The Goldman Sachs Group, Inc. (NYSE:GS.PK) 24th Annual Credit Suisse Financial Services Forum Conference Call February 14, 2023 7:45 AM ET
Company Participants
David Solomon – Chief Executive Officer
Conference Call Participants
Susan Katzke – Credit Suisse
Susan Katzke
Okay. Good morning, and welcome, everybody. I’m Susan Katzke. I cover the large-cap banks at Credit Suisse, and I’m happy to welcome everyone this morning to our 24th Annual Credit Suisse Financial Services Forum. We are thrilled to be here. Again, our line-up of financial services, management teams presenting, hosting one-on-one meetings is as strong as it’s ever been with 75 participating corporates, so a lot of interest. So much participation that we actually started yesterday afternoon.
So – and for those looking to gauge, kind of sentiment, is there interest in the financial space, we have record attendance down here in Florida in-person, well-balanced. We have hedge funds. We’ve got long-only investors, we have analysts, we have [PM] [ph]. So, it’s a really high-quality attendance as well.
So, let’s get to the real show. Without further delay, we’re going to go to our first speaker of the day, which is Goldman Sachs’ CEO, David Solomon. David, you really need no more introduction than that. I’m thrilled that you’re here to join us again. You did promise me last year, you were coming back. So, it’s good to see you make good on those promises.
David Solomon
I’m delighted to be here and I promise you, I’m delighted to come back to Florida in February next year too, so.
Susan Katzke
Excellent. Excellent. And we know you make good on a lot of promises, but we’re going to cover that. We’re going to cover a lot of ground this morning with you. And we look forward to an even deeper dive in two weeks at Investor Day. So, let’s get started.
David Solomon
Sure.
Susan Katzke
Before we talk about what’s ahead, let’s talk about the last few years. We’ve had some interesting talks sitting here. Two years ago, we sat here and COVID was just breaking out. That’s why we’re like six-feet apart. And then last year, we watched Russia amassing tanks at the Ukraine border. We’ve seen inflation spike, the Fed respond with tightening at an unprecedented pace. So, it’s kind of in this rolling series of crises and market dislocations. Let’s talk about how you manage through this. How do you set strategy amidst this level of uncertainty? And what have you learned along the way?
David Solomon
Sure. So, first of all, good morning, everybody, and it’s great to be here. I think it’s very, very hard to look at the last few years and not say that it’s been an extraordinarily unusual period of time. That said, one of the things I think I’ve learned, both as a banker over a long period of time, advising companies, but also just in my 4.5-year tenure, basically, you have to expect the unexpected, things never go the way you expect them to. And I think one of the great attributes of all great organizations is basically the organizations and the management teams learn and adapt and they’ve got to be responsive and nimble to what’s going on in the environment.
I think that’s particularly true of a business that’s like our business, that’s in this particular industry. It is a cyclical industry. Despite the fact that we had a long period of time where money was free and volatility was really tampered and so it made the industry look a little bit less cyclical, it’s still a cyclical industry and different things happen in the world that change perspectives.
I do think that the pandemic was a real, kind of out-of-the-box experience for all of us. I’ve said this before, there have been many pandemics through history, but what’s super unusual this time is, kind of in a unified way, all around the world, we kind of closed the world and we kept it closed for an extended period of time, and that was extraordinarily disruptive to economic activity and created significant imbalances in markets, in supply chains, in economic supply and demand.
And we responded to that with a very significant amount of government stimulus. Governments did all over the world, not just here. And that also had unbalancing characteristics. And we were just getting to the point where we said, okay, let’s kind of start to unwind this and rebalance this, and we had another highly unusual event, which was the start of the war in Western Europe.
And who would have thought. I guess, we might have been talking about it a little bit when we were down here last year, but the context at the beginning of 2022 that we’re going to have a ground war – a long-dated ground war in Europe, that was just not – that was not in, kind of the view of how the macro environment would unfold.
So, 2022 was a very unusual year. Fixed income and equity is down in tandem for the first time in 53 years. Obviously, it’s not every year that the S&P goes down 20% or the Nasdaq goes down 30%. If you’re an investor or if you’re operating a big business, you have to respond to all that.
You have to respond to the very dramatically tightening economic conditions, inflation. And so, I think you’ve always got to, kind of look ahead, you’ve got to understand that the road – it’s not going to be a straight line. You’re going to have to learn and adapt. You’re going to have to be nimble. And I think when you do that, you keep your eye on the long-term strategic goals you set for an organization.
So, one of the things I think is important to amplify is three years ago, right now, we had our first Investor Day. It was the first time Goldman had an Investor Day, and we laid out a plan. And despite the fact that I could not have imagined that the next three years would look the way they did, it didn’t fundamentally change the core tenets of our plan, which was to grow and strengthen our existing businesses, improve their market share, grow certain activities in those businesses, to invest in a series of opportunities for the firm to grow and expand its footprint, run the firm more efficiently.
That’s what we said at that Investor Day. And I think we made a lot of progress on that. We didn’t get everything right. We didn’t execute perfectly on everything, but we made a lot of progress on that. And that kind of never changed, and it hasn’t changed. That’s still fundamentally at the core.
We’re growing and strengthening our existing businesses. We’re trying to build some emerging businesses and opportunities. And we’re really executing, in particular, around Asset Wealth Management, where we really think we have a very interesting platform that three years ago, nobody could imagine how we were pulling this all together. And today, I think it’s quite a cogent story, and we’re kind of excited about it. But it’s – I didn’t know there’d be pandemic.
I didn’t know there’d be a war in Europe. I didn’t know there’d be significant inflation. I didn’t know there’d be rapid monetary tightening. I didn’t know that the S&P and the NASDAQ would go down 20% and 30%, respectively, in 2022, but you stick to your long-term goals and your medium-term goals, you don’t let the short-term noise affect, kind of where the compass is pointed and you keep marching forward.
Susan Katzke
Okay. So, there were a lot of things that you didn’t know were coming your way. But even so…
David Solomon
You didn’t know either, right?
Susan Katzke
I didn’t know either, no.
David Solomon
If you did, I wished you would have called me.
Susan Katzke
Yes. So, as we think about 2023, what is the outlook, as we sit here today from a macro standpoint? And how do you interpret the recent data points, which is kind of unfair with CPI coming out in an hour?
David Solomon
Well, I haven’t seen today’s number, which obviously I’m looking at, or I know my [phone will light up] [ph] when it’s out with all sorts of points of view. I think it’s still a very uncertain moment. It’s still a very uncertain moment. But I would say that the consensus – the macro consensus, and I’m not an economic – I’m not an economist, I’m not an economic forecaster and I’m keenly aware of the fact that I’m not good at making predictions.
However, I am very fortunate to sit in a seat or a position where I have lots of input coming from lots of other people around what’s going on in their businesses. And what I’d say is while it’s still very, very uncertain, the consensus has shifted to be a little bit more dovish in the CEO community that we can navigate through this in the United States with a softer economic landing than what people would have expected six months ago.
So, I know that – I saw recently a CEO survey that was sponsored by the Conference Board, that basically said that 85% of the CEOs that were surveyed thought that the most likely scenario in 2023 was kind of a mild recession or no recession, a shallow recession or no recession. If you had looked at that back last June, you would have had a much greater percentage of the population saying there was no CEOs, saying there was no chance we can navigate through this without a very meaningful recession.
So, I think the consumer has been much more resilient than people expected. I think there have been behavior patterns based on the way people live and work. They’ve affected people’s disposable income and have shifted the way they’re doing certain things, and they’ve been a long run out on that, but inflation is still sticky.
And I’m in the camp that it’s still uncertain exactly what the trajectory will be of tamping down inflation. And inflation is a big headwind for growth. It’s a big headwind for corporate investment. I think investment in industrial companies is still going to be relatively conservative for a period of time until there’s more certainty.
And so, I’m not sure I agree with the consensus that’s a softer scenario, but there are still tails both to the positive and to the negative that could be harder. And I just – I think we’re in an environment where we’re probably going to have, kind of more sluggish, slower growth for a period of time until we get a lot of this to rebalance. Put geopolitics on top of that. I think what’s obviously going on between the U.S. and China at the moment is certainly something that’s a headwind to growth.
Now obviously, China opening up is a catalyst for growth, but it’s also inflationary to some degree. So, it will be interesting to watch the number this morning. Clearly, the market has a sense that we’re putting inflation in the rearview mirror. The market’s behaving that way, but I’m less certain and I think it’s going to be a twisty tourney, kind of road to, kind of navigate through this and get to the other side, but I think the chance of a softer landing feels better now than it felt 6 to 9 months ago.
Susan Katzke
I think that’s fair.
David Solomon
Does that resonate with you?
Susan Katzke
Yes. Yes. No, that’s completely fair. And I’ll let you know as the day goes on, whether or not everybody echoes that sentiment. So, let’s take that into market.
David Solomon
Yes. But it’s a different just one thing, I’m sorry, Susan. It’s – we are definitely in a different macroeconomic environment than we’ve lived in for the last decade. And I still think that people are adjusting to that. People are going to have to adjust to that with respect to asset prices and returns and things like that. And it’s an adjustment period. And like everything else, it lags. It takes time for people to accept the new reality, and we’re still, in my opinion, in that transition.
Susan Katzke
Okay. So, let’s talk about how that translates to market sentiment and kind of what’s going on and what’s your outlook for strategic activity and kind of client sentiment and engagement as you think about what you’ve seen in January and early February?
David Solomon
Yes. So, there’s no question that the strategic activity has been slower okay, over the course of the last three, four months, hasn’t been nonexistent. Actually a couple of good-sized deals this week that have been announced, but I’d say you have two headwinds to the extraordinary – to going back to the extraordinary robust level of strategic activity we saw over the last couple of years, and this is obvious.
Strategic activity is partially rooted in confidence. And it’s very hard to say confidence is as high now as it’s been over the course of the last couple of years when the world was, kind of flying high. So, confidence is down. Yet at the same point, people have to – you heard me when I started talking about how I think about things, medium and long-term, medium and long-term.
So, people have strategic plans for their businesses, and they have to stay focused on the medium and the long-term. And that requires capital allocation. And one of the things that for most companies is important in capital allocation is the possibility of inorganic growth. And so, it continues. It’s part of our ecosystem, just not at the same pace that we’ve seen when confidence is higher. And to get that activity moving again at a similar pace, confidence levels have to go up.
The second headwind is we’re definitely in a regulatory environment that’s creating more significant headwinds to more significant transactions. That’s now. I don’t think it’s permanent. I think that ebbs and flows, but it’s certainly [Technical Difficulty] not going to change by May. And I think that’s going to be a headwind for a period of time. It’s – that’s certainly going to affect the way people think about very significant or transformative transactions across a number of industries.
It’s very hard from a regulatory perspective to get significant transactions done. And there’s a bias from a regulatory perspective to prevent them or put roadblocks to them. And so, that affects the way CEOs and Boards think about that. And I think that’s a reasonable headwind at this point in time.
Susan Katzke
Okay. But then when we look at capital markets engagement, it’s picked up…
David Solomon
It’s definitely picked up.
Susan Katzke
DCM, in particular.
David Solomon
It’s definitely picked up. DCM activities picked up. You have to think about last year’s capital markets activity. What happened in the second half of 2020 and 2021 in terms of capital markets activity was an outlier to the positive. And I think people looked at those activity levels they’re like, oh, this is a new normal. That was not normal, 2021. At the same point, 2022 wasn’t normal either.
You can go back, and I know you’ve looked at this. You can look at DCM wallet and Equity Capital Market’s wallet over the last 20 years. And these are big businesses that have meaningful revenue averages over a long period of time. They were way above those averages in 2021 and way, way below those averages in 2022. And I bet a lot of money that normal is still normal then we’d just – you gravitate back to the mean. These are very sizable businesses.
So, you’re starting to see a pickup, that’s confidence based too. That’s also pricing expectation. So, if you thought that you could do a debt deal at x price and all of a sudden, it’s x price plus 200, you pause and say, well, I’ll wait until it goes back. After about 4 to 6 quarters, you realize, it’s not going back. I actually need the money. This is what the money costs and let’s move ahead.
The same thing with IPOs. If you thought you could take something public at x multiple and now it’s x multiple less 40% or 50%, it’s going to take 4 to 6 quarters until you say, okay, this is new reality, how do I think about that strategically, and so that’s the adjustment that we’ve been going through. But the capital markets are important to investment in growth. They always will be. And I can’t tell you exactly how it rebalances in 2023, but if you think over the next three years, we’ll be a rebalancing of that activity in a way that you and I have a look at it and say, that looks more like normalized capital markets activity.
Susan Katzke
Okay. And then I gather [Technical Difficulty].
David Solomon
We’ve made a lot of progress on that. The client franchise is in excellent shape. Our shares have never been stronger. I think our relative performance in that core investment banking and markets business last year was very, very strong. And I think one of the reasons why we re-segmented the firm is, I felt that those businesses have performed very well on a relative basis.
Now, for the first time, you can actually compare them to the way JPMorgan, Morgan Stanley they report them. I mean it’s – and I think it’s one of the things as a public company you’ve got to do, is you’ve got to be willing to benchmark yourself in a way that people can understand. And so, you now can see the relative performance of those businesses, and it’s strong with fully allocated capital into the businesses.
So, I feel very good about that. I can’t tell you what kind of volatility or twist and turns there will be, but we have a very market-sensitive business and I think in a very complex year for our business mix we performed well. And we had a 10.2% return on our equity, a very complex market for our – very complex environment for our particular mix of businesses.
Susan Katzke
Yes. So, let’s turn and dig a little bit more deeply into those businesses, having spent a bunch of time with investors since the fourth quarter earnings. Let’s clarify a few items, understanding that there’s obviously, a lot more to come on February 28 at Investor Day.
David Solomon
We’ll spend time at Investor Day. But again strategy is a strategy, and strategy is a strategy we’re executing. But I don’t want to overpromote this…
Susan Katzke
It’s – I think as [Johan] [ph] reminded me last night, it’s an evolution. It’s not a revolution. Evolution. So, let’s do some clarifying, in terms of the core businesses and what you learned in 2022 in terms of kind of the positives and the negatives that impacted the results?
David Solomon
Yes, in the core businesses, so to the positive, there was a lot less – advisory revenue lags because you do deals and then it takes a while to close them. And so, you get league table when you do them when they’re announced, but you get revenue when they close, and it can take 3 months, 6 months, 9 months, a year, 18 months. And so, there’s been a reasonable pipeline of M&A business and the M&A business continued to accrue. And our share of what was available to set up the backlog going forward, it’s not at the same pace that it had been, but it’s still relatively strong on historical context.
Capital markets revenue was anemic. And by the way, I’ve seen this before. In 2021, we had $4 billion approximately of equity capital markets revenue. In 2022, we had 800 million. That’s a pretty dramatic swing. The $4 billion wasn’t a permanent run rate. The $800 million is not a permanent run rate. You can go back and look at the averages for those businesses over 20 years, and they’re solid businesses.
I happen to be, in 2001 – the fall of 2001, I was working in fixed income running our credit trading businesses and Hank Paulson said to me, “I want you to go run equity capital markets.” And I said, okay, I’ll go do that. Now, that was coming off of the tech bubble, and the record in that cycle for equity capital markets revenue was 2.4 billion in 2000. In 2001, it was 1.9 billion. This was a NASDAQ was just starting to go.
So, it was pretty big business. And I was excited to walk over there. And my first year of leadership, that business did $612 million of revenue. So, you’ve seen these cycles before. So that obviously, as revenue that had to be replaced in some way.
Our trading businesses performed well. And I think the change in positioning and the change in client activity, because the world changed so dramatically was, kind of a countercyclical tailwind to some degree that our clients were very, very active, and I think we’ve done a very, very good job deploying financial resources to support them. And I actually had dinner with a big, big client last night in Palm Beach, big asset manager. And I felt very good about the fact that she said to me, I just want you to know, when things were tough this year, you guys always showed up.
You always showed up with resources. Your teams were always present. We might not have loved what the prices were, et cetera, but when there was real volatility, you were present. That’s what we strive for in those businesses, to be the best client service, the most client-focused to really either and support our clients through good and bad. And I think we’ve executed on that.
We grew our financing business meaningfully. That growth in the financing business, which we started three years ago adds an additional layer of revenue in those businesses that makes those businesses larger. Now, obviously, you have to do that prudently. You have to do it with really appropriate risk management. We’re always very focused on it, but I think we executed well on that.
In our Asset & Wealth Management business, we continued to grow our assets. We continue to make progress on our management fee target. We got up to $8.8 billion of management fees on our way to our $10 billion target. We continued on our fundraising goals. The alternatives goal, which we had started at $150 billion and increased to $225 billion.
I think we’re at $179 billion or $180 billion. So, we continue to make progress there. But what you saw, and this is why it’s part of our strategy, is the balance sheet intensity of that business, which we’ve been working to bring down and we’ll continue to work to bring down, in this particular environment, it was super susceptible to this environment with asset prices down materially. And that was a big drag on the overall performance. That was the biggest drag, candidly, on the overall performance of the firm.
So, I think back to the fact that strategically, we made a decision to decrease. We had decreased it. By the way, had we not decreased it meaningfully over the last three years, it would have been a tougher year in the 2022 environment, but we’re still on that journey. We still have work to do.
Obviously, in this environment, that might go a little bit more slowly than you want, but we’re very focused, and we have a plan. And we will continue to shift the mix from, kind of this legacy on-balance sheet investments into a mix of capital that’s in funds, that’s alongside our client that clients that obviously will have a little less volatility in different market environments. But I feel, like we’re executing well there.
Susan Katzke
Okay. So, let’s turn to expenses. Expenses, resource management. There’s been a lot of focus on that expense line and Goldman’s ability to drive operating leverage. So, you have a strong track record and the ability presumably to be nimble. We’ve seen this before. But what’s your conviction of being able to really right-size the firm for this opportunity set given the expense pressures that you’re seeing out there? And then we’ll talk kind of comp leverage, non-comp leverage, the actions you’ve taken.
David Solomon
I’m very confident in our ability to be nimble and constantly adjust the firm to serve our clients really, really well, but also to drive the right medium-term performance. What we’re not going to do, okay, is we’re not going to let short-term market volatility take away from longer-term strength of the firm. So, we certainly are on top of rightsizing and adjusting the headcount appropriately.
We’ve said publicly that we’re looking at certain non-comp actions. But I would say, that one of the things that’s important right now is, there’s a lot of inflationary pressure that all businesses are facing. And so, one of the reasons why it’s important to be very diligent around expenses is you still have headwinds on the other side. So, you have inflation in BC&E. You have inflation and regulatory fees.
You have inflation in other cost infrastructure. And so, we’re finding as we work to create efficiencies and take costs out, there are other headwinds that rebalance that. But we are in a position to lower the headcount of the firm. We’ve taken some action. We have a much tighter hiring plan in 2023, and that attrition rolls through, and so that also helps and creates more cost leverage. And I think we’re very targeted and focused and we’ll be in a good place.
I want to remember also the performance of the firm, it’s not like we had a 3% ROE, like we had in 2011. And so, it’s not a 5-alarm fire, to really be pulling the firm apart to improve short-term return. Short-term returns in this environment were still reasonable, not what we aspire to, but still reasonable. And so, it’s got to be seen through that lens.
I’d also tell you that we made a bunch of adjustment to compensation last year, but at the same point, we ran a very big firm, and there are a lot of a lot of people that work on our firm that make an amount of income that there is no comp adjustment for. And especially in an inflationary environment, there’s the other pressure. And so, a very, very significant part of our population operates at income levels where actually there was wage inflation over the course of the last couple of years.
And so, all that has to be balanced. We’re very focused on it. You’ve watched us for a long time. You know we’re nimble. You know when we say something, we do it. We don’t say things unless we don’t think we can do them over a period of time. But we’re going to be very focused on that this year. We’re working – we’ve worked through our business plan, and we’ll continue to be tight on expenses and do the things we can to make sure we’re delivering for the firm, for our clients and for shareholders.
And I’d also say there are other headwinds. All companies in our industry are facing this. The tech investment that’s necessary has increased. The regulatory burden has increased. And so, it’s a balance. And so, we’re very focused on finding places where we can get expense out – our focus on expense. So, where you have these other headwinds you can keep things more in balance as you go forward. And then you get a slightly better revenue environment than you had last year and things look pretty good.
Susan Katzke
Right. I gather you’re quite confident that you do have comp leverage over time in an environment revenue generation is better and that you took your actions. I think it was back in July, you started talking about taking actions on the non-comp and that, that will begin to show through.
David Solomon
Absolutely. Absolutely. We – I’m confident that we have leverage, et cetera. But as you also know, and we said this, we operate in a very competitive environment at the moment. And with everything we’re saying, labor is still – all kinds of labor, still very tight right now.
Susan Katzke
Evolution.
David Solomon
It’s an evolution. Absolutely. Yes, absolutely. But I feel very – I always – the true north compass is how are our clients experiencing the firm? How are we executing for our clients? What kind of feedback are we getting for our clients? I’ve always believed this, if we serve our clients extraordinarily well with a medium and long-term perspective, our business will do just fine.
Susan Katzke
Fair enough. Let’s talk about Platform Solutions.
David Solomon
Sure.
Susan Katzke
The message around the narrowing of your focus and driving this business to profitability, I think, has been pretty clear, but maybe you can help clarify where you are actually planning to slow growth? And what are you going to do to continue to focus on where are you going to build? So, what’s slowing? What’s building? Is – I think there still seems to be some lack of complete understanding.
David Solomon
Yes. And I understand that. I think if we went back, we never put all the consumer stuff together and made it transparent as one thing. It was never disclosed that way. There are things around the consumer business that we did that have worked very well. Our deposit platform has been a huge success, and by the way, a very profitable thing for the firm and hugely strategically important to change our funding mix from being the largest wholesale funder into something where we have a much more diverse fund. Makes the firm safer, more secure, which is a very, very good thing.
We really have three different business activities in platforms. We have a transaction banking business, where we built really good technology. We’ve done a very good job getting deposits, which have been valuable and also getting people onto the platform because they like the technology. Now the next part of the business plan is to continue to find other revenue streams and other ways that we can make it a bigger business. And we’re on that journey, and we’re moving along.
We have our credit card platform. And our credit player platform, I think we’ve built something that’s valuable. We have really good technology. But in this environment, you have two things that have happened. As you’re ramping up your portfolio growth from scratch in a more difficult economic environment, the provisions for credit losses actually have to be larger because your estimate for the environment is tougher, and that’s a bigger drag to get the business to where you want it to be.
And so, we’re looking at that. We’re looking at the way we deliver that service. We’re working with our partners because we think there are lots of opportunities to deliver those services better and more efficiently to make the platforms more long-term profitable. And so, we’re focused on that. And then we bought this business GreenSky, and I would talk both the credit card platform and GreenSky, which is the merchant point-of-sale business, these are emerging business opportunities for us.
They’re emerging business opportunities. We’ve owned GreenSky for 5 minutes. It’s a good business, but we’ve owned it for 5 minutes. We knew when we bought it that you would have to ramp a portfolio. We knew when you ramp a portfolio, there’s a drag. But we’ve owned it for 5 minutes, we’re focused on it and we’ll make the right decisions around how to run it and how it will contribute to Goldman Sachs, and we’ll talk more about it as we go forward.
But I want these things – I think it’s actually a good thing for a company like ours that generates an enormous amount of capital within some limitations to experiment on new platforms or new opportunities, [within the three] [ph] platforms and new opportunities where you could expand the footprint of the firm in the medium-term.
If you just stick to a very narrow set of things that you do and you’re generating a lot of capital, you – where can you put it in your existing businesses? How can you return it to shareholders? We think about all those things. But I think it’s okay for us to be experimenting with some of this stuff. But if we don’t get it right or we find it’s not working the way we want it to work, we will adjust, but it’s got to be put in a reasonable frame of time, investment and work. It’s not easy to start businesses or buy businesses and just immediately execute on.
Susan Katzke
Okay. So, you raised the topic of capital. So, let’s switch gears there and talk about – I mean, it surprised me – it shouldn’t surprise me. You told us you were going to hold the 3% G-SIB surcharge, but…
David Solomon
Why did it surprise you?
Susan Katzke
It took a lot of active management in the fourth quarter to get the score into that category. You told us you were going to do it, and that was the intent. And as long as you were protecting the client franchise, that’s what you did, and it was done. And so, you’re sitting here with a fair bit of excess capital on the balance sheet now and more flexibility heading into this year. So, how are you thinking about deploying the excess? And is it client opportunity or will you look to do more buybacks?
David Solomon
Sure. So first, if I can just go back to what you said, yes, I think it’s important and it ties to other things. When we say we’re going to do something, we’re going to work really hard to do it. And it also – I think the way we manage our capital is nimble. I think one of the things that we do and we focus very hard on is, we want to be nimble, and we want to be flexible because the ability to manage that stuff real time and either deploy capital to client opportunity when it’s there and you can serve your clients and produce accretive returns for shareholders, that’s a great skill. But when it’s not there, the ability to be more conservative or pull back and manage aggressively and nimbly, I think, benefit shareholders.
And so, we felt good about the way we executed and now we’re set up where the next test on this is three years out. And so, we’re in a very good position. We did wind up the year with a higher amount of capital and more flexibility. When we see client opportunities, we will absolutely deploy to client opportunities where we think there are accretive returns and where there’s a client need. We always want to do that when it exists. And so, we have the flexibility to do that.
We also have the flexibility to potentially return more capital for a period of time. And I think one of the things, Susan, you have to frame is, if you go back and you, kind of look at the firm, over the last couple of years, we were making some investments and we were deploying capital into those investments. Because we’ve done that, and we now are where we are, we have a little bit more capital flexibility than we’ve had the last couple of years.
Now, I know there’s also noise out there about the Basel revision. I don’t know where that will go. There’s noise about [Michael Barr’s ] [ph] capital review, don’t know where that will go. But I think the firm remains in a very nimble and flexible position to deploy capital to client opportunity, return it to shareholders if we don’t see that client opportunity, or to the degree that the capital rules adjust, be very flexible and quick to adjust to meet those capital rule changes.
Susan Katzke
And there’s also M&A, there’s a possibility. And we know what you typically say about this, but your core businesses have outperformed. They continue to outperform and be very well positioned. But there is a strategic evolution underway. And I think it’s important to hear, kind of how you’re thinking about M&A, potentially transformational M&A at this point that would move you further faster.
David Solomon
Yes, I’m not going to deviate from my script on this. My script on this is, obviously, inorganic growth is always an opportunity for the firm, but the bar is very, very high, especially for things that are significant. I would certainly expect, when you look forward through this decade, there could be opportunities for us to accelerate our plan.
I also think we’re operating in a regulatory environment. Just to use your word, if we try to do something transformational, there would be a very high bar to get over it. I don’t – there was – I mean it was an article written somewhere I saw that was – somebody was suggesting we should merge with another G-SIB.
I can assure you there is no possibility in the world that we can merge with another G-SIB, and that’s not something we want to do. But in Asset Wealth Management, there will be opportunities and maybe in a different environment, they’ll look from a pricing perspective more attractive than they’ve looked in the last few years. But we’re going to be cautious and disciplined, and we’ve done a few small things, but integrating things and getting them right, you’ve got to be really, really sure and culture matters and culture is super important to us.
Susan Katzke
Understood. Understood. So, as we kind of wrap this up now, let’s talk about at the end of the day, what gives you confidence in positioning the firm? The path forward to higher returns? And before we finish this, let’s also talk about those higher return targets and your level of comfort with those medium-term targets that were, I guess, set here last year at the strategic update?
David Solomon
Yes. So, what I would say is we’ve worked very, very hard to strengthen kind of the base returns of our core businesses. And I think you’d agree, we’ve made progress on that. When you look through a cycle at these businesses – I wouldn’t call 2022 a normal year through an operating cycle for our mix of businesses. But when you look at our two big businesses, Global Banking and Markets and Asset and Wealth Management, I think those businesses, we’ve raised the floor.
I think those businesses can deliver on our targets through the cycle. And obviously, we have a drag right now from some of the things platforms, but you know we’re not going to let that drag go on indefinitely. And so, I feel very good about the way the businesses are positioned to deliver for shareholders.
Susan Katzke
Great. We look forward to hearing more on February 28 at Investor Day.
David Solomon
Great. We look forward to being with you and having an opportunity to discuss a little more detail, what’s going on in these businesses because we feel like we’ve made progress. We continue to make progress. It’s never a straight line, but I feel great about our client franchise and great about the way the firm is moving forward.
Susan Katzke
Thank you.
David Solomon
Thank you. Thanks for having me. I appreciate it.
Susan Katzke
Always.
David Solomon
Thank you.
Susan Katzke
We’ll see you next year.
David Solomon
Absolutely. Thank you very much. Thank you.
Question-and-Answer Session
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