Goldman Sachs 1Q16 Earnings Call Notes

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Harvey Mitchell Schwartz – Chief Financial Officer & Executive Vice President

The environment in Q1 was much different than in 2015, putting pressure on revenue

“The environment in the first quarter of 2016 stands in stark contrast to the environment in the first quarter of last year. Consequently, there was a substantial downward revenue pressure year-over-year.”

We don’t control the opportunity set

“this is the first quarter in a while that we faced significant headwinds across each of our business segments. Given that we operate in a cyclical industry, it shouldn’t be surprising that there will be difficult quarters.”

This is the first quarter in a while that we faced significant headwinds

“this is the first quarter in a while that we faced significant headwinds across each of our business segments. Given that we operate in a cyclical industry, it shouldn’t be surprising that there will be difficult quarters.”

We don’t manage for a quarter

“That being said, we don’t create deep client relationships in a quarter, we don’t hire our people for a quarter, and we certainly don’t build businesses for a quarter. Our success has been predicated on having a strong culture that promotes both a long-term perspective, while simultaneously being very focused on managing to the current environment. That long-term focus has been the foundation for building a leading global investment bank and creating superior results for our shareholders.”

It feels like many factors impacting the market have abated but it’s still fragile

“It’s early in April, so it’s obviously pretty early in the quarter, but I would say that it really feels like many of the factors that were impacting the market in the first quarter, particularly early on, seem to have abated and although the market feels a little fragile from all that, it feels like – for the most part, that feels like that’s behind us. But we’ll see how the year progresses.”

There may be a slow reaction function but it feels like things have abated

“So something that I think you’re certainly seeing a pickup – if you look at IPOs, I think there were something in the first couple weeks of April approaching 40 IPOs during the first couple weeks. So certainly elements of the marketplace which obviously slowed down very specifically. But I think after a tough first quarter like the whole market has experienced, I think that there may be a slow reaction function in terms of how various market participants engage the marketplace. But it feels like, as I said before, the most significant factors impacting the first quarter seem to have abated, at least for now.”

M&A dialogue feels better but “we’ll see how it goes”

“the dialogue and level of engagement feels quite good at this stage. Certainly there was an element to the first quarter which had a bit of a chilling effect for a period, but right now the dialogue feels good. We’ll see how it goes in the future.”

The big banks are 2-3x our size

“the big universal banks, they’re two or three times our size, they have a much bigger lending profile and a bigger retail commitment. So they will naturally participate in some flows that, given their size, we won’t participate in.”

Hedge funds are an important part of the client base

“we think of all of our clients as important, but obviously, we’ve had a big commitment to the hedge fund industry across equities and fixed them for a long time. We’re always rooting for their performance, and so to the extent to which they have improved performance, it may be a catalyst for increased activity. ”

High yield markets are receptive to solid transactions

“In terms of the high yield markets, over the last couple of weeks, still a bit selective, but they seem quite strong, one of the largest transactions was done just last week and so the markets are quite receptive to good solid transactions”

We’d love to grow the balance sheet if we could but there’s not a demand for it

“To the extent to which there was demand for the balance sheet and client activity picked up and that demand was accretive to returns, we’d be happy to grow the balance sheet, given the strength of our capital ratios. But we just haven’t seen that, so you’re not seeing us do this. But over time, the system is going to have to balance liquidity needs and I think that will happen. It just may take a while.”

We don’t believe that the environment is going to stay like this forever

“We can’t control what happens in terms of the environment. We don’t believe negative interest rates are going to be here forever. We don’t believe the client activity is going to be low forever. And you really have to look at this over long periods of time. Look, I will go back to book value, Dick. If you look at it over the past decade, we’ve grown it by threefold. I think that’s contributing value.”