Goldman Sachs 2Q16 Earnings Call Notes

Goldman Sachs Group’s (GS) on Q2 2016 Results

Harvey Schwartz

Clients continue to wrestle with uncertainty from Brexit vote

“In response to the Leave vote on June 23, market volatility spiked and global equity markets declined significantly, with the MSCI World down roughly 7% in two days. While equity markets largely reversed those losses in the last three days of the quarter, clients and the border marketplace continue to wrestle with the Brexit vote and related uncertainty.”

Economic growth is the most important long term driver of our business

“In conclusion, the first half of 2016 has certainly presented its fair share of challenges and concerns. At the core of these concerns is the outlook for the global economy. As you have heard us state many times before, confidence in economic growth is the most important long-term driver of our business. Confidence incentivizes client activity, which increases demand for our advice, our content and our execution capabilities. While like the rest of the world we would welcome more robust economic growth, ultimately we have to manage the firm for both the current environment and potential future opportunities.”

At this point our bankers don’t feel that Brexit is going to be a headwind

“In terms of Brexit, where we sit today, given I think that the base case expectation is that the dynamic is going to play out over a long period of time, and in some respects it may contribute to some of the same factors that contributed to a very active M&A environment, other than maybe very specific transactions that are geographic in nature, that are really driven by geography, which is generally few, when we talk to our bankers, if we continue in this low growth environment, they don’t feel sitting here today that Brexit is going to be a headwind but obviously it’s going to be a dynamic situation.”

We were prepared for Brexit, saw volumes pick up after

” obviously we were preparing for Brexit well in advance, even though we all expected it to be a very, very unlikely outcome, but we were significantly prepared for that and that really left us in a position, we feel, to be very front footed with clients. Going into Brexit, client activity tapered off, but at the point of Brexit and potentially thereafter in a number of our businesses, we either near-peak volumes or peak volumes, or new peaks, so that was quite good to see.”

We’re hopeful that the Brexit negotiations will be thoughtful

“In terms of the longer term perspective on Brexit, as I said before, this looks like this process is going to take a while, and we’re hopeful, along with everyone else, that the parties that are engaged in these negotiations will be prudent and thoughtful because obviously it’s good for all of us, a thoughtful negotiation and outcome will just be good for economic growth.”

I think you would’ve been surprised that equity markets would rebound so strongly after Brexit

“Yes, I think that’s a reasonable question in terms of just the unique nature of Brexit. It’s interesting how the world—so the market reaction, the activity level right around Brexit obviously I don’t think was surprising to any of us. I think you could have sat there those couple days after Brexit and if you were forecasting the next month of activity, I think you might have been surprised if we could have known in advance that equity markets would rebound so strongly, there would be a rebound in currencies, and the world would sort of normalize.”

The speed with which things have rebounded may be a harbinger of better activity

” I think that may be a little bit different, to go back to the core of your question about things we’ve seen in the past, so this normalization was so quick that it actually may be something that’s a better harbinger in the near term usually following one of these events for activity levels. I can frame that for you in a bit more detail. So I talked about the merger business earlier. If we stay in this low growth environment, unless something is really uniquely impacted by Brexit and if the negotiation process takes a long period of time, then as I said, our bankers don’t necessarily see this being a headwind. If we stay in this low interest rate environment and you take a look at our asset management business, then this is really an environment where clients need advice, and that also translates into our ITS business.”

There’s always something that could cause a client to delay making decisions until a later period

“Look, I think this cycle will have its unique aspects to it versus other presidential cycles, but historically there’s always been some element which may have ultimately deferred a decision that a client might make to a later period. But these are short term in nature, so we don’t see any significant impact in terms of the near term.”