, if not continued growth. I mean how are you thinking about that as we move into 2021 and 2022?

Well, it's -- I'll take this at a high level, Jeff. Obviously, it's hard to and I wouldn't speculate going out for multiple years. But what I would say is we're still in the middle of a pandemic. There's still an enormous amount of stimulus. And there's also -- because of the acceleration of digital trends, there are lots of businesses and lots of CEOs that are rethinking or reunderwriting strategically how they're positioned. So corporate activity and therefore, capital markets activity in that context is high.

Certainly, as we head into 2021, there are a lot of indicators that, that's going to continue in 2021, certainly in the near term. And so our expectation is, certainly, in the near term, that activity will continue. To the degree that we get to a more normalized environment, to the degree that there is a backing off of fiscal activity, to the degree over time is a more normalization of monetary policy, that obviously can affect this activity level, but that's not something we'd expect in the near term in 2021. So at the moment, the pipeline, backlogs, things that we can see continue to look robust.

That doesn't mean that we're saying that we expect a repeat of everything we saw in 2020, and there certainly are different parts of both the banking and the markets business that I think were elevated in 2020 and our expectations for 2021 are not as robust as they were in 2020 but certainly more robust than they were in 2019.

Okay. And secondly, as you continue to grow deposits, are you facing limits on your ability to deploy the incremental deposit growth? I guess when I look at your balance sheet, I see deposit investable learning asset growth as more of a pressing need than additional deposit growth.

Yes. I mean I think that on the forward, you should expect a more moderated level of growth in deposits as we pull more and more assets into the bank. I think as I noted in the remarks, we've moved from 15% of assets in the banks to 25%. But importantly, on incremental asset movement, 90% of the lending that's going on in and around the firm is being booked in bank entities that will consume deposit funding that goes on in the bank entities themselves.

I'd also point out that when we speak about bank entities, we're not only speaking about our U.S. bank but equally the U.K. and our bank in Continental Europe, in Germany, all of which have slightly different requirements in terms of the deployment of that funding. But the incremental asset flow is going into the bank, and you're going to start to see continued growth from 25% of the overall firm.

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

Question on the expense side, just 2 parts. One, on the comp and the comp ratio, we did see the comp ratio come down on a full year basis, roughly 400 basis points year-on-year. And I'm just wondering, is that really a function of non-compensatable revenues that shot up significantly year-on-year or this reflects the comments you were making earlier about moving people to the strategic locations? It feels like a lot in 1 year, so just trying to unpack the major drivers and how we should see that -- how we should expect that flexes going forward.

Well, I think the abiding observation here is that there is considerable leverage in the business, that is when we grow revenue top line by 22% or grow at 17% net of provision for credit loss, you see our comp and benefit line rise by 8%. So there's embedded leverage in this business.

I think as we've also said in the past, and this is reflected a little bit in your question, the comp ratio is going to become much less of a relevant metric in this, in part because the profile of the business will change. That is, as we grow up businesses like transaction banking or the consumer business, they will be less comp heavy in terms of overall expense, and that ratio will be ultimately less relevant.

But I think for where we are right now, there's considerable leverage in this where we're capable of rewarding our talent for performance overall but equally doing that on a levered basis so that our shareholders and shareholders benefit more broadly from the overall performance.

And could we just get a sense on the tech budget that you've got right now and how you're thinking about that size and growth over the next year or so?

Yes. I think the tech budget is going to continue to grow. It will grow by several hundred million dollars year-over-year. It will do that really for 2 reasons. One, continued improvement at the core, that is the way in which the firm operates more broadly. It is achievement of some of what David was talking about around automation and the like.

And then separately, it will be focused on particular initiatives like transaction banking, like the consumer business and so forth. And I think part of our focus on the efficiencies that we're capable and the cost savings we're capable of getting is such that those savings can subsidize the investment being made in places like technology around the firm.

And so you'll continue to see that investment play out. We have less remedial activity than perhaps some of the other bigger commercial banks have in as much as we have a lot of new tech build and new activity going on. But we're going to continue to look to harvest cost savings to substantially offset the impact of that increased investment.

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

Could you give more color on your backlog? You said it's near record. It's up-ticked quarter-over-quarter. And specifically, as it relates to SPACs, how much have SPACs contributed to revenues in 2020? And what's the multiplier effect? I understand it's linked with mergers and leverage finance for your top 3 or #1. Just more color on SPACs and how it relates to the backlog and what that's been contributing and how sustainable that is.

Sure. So a couple of comments. backlog levels, as we stated, are up quarter-over-quarter. And I'd say that activity levels broadly across the banking platform are up. Certainly, SPAC activity is contributing to it, but strategic corporate M&A is up meaningfully.

And what I'd say is there was a real kind of doldrum as the pandemic hit and people were reorganizing. But as we came out in the summer and people started to kind of look through the tunnel and get a sense of where things were going, strategic activity with corporates really picked up. And that's contributed meaningfully also. And that has nothing really to do with the SPAC ecosystem.

On SPACs, Mike, I'll say a couple of things. There's no question that the growth of SPACs as a product definitely affected activity levels, but there are a few things that I'd say, just to try to frame it. SPACs were a little bit more than 50% of IPO activity this year. But when you look at IPO activity, IPO activity for us, for example, was on a volume basis, about 17% of our equity volume. So we did about $20 billion of IPO league table against $115 billion of equity league table, 17%.

If you look at our IPO fees, all IPOs, SPAC and non-SPAC -- and again, SPACs, let's say, around 50%. But if you look at our IPO fees, our IPO fees, were less than 40% of all our equity underwriting fees, and then SPACs would be a subset of that.

Now to your point, it also creates an ecosystem around capital raising, around advisory services, et cetera. And so there's no question that, that ecosystem at the moment is creating a tailwind for some of these capital market activities.

There are a couple of other things I'd say. First, we generally strive to be #1 in the league tables. We do not strive to be #1 in the SPAC league tables. We are very -- while we're very active, we're very thoughtful about our sponsors and the business that we take on. And just looking at last year, if you look at the number of SPACs that were done and the league table leaders, the #1 and #2 firms did about 33% more deals than we did, representative, I think, of some of the things that came to us that we turned away. So we're participating, but we're trying to participate by picking what we think are the best situations.

I do think SPACs is a good use case versus a traditional IPO and advantageous for sellers and for investors in looking at this ecosystem. But the ecosystem is not without flaws. I think it's still evolving. I think the incentive system is still evolving.

One of the things we're watching very, very closely is the incentives of the sponsors and also the incentives of somebody that's selling. And while I think these activity levels continue to be very robust and that they do continue as we head into 2021 to continue to be very, very robust, I do not think this is sustainable in the, medium term. And there'll be something that will, in some way, shape or form, bring the activity levels down over a period of time.

But we're watching it closely. And it's something that our clients continue to be very, very interested in. There are lots of companies that go public via SPAC that could also go public in a traditional IPO. And there are some companies that go public in a SPAC that probably couldn't go public through the standardized process of a traditional IPO. And all of those are things that the market will have to wrestle with.

And one of the things I certainly think is the case is you have something here that's a good capital markets innovation. But like many innovations, there's a point in time as they start where they have a tendency maybe to go a little bit too far and then need to be pulled back or rebalanced in some way. And that's something, my guess, is we'll see over the course of 2021 or 2022 with SPACs.

And then one more general question, David. So I think what I hear you say on this call is that it's not a forecast, but kind of your expectation for capital markets for this year. It might be a little bit less than last year, but it should still be better than 2019 or something like that.

We had a decade-long reduction in wallet share in the markets business. Do you think that decade-long reduction, considering a normalized last year, do you think that's reversing? Some people say it is. Some people say it won't.

So 2 points, I think, Mike, to the question, if I got it right. With -- I'm not going to speculate on a forecast, on a specific forecast around capital markets activity, but I do think your statement is fair in terms of the way I framed it, which is capital markets activity is starting '21 very robust. Based on the data we have, it seems like it will continue to be relatively robust in 2021, but we don't expect it to be at the same level that it was in 2020.

With respect to your second question, I assume you're asking about Global Markets wallet share? Or were you asking about banking and markets wallet share? Mike?

One moment, let me open up Mike's line.

Mike?

Yes. Can you hear me? Yes, trading here over a decade...

Of global markets you're talking about?

Correct.

Okay. So I talked earlier on the call about the way, over the last 2.5 years, we've evolved our strategy. And I think the strategy we have for our Global Markets business is a good strategy for Goldman Sachs. I like our position, and we've consolidated share.

Why have we done that? We've done that because we have a very client-centric approach, a very holistic One Goldman Sachs approach. We have a much more targeted wallet share approach to the largest institutional clients that we interact with in that business, and that has allowed us to strengthen our position. And so I can't go back and make all the direct comparisons that everybody wants, but I think there are a lot of things, and I stated some of this earlier, that are very different about what we saw coming out of the financial crisis and what evolved versus where we're operating today.

So the wallet may change, but I think we've made material strides in strengthening our position in Global Markets, and I expect us to hold a number of those wallet share gains, and we're very, very focused on making sure we do.

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

So first is on the investments that you're making on the consumer side. We -- there's regular speculation in the press around maybe what you might be considering on the M&A front. And actually, the speculation is centered on consumer banking. And so could you help -- is the indication and the idea that you guys are interested in investing in that business and pushing that impacting some of the targets?

It's sort of a clear indication that you're really interested in building rather than buying. And as I sit here, I just kind of wonder, "Okay, why would these guys want to invest so much if they had -- if there was something large that they were looking to do in anything remotely close to the near term?" Just curious, your thoughts on that, whether that's too big a leap.

Well, there's a lot there on what you said, Brennan, but I'm going to repeat something that I've said over and over again. We're focused on building an integrated digital platform in the consumer space. I think over the last 4-plus years, we're off to a very good start. We've given you lots of metrics so we can track that progress. And we continue to roll out on the investments that we're making, including, as we said, you'll see Invest this quarter, Marcus Invest this quarter and you'll see checking during the course of the year.

With respect to M&A opportunities broadly, whether it's to expand our consumer offering, whether it's to grow our Asset Management business, whether it's to expand our wealth management capability, we're always looking for ways to accelerate our strategic growth plans. If something came along that helped us accelerate or advance our strategic growth plan, and we thought that it was a good fit strategically and we thought we could acquire and integrate it attractively, then we would do it, just as we did with United Capital. But the bar to do something significant is extremely high, and it's not an easy thing to do.

So we'll continue to look for things that can accelerate our growth plan, but we're going to continue to invest in these businesses. And I think the important thing for you to note is that we have a lot of confidence that these can be sizable businesses at scale that are accretive to Goldman Sachs' returns even if we do not do something significant inorganically.

Okay. And then my second one is on the efficiencies, and I know there have been a few questions there. But from my perspective, it's -- I guess, it's just a little bit hard to unpack some and see some of the $650 million that you referenced earlier, Stephen. You guys have a lot of revenue and volume sensitivity on your expense side. And that's usually particularly true on the comp front. So maybe how much of the $650 million was in noncomp versus comp? And what is your expectation for the timing on the remaining $650 million? Any color is going to be helpful.

Yes, yes. So let me answer the question a couple of ways. First of all, a spot observation on noncomp expense in a year. So our noncomp was up 8% ex litigation. Of about $900 million of noncomp expense increase year-over-year, about 2/3, in excess of $600 million was variable expense, BC&E, all of which is related to the volume of activity that's coming through. And so I just frame that just so you have a sense of how noncomp framed out over the course of the year.

Now if you look at our achievement of about half of the $1.3 billion of run rate efficiencies that we've set as a target for ourselves, I would say up through the end of 2020, a good proportion of that came out of the compensation side, okay, relative to noncomp.

So by that, I mean, we've undertaken a very significant exercise over the course of 2020 at spans and layers, meaning we've looked at the sheer number of people we have in a variety of parts of the organization. We've looked at scope of management and we've been able to sort of achieve efficiencies in that regard.

We engaged in a front-to-back exercise that put more people from an ops and technology point of view in line of sight of the people in the business who know and understand what their objectives are and where they're going. Third is we've looked at location of where many of these people are and have accelerated that. And so that's on the sort of compensation side.

On the noncompensation side, I would say that we've done a complete rationalization of campuses in places like London and in Bangalore, harvesting significant savings there. We've moved to a more disciplined and centralized planning tool. We've looked to centralize our expense management through SAP, taking multiple platforms and pulling them into one.

All of these have sort of put us in a position to realize about 50% of the $1.3 billion and frankly speaking, give us a bit more confidence about what we can achieve on the forward, perhaps in excess of it. And so that may be a bit more granular than you want, but just to lay out sort of the elements, right, of where these expenses are being harvested.

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

David, you've been very clear about the difference in your success in this stress period versus 2008 and 2009. And we all know the consolidation of the broker-dealer community over the last 25 years has been dramatic. Can you address your success based on economies of scale and how -- I know you've done a very good job on the customer-centric focus that you talked about already. But how important is economies of scale today versus maybe 5 or 10 years ago? And is that an advantage that you and some of your peers have over the smaller broker-dealers?

Yes. So Gerard, I think it's a good question. I appreciate it, and I think there's a huge advantage. So putting aside some of the things I'm talking about that are strategically based on our conscious decisions, we happen to be one of a handful of firms that is global at scale and a market leader in these global markets and investment banking businesses.

And I think it is increasingly difficult to compete in these businesses unless you're global and at scale, unless you have the capacity to make very, very significant technology investments into platforms to better connect with your clients. And so there has been a consolidation of wallet share into the leading players across these platforms, and we continue to be one of those players. And I think that position has only grown and been strengthened.

I also would point out that we don't just have scale broadly. We've stayed committed, as I highlighted earlier in my remarks, to all the different silos and asset classes across our markets business. So you think about the many asset classes across markets, we benefited because we stayed committed to commodities, and we have a more fulsome offering for our clients and there was a real benefit to that this year.

So I think there's no question, the leading firms have a strong competitive advantage. I think, to maintain that competitive advantage and have reasonable margins given the capital requirements, the technology requirements, the regulatory requirements, being in a leadership position is much more important today than it was 15, 20, 25 years ago.

Very good. And then just quickly, Stephen, on the capital position and when the Federal Reserve releases all the banks from the limitations on share repurchases based on the income equation they have given you guys, would you guys consider an accelerated share repurchase program once everybody's released from that limitation?

Well, I think the manner and form of our execution sort of will decide and proceed forward. What I would reiterate is that right now, the Fed is not quite at the SCB regime that had been laid out initially. Remember, SCB was meant to put banks in a position. All banks, if you're above your minimum, you can go about share repurchase, dividend, et cetera. We're not there yet. The Fed has limited what we can do on repurchase. As I spoke about earlier, we will execute to the capacity that we have to repurchase in the first quarter. I don't think it's appropriate for me to comment on the mechanism by which we will do it but certainly safe to rely on the fact that we'll look to use our capacity and proceed from there.

Your next question is from the line of Brian Kleinhanzl with KBW.

Yes. Just 2 questions here. First, maybe just a clarification. On the provision that you mentioned from the credit card relationship, I think you said it was $200 million attributed to that. I just want to make sure, is that a gross number? Or are you saying that the provision expense in the first quarter, is it $200 million on a net basis?

Sure. So just to be clear, in connection with the back book that we're acquiring relative to the GM partnership, we anticipate taking approximately $200 million of provisions in the first quarter. So to be clear, it's not reflected in 2020. I'm just giving you and the market sort of an indication of what that will be occasioned by the acquisition of that back book, and that's an accounting rule and requirement that we're adhering to.

Okay. And then also as it relates to reserve, I mean, given what you -- expectations for economic conditions from here, I mean, when can you expect to kind of see more reserve releases or larger, I guess, reserve releases on a go-forward basis?

Sure. So again, in the fourth quarter, we're taking provision for credit loss of $293 million. I would tell you that embedded in that is a release of about $200 million, occasioned by better macroeconomic observations and adjusting the model and reserve release. That release though was offset in the context of incremental provisions, either occasioned by impairments or growth in the overall portfolio. So it's not to reflect anything negative or a negative comment on the state of our performance of the portfolio, but rather growth in it across the whole of the firm.

I would say, as an aside, we continue to see our consumer portfolio perform better from a credit perspective than even what we had anticipated coming into the crisis. But embedded in the provision is released, that release offset by growth and by impairments.

Your next question is from the line of Jim Mitchell with Seaport Global.

You seem to be progressing pretty well towards your targets. But I think whether you look at consensus expectations or talk to investors, there seems to be some skepticism around your hitting the 14% ROTE, the 60% efficiency ratio in '22. I mean I think that reflects some uncertainty around the trajectory of trading and IB.

But maybe we could take a step back and just ask it this way. I guess what kind of growth were you assuming in those kind of more volatile revenue streams? It doesn't seem like initially, it was a lot of growth expected from '19 levels. But I guess maybe asking the question this way, do you still feel comfortable hitting those targets in '22, with revenues in sort of trading and investment banking similar to '19? Or does it have to be materially higher?

So remember, on the efficiency ratio, and obviously, it's implied by your question, there's a revenue and there's an expense component to it.

On the revenue side, we saw more growth in 2020 than had been anticipated, but we nonetheless expect levels of growth consistent with what we anticipated at our Investor Day. And I'd also point out that we continue to work on the expense side, as we've spoken about, in relation to a number of questions on this call.

And there continues to be leverage in the business. To the extent that revenue growth doesn't materialize as we expected, we've got levers to pull on expense, which is why we are comfortable with a view that we'll achieve an efficiency ratio at or around 60% by 2022.

Obviously, we were better than that ex litigation in 2020. There will be variability to it, but there are levers to pull as and to the extent that the growth doesn't play. But we're assuming that it will, and it's not entirely reliant on global markets.

Right. I think the assumption was very minimal growth in sort of those core businesses, excluding some of the investments. Is that fair?

Yes, I think that's fair.

I think that's fair.

Your next question is from the line of Jeremy Sigee with Exane BNP Paribas.

Thanks for the strategy update. You've talked a bit about growth in the previous question and some of the earlier ones. But growth, I'm thinking of the organic build in some of your new businesses, the transaction bank and the consumer businesses. I wondered if you could put those in the context of the evolving environment that faces us in '21, with still some areas of stress continuing but some areas of recovery. Which of those new businesses do you see accelerating the growth or slowing or changing the game plan of how you proceed?

Well, it's interesting. I mean I think that we should take them each on their own. In transaction banking, I think what we have hit is a resonating cord with our clients about the nature of what we've built, meaning we've built a new and improved digital interface by which corporations can manage their operational flows. And that has been a refreshing change to kind of legacy platforms that have been there.

I say that not just simply an observer, but also a consumer of that service where Goldman Sachs is using its own platform. And I think that will continue in part because operational flows across corporates will continue almost notwithstanding what plays out in the context of the market movement overall.

The consumer side may be a different proposition. Now it depends on the perspective you take with respect to GDP growth and what happens with rates and the like. But I think as David has said, on the consumer side, we are playing for the long term. That is building a relationship with tens of millions of consumers and pivoting in 2021 to a broader, more comprehensive platform that I think will attract more consumers to the platform, not simply because there's an attractiveness to the deposit rate or to rate on lending, but because we'll offer a more comprehensive package of investing and checking and we'll become a more reliable primary bank to more consumers. And I think that will play out, again, kind of notwithstanding where the markets otherwise take us on some of the more capital markets-intensive activity.

And just a follow-up in a different area. In the Global Markets business, we've talked a lot on the call about the outlook for volumes and for volatility, but it feels like one of the elements of strength this past year has been wider bid-offer spreads. I wondered if you could sort of comment. Do you agree with that observation that, that's been a contributing factor to this strength? And how do you see that evolving? Do you think we see a return of pressure on trading profitability as we go forward?

So I'm going to go back to a response I made to one of the questions earlier, which is Q2 and Q3 look different than Q4. We experienced and benefited from wider bid-offer during the intensity of what played out in Q2 and Q3. And the fact, as David has mentioned now several times, that we stayed the game and showed up across a range of asset classes helped us and we benefited from that.

There's no question that has moved to the back of the year in Q4. You saw compression from what was wide in Q2 and Q3. But there again, wallet share gains benefited us and equally playing to both high touch and low touch. And so the advent of what we were doing through Marquee and equally through portfolio trading on these electronic platforms was of equal benefit.

So tighter bid-offer there as opposed to wider bid-offer in Q2. But I think you're seeing a business that is more diverse, broader and in a position to continue to intermediate flows and do so with very high balance sheet velocity.

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

So since there are no more questions, we'd like to take a moment to thank everybody for joining the call. On behalf of the senior management team, we look forward to speaking with many of you in the coming weeks and months. And if there are any additional questions that arise in the meantime, please don't hesitate to reach out to Heather and her team. Otherwise, please stay safe, and we look forward to speaking with you on our first quarter call in April. Thank you.

Ladies and gentlemen, this does conclude the Goldman Sachs Fourth Quarter 2020 Earnings Conference Call. Thank you for your participation. You may now disconnect.