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Goldman Sachs Group Inc. (NYSE:GS)

Fixed Income Investor Conference Call

November 6, 2013 12:00 PM ET

Executives

Heather Miner – IR

Harvey Schwartz – CFO

Elizabeth Robinson – Chairman and CEO

Analysts

David Macgown – Morgan Stanley

Operator

Good morning. My name is Denis and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs Fixed Income Investor Call. This call is being recorded today Wednesday, November 6, 2013. Thank you Ms. Miner. You may begin your conference.

Heather Miner

Good afternoon. This is Heather Miner from Investor Relations at Goldman Sachs. Welcome to our Fixed Income Investor Conference Call.

Today’s call may include forward-looking statements. These statements represent the firm’s belief regarding future events that by their nature are uncertain and outside of the firm’s control. The firm’s actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the firm’s future results and financial condition please see the description of risk factors in our current annual report on Form 10-K for the year-ended December 2012.

I would also direct you to read the forward-looking disclaimers in our quarterly earnings release, particularly as it relates to our estimated capital ratio, estimated risk-weighted assets, total assets and Global Core Excess. And you should also read the information on the calculation of non-GAAP financial measures that’s posted on the Investor Relations portion of our website www.gs.com.

This audiocast is copyrighted material of The Goldman Sachs Group, Inc. and may not be duplicated, reproduced, or rebroadcast without our consent.

Our Chief Financial Officer, Harvey Schwartz, will give a brief overview of the firm’s year-to-date operating results, balance sheet and capital management strategy and our treasurer, Liz Robinson will review the firm’s liquidity position and funding strategy. Following the prepared comments Harvey and Liz will be happy to take your questions. Harvey?

Harvey Schwartz

Thanks Heather and thanks to all of you for dialing in today. I apologize for starting a few minutes late. We know a few of you were having a hard time dialing in and we just want to give everyone a chance to participate in the call.

In terms of today’s discussion Liz and I are going to walk you through some slides. They have been posted on the investor relations website at gs.com.

Turning to the first page we want to start with a quick overview of Goldman Sachs financial profile by examining our key credit characteristics. As you know there’s been a fundamental transformation of our balance sheet and credit profile since 2007. As we’ll discuss throughout this presentation liquidity and capital are up significantly while risk is down.

We continue to finance our assets with term funding across unsecured, secured and deposit channels, underpinning our strong credit profile is our risk management infrastructure. The risk infrastructure is built on conservative limits, stress testing and a single technology platform.

Before Liz and I delve deep into credit related topics let’s spend a moment on slide two reviewing our year-to-date performance. Year-to-date we generated net revenues of $25.4 billion, net earnings of $5.7 billion and earnings per diluted share of $10.89. This translated into an annualized return on common equity of 10.4%.

You can see on the right side of the slide the revenue mix has been diverse and broad. While there were some headwinds in the third quarter our year-to-date performance remains solid in what continues to be a somewhat challenging macro environment. This difficult operating environment has impacted client activity during the course of the year. In the U.S. clients are focused on mixed economic data, political uncertainty and the potential for changes in monetary policy.

While Europe has been less of a focus, at least compared to last year, the real European economy remains challenged. In Asia we have seen [varied] trends. There has been a significant shift in Japanese monetary policy and concerns about growth in China earlier in the year have moderated given better recent economic data. This somewhat complex and uneven backdrop for the macro economic outlook combined with the uncertainty surrounding Central Bank activity has led to client risk erosion and lower activity levels at certain points of the year.

As a financial institution we operate in a cyclical industry and the environment can fluctuate from year-to-year or quarter-to-quarter, like this year. We can’t control the operating environment but we can control our financial profile and our response to changing conditions.

Turning to slide three, we ended the third quarter with our balance sheet at $923 billion, down slightly this year. We have shed certain assets including our America’s reinsurance business, our investment in ICBC and we’re in the process of selling our European insurance business. In addition, there continues to be less demand for our balance sheet given lower client activity levels and reduced risk appetite.

On the left side of the slide we show the composition of our balance sheet as of the third quarter. The most important point is that cash and secured client financing represents half of the balance sheet. The remainder is mainly institutional client services which represents our client facing inventory.

On the right side of the slide you can see the significant improvement in liquidity of our balance sheet since 2007. Total assets are down 18% and level 3 assets are down nearly 40%. Although assets have declined our Global Core Excess has nearly tripled. We continue to be vigilant about properly sizing our less liquid exposures. In addition we have a high velocity balance sheet which off-course is characteristic of market making businesses.

Turning to slide four you can see an update on our capital levels. At the top left you can see our estimated fully loaded Basel III tier one common ratio under the advanced approach is 9.8% as of the third quarter. His is up 50 basis points from the second quarter. We show our estimated risk weighted assets on the right side of the slide at approximately $590 billion which breaks down as follows: $345 billion in credit risk; a $165 billion in market risk and about $80 billion in operational risk.

As you are aware under the regulatory process there are transitional provisions which phase in over time. Using these provisions our estimated Basel III tier one common ratio is roughly a 100 basis points higher.

On the bottom left side of the slide we show our best estimate for the supplementary leverage ratio. Based on the U.S. rules our estimated leverage ratio is approximately 5% for the firm and approximately 6% for the bank. Of course this is our best estimate and subject to change. Like all other regulatory requirements we will work closely with our regulators as they evaluate and finalize the rules.

We believe it is our obligation to support safety and soundness within the financial services industry and more broadly the global financial system. As it relates to how we will run the business similar to other regulatory metrics, the supplementary leverage ratio would be an important input.

With that I’ll turn it over to Liz who will provide an update on our liquidity and funding strategy.

Elizabeth Robinson

Thanks Harvey. On slide five maintain abundant liquidity remains the single most important risk management principle for the firm. As we discussed during our previous calls we hold material quantities of cash and cash equivalents to prefund potential liquidity needs in a stressed environment. Our liquidity pool continues to be a significant portion of the balance sheet at $187 billion on average in the third quarter.

You can see the mix of our liquidity on the right side of the table. It remains largely unchanged with the most significant portion made up of U.S. government obligations and overnight cash deposits which are mainly at the federal reserve. There continues to be a focus in the market on Basel liquidity requirements and the liquidity coverage ratio. As you know the federal reserve recently released a proposal – a notice of proposed rulemaking on the liquidity coverage ratio.

With $187 billion of average global core excess our initial interpretation is that the firm is well positioned to meet the requirements. However the proposed rule requires further clarification and obviously is subject to change as we move through the rule making process.

Moving to slide six, let’s turn to our secured funding. Our total on balance sheet collateralized financing of approximately $204 billion principally comprises liquid government securities and federal agency obligations in our interest rate business. Our firm specific financing is approximately $100 billion for non-GCE eligible assets financed from our principal broker dealer entities.

As we’ve discussed in the past we’ve raised secured funding with a term that is appropriate for the liquidity risk associated with the type of assets that are being financed. Given the high turnover of our assets we believe a weighted average maturity of greater than 100 days is appropriately conservative for our non-GCE secured fundings.

Our long term strategic initiative coming out of the financial crisis has been to expand the number of counterparties who finance our non-GCE secured funding books. Since 2008 this number has nearly tripled. We’ve seen significant growth across a variety of sources including insurance companies and pensions endowments and foundations.

Given the significant reduction in the size of our non-GCE funding book post the crisis as well the growth in funding counterparties the average funding per counter party has dropped by 75% from $2 billion to roughly $500 million.

Moving to slide seven, we show our long term unsecured funding. Here we continue to focus on ensuring stability and reducing refinancing requirements through appropriately long dated and conservatively spaced maturities. Given our focus on term our long term unsecured debt currently has a weighted average maturity of eight years.

As you can see on the top right portion of the slide our issuance over the past three years has roughly kept pace with our maturities. Key issuance priorities continue to be diversification and maintaining manageable maturities in any given year or quarter.

In terms of diversification we are focused on diversity across both currency and distribution channels. We regularly assess pricing versus our U.S. dollar institutional funding curve to judge the attractiveness of non-U.S. issuance.

As you can see on the bottom right part of the slide the 2013 contribution of non-USD issuance has increased by 12 percentage points to 35% relative to 2012. We have also focused on growing our retail program with approximately 17% of the 2013 program issued through retail networks.

From a regulatory capital perspective we have continued to opportunistically build towards future Basel III total capital requirements and we executed a $1 billion non-cumulative perpetual preferred offering during the second quarter. This follows our $850 million preferred offering in the fourth quarter of 2012.

As we think about our issuance strategy for 2014 we will remain opportunistic while being focused on diversification by markets and by distribution channel. Given the current size of our liquidity flow we may not choose to match new issuance with maturities.

Let me now turn it back to Harvey to wrap up.

Harvey Schwartz

Thanks Liz. Slide eight is a wrap up of all the credit characteristics we discussed today.

The evolution of our balance sheet since the crisis has been material. Our liquidity pool is up nearly three times. Common equity has increased 75% and level 3 assets and leverage are down meaningfully, all-in a significantly stronger credit profile.

Before we conclude let me take a step back and highlight a few broader points that we believe are important for debt investors in U.S. financial institutions.

In response to the crisis and regulatory change across the industry all U.S. funds holding higher levels of capital and higher levels of liquidity, obviously a significant credit positive. As we show on slide nine the improvement in credit profiles across the industry has been reinforced by new regulatory requirements. The cautious belt and suspender approach taken by regulators will help reduce systemic risk and contribute to safer individual institutions for the foreseeable future.

On capital, the industry is now subject to many different requirements; risk-based capital, leverage and CCAR. The goal of this multi-pronged approach is to reduce risk not only from specific risk but also system-wide risk. On liquidity, the story is similar with the introduction of conservative Basel requirements.

Finally, there has been considerable focus on recovery and resolution. As global regulators add to recovering resolution requirements for individual funds they are improving the safety and soundness of the entire system. Regulator’s focus on recovery and resolution will create strong management incentives to act conservatively and will mandate early communication to board and regulators during periods of stress.

Ultimately, the collective actions taken by individual funds since the crisis combined with new regulations have fundamentally changed the risk profile and practices for the financial services industry.

With that Liz and I want to thank you for participating in today’s call and we’re happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question is from the line of David Macgown with Morgan Stanley. Please go ahead.

David Macgown – Morgan Stanley

Hi folks, thanks for having the call.

Harvey Schwartz

Sure, hi, Dave.

David Macgown – Morgan Stanley

One of the things we are starting to see increasingly in the credit markets is differentiation of business models and that’s now put Goldman into position as being priced by the by the market as the risk is of the big banks in terms of spread. I wonder how you folks think about this from a funding cost perspective and is it a disadvantage that, that if it persists leads you to think about any sort of course correction?

Harvey Schwartz

Spread differentials of course Dave – it’s not new and this has always been the case that there’s been differences across different firms. From a strategy perspective the margin it’s not a significant influencer for us because the most important thing is how we focus on what we think our strengths are and how we deliver our content, our execution to our clients globally.

So it really is a question of where we think we can add value and how we contribute at the margin to our clients. Spread is as a factor in client decisions as the margin hasn’t been the most significant and I think as a trend I think it will for all funds be less of the contributor because of the introduction of clearing and other aspects of the rule making process. But we are not seeing anything in it.

David Macgown – Morgan Stanley

Appreciate that Harv, and if could follow up on some comments you made on the regulatory front. One of the things that may be hasn’t being getting as much attention is some of the new nuances of what’s proposed in the LCR and what we saw in the final rule and then may be some of the other rules are, I guess what I call attempt to reduce inter connectiveness by making sure financials aren’t exposed to one another either via capital instruments or in the LCR they are excluded I think from the HQLA.

Do you think any of that has the potential to be disruptive to you and I guess across the industry?

Harvey Schwartz

No, we don’t see anything in any of the finalized rules or the proposed rules immediately that I would certainly wouldn’t describe as disruptive. I think if you take a step back and you think about all the rule making that’s occurring, I think as an overarching objective I don’t think the goal of reducing inter-connectiveness clearly it’s not a bad one it’s a good one because anything that looks to reduce systemic risk or even perceived systemic risk I think is something we should all study and embrace.

I do think that the regulators have also done a thoughtful thing that we’ve at least seen to-date which they’ve given people enough of a glide path, if you will, in term of the rule making process that at least from where we sit there is no individual firm that will have a hard time adjusting given the multi-year process and I think that’s appropriate.

Now having said all that, I think there is two things. One it’s always hard to anticipate unintended consequences. And so for example in kind of the generic leverage ratio obviously, there has been a lot of discussion about not wanting to incent people to hold the minimum regulatory requirement on certain liquidity and I think that’s a valuable discussion for all market participants and regulators to have as you work through the rule making process.

And then as a much bigger issue which is over time striking the right balance between all the regulatory measures that are occurring, which in aggregate are very hard to measure and does that at the margin, that sort of hold back economic growth globally, and so that’s how I am thinking about it.

David Macgown – Morgan Stanley

Thoughtful answer, Harvey thank you.

Harvey Schwartz

Thanks.

Operator

Your next question is from the line of Robert [Snelly] with UBS. Please go ahead sir.

Unidentified Analyst

Hi thanks Harvey and Liz for having this call. Two questions really following up on some of what Dave had to say. When we look at your results for the last quarter we saw that the FICC line was down and we know the markets were definitely challenged there. Number one is this the kind of number that we should look at going forward and is this more of the, for lack of a better term de-risked FICC type of revenue we should expect to see and that’s one part of that.

And second part is I know in the past you’ve said that there are certain regulatory changes and we are not going to get out of businesses until we are clear which ones we should be getting out of. Did we see any exit from businesses earlier this year that had that impact on the third quarter? And will you be exiting other parts of FICC over the next couple of quarters?

Harvey Schwartz

So let me take the back half first, good question. Absolutely no impact in terms of our performance from exiting businesses and there is no plan to exit businesses in our FICC business.

In terms of how we feel about it we are quite committed to all those businesses there. We have tremendously long history in each one of the more narrowly defined FICC sub segments whether it’s currencies or commodities et cetera and they are quite important to our clients and our overall strategy.

In terms of the quarter, tough quarter for us and we weren’t happy about it. There are number of factors that I could walk you through in terms of contributors. The environment was certainly one that didn’t lend itself to ease. If you recall when we came into the beginning of the quarter there was a lot of focus on what [tapering] meant then they were issuing political issues in the Middle East and then off-course there was perceptions around what would tapering man and a bit of a reversal.

And all of this led to a pretty significant adjustment in client sentiment at least for the quarter and I reference that at least high level in the opening remarks today. And the client engagement level between second quarter and third quarter and what I’ll call conviction wasn’t nearly as high. Now having said that in our business all of our client engagement feels good.

We just did do a great job in terms of managing the inventory in that quarter but it’s one quarter and in some quarters we are outperformed and some quarters we won’t perform as well and that was the third quarter.

Unidentified Analyst

Understood thanks. And the second question on the LCR. While we are all still digesting it there is clearly some impact on businesses because of haircuts, munis for examples. So if you won’t talk about the impact on your muni business too your comments today’s question you said that regulators were giving banks enough runway to enact any necessary changes. So we did see with the LCR and accelerated time frame.

So I am assuming that you are still – that those comments are good there too and so on that basis can you share with us some thoughts on some of the metrics around that what your numbers will be, will you be in compliance with that where do you see yourself right now? And if not do you think could you give us an idea of when it would be in compliance with the minimums?

Elizabeth Robinson

Sure so I am going to take the second part of that first. And look we believe based on everything we know that we are currently in access of the fully phased in minimum requirement so the acceleration of the time frame is not an issue. Now obviously this is based on number of assumptions that we’ve had to make. It’s based on our initial interpretation of the fed proposal. So obviously subject to our getting clarification on the number of points in the NPL and obviously also subject to those rules being finalized. But at this point we are in access of the fully phased in minimum requirements.

And in terms of impact on individual business lines we are just starting to work though the very long document I think about the impact on individual business lines I don’t think there any really obvious issues that we’ve identified yet we have not been we have not yet started the process of really pushing down, as you know we have done on other areas on capital to the individual business units, the rule set or the cost of those rules being implemented which we will the right incentives for business going forward.

Harvey Schwartz

In terms of the timeline the only other thing I would add is I just think in general it was more of general statement I was trying to make it wasn’t narrowly defined around the LCR proposal or not. I just think that they’ve been generally thoughtful about the implementation plans. I mean whether you look at clearing or the Basel advance Basel III rule in terms of that timeline I think they’ve been pretty thoughtful about giving sort of the global industry and opportunity to adjust so that you don’t see any impact in the near term.

In terms of FICC again in the quarter it really was more a question of inventory management and de-risking if you actually look at the category that we disclosed in our VAR calculations we are pretty much down in risk units across the board with the exception of interest rates. There wasn’t one particular category.

Our performance in currencies as I highlighted on the earnings call earlier we came out with earnings that was down more significantly year-over-year and quarter-over-quarter but that was really but I wouldn’t highlight anything in munis

Unidentified Analyst

Okay. That’s very helpful. Thanks.

Harvey Schwartz

No problem.

Operator

Your next question is from the line of Larry [Vatali with More] Capital. Please go ahead.

Unidentified Analyst

Hi, thank you, Harvey and Liz for doing this call today. I have four questions they are all pretty straight forward, so I’ll ask them all at once and then what you address them as you will. First is Harvey if you could comment on the CCAR 2014 we’ve got the framework I guess it was last week, was anything there in that it was important to call out. Second this one is probably for Liz on [OLA] where do you guys stand on that you talked about your overall debt footprint issuance plan but if you could put all of that in the context of what we understood OLA to be now and granted it’s preliminary that will be helpful?

Third, and this is part of the OCC derivatives data. He potential future exposure as a percent of bank capital is a lot higher at GS Bank than it is at your peers. And I am wondering how that might inform the way you approach supplemental leverage to the extent that some hopefully, not all but some of the Basel proposals are adopted. And then fourth Liz, if you could address any changes in tone and the repo market especially in the wake of the Financial Stability Board’s paper from a couple of months ago that will be great thanks very much.

Harvey Schwartz

So why don’t we just go in the order Larry. So we’ve got one on CCAR, one on OLA, the derivatives data and then out of repo markets. So we’ll take them up pretty quickly in terms of the CCAR information that was released to the market last week the Federal Reserve has said the test is going to be dynamic and so I think it’s a normal market expectation a few changes obviously there is a change in the shift in basically the rate curve in terms of the scenario analysis.

And again the test I think remains quite credible and viewed by everyone market participants broadly and regulators certainly and it remains a pretty stressful scenario. So in that sense I don’t use any surprises because we should expect the test to be dynamic.

Actually I’ll turn over to Liz in a second and she can hold the last two but in terms of the derivatives data I haven’t studied it but I – so we may come back to you offline with little more detail but I suspect it looks that way because of the collection of how different firms are organized in terms of what businesses sit in what parts of various entities and so for us our derivatives business sits in the bank, certain other business lines don’t sit in the bank and so you may see some disproportionate wedding. Of course we’ve disclosed what we think an estimate is under leverage ratio now and it’s 6% for the bank.

So but we can get into in it more detail off-line.

Unidentified Analyst

Okay, alright.

Elizabeth Robinson

Okay. So in terms of issuance and OLA, more broadly we talked about on the last few calls and unfortunately I am not sure we can say much more today than we’ve said on those prior calls because we’re still waiting for clarification in the rule. We continue to expect that we’re going to be subject to minimum eligible requirements.

Given the way we have traditionally been structured we feel very well positioned for what we understand those are shaping up to be so if the fact that we issued a lot of our long-term unsecured debt out of our holding company positions us well again based on what we are hearing that we have said will likely evolve into.

But since we are still awaiting we have not yet made any plans to change our issuance strategy around those rules. Just in terms of what we’re thinking about for issuance as you know we have a pretty strong funding position today we feel very good about our refinancing requirements. In 2014 we have just under $20 billion of long-term unsecured debt maturing next year. And so as I said my script we will remain very optimistic focused on term, focused on diversity ultimately the amount and the type of funding that we issue over the course of the next year will be driven by our balance sheet that size, the composition where we think it’s going, the market, the environment and the continued development of regulation. But I think we’re really going to remain quite opportunistic as we go forward because of all those announced.

Unidentified Analyst

Wouldn’t expect anything less and then finally on the repo?

Elizabeth Robinson

Yeah, so on the repo market you pointed specifically to the SSP paper. I would say there is tremendous amount of conversation about repo markets generally and a tremendous amount of regulation whether it’s leverage, liquidity or capital that could in some way touch the repo market. The way we’ve been thinking about I guess first as the user of short-term funding, the LCR ratio clearly incentivizes us and the other banks out there to term out our shorter term funding which is as you know very consistent with the approach we’ve had over the last several years.

In terms of the lenders in that market we’re watching the reg reform very carefully. We’re thinking about potential implications of all of those rules, all of those regulatory pronouncements on our lenders. We’re talking a lot to our funding counterparties, it’s a group we know very well we have strong relationship with.

But ultimately as we watch that play out we are really continuing to focus on diversification. So as I highlighted in the script we have materially broadened out the pool of lenders in our repo book and including two different universe, different types of lenders that we’ve used in the past and then we always continue to focused on terms to buy us time to deal with whatever changes will come our way. So it’s still I think a work in process but something we’ve not yet seen a lot of changes but we’re preparing certainly for evolution there.

Harvey Schwartz

The only thing I would add Larry more broadly, it kind of gets back to what I was saying earlier which is again it’s this issue balancing a safer system, both locally by individual institution and more broadly across the universe of global financial institutions with what are the unintended consequences.

And so there’s obviously been lot of focus on the market, what it means for liquidity in the market place, if there is a significant change to things like match book and other we have already defined as low ROA activity, that is really a provider of liquidity to the market place and so that will get a lot of focus obviously by the regulatory community and market participants as we go through the rule making progress as it should. But really hard to predict, the marginal impact or loss of liquidity in any particular asset class. But I think that’s really probably really more where the focus is.

Unidentified Analyst

Right, okay, great. Thanks very much.

Harvey Schwartz

Great, so I think at this stage – sorry, at this time we don’t see any questions in the line. Anybody have any additional questions.

Operator

(Operator Instructions).

Unidentified Company Representative

All right so turns out my original suspicious was right, we don’t have any more questions. So I just wanted to take a moment to thank all of you for joining the call. Dave, are you back in the line?

Operator

Mr. Macgown, your line is open. Please go ahead.

David Macgown – Morgan Stanley

Yeah, Harvey thanks, nobody else is back, and I was surprised we didn’t hear this one. Could you comment on what’s going on the litigation front, all of the headlines, it’s obviously effected a number of your peers to a much greater extend so just give us a general sense on what you are facing up against and maybe what that means for litigation, provisions going forward, which some of your competitors have talked about and thanks for getting me back again.

Harvey Schwartz

Yeah, it’s a good question Dave, I am glad you brought it up. So in terms of litigation obviously we continue to reassess our own individual cases and we incorporate all the available data we can, our own settlements and our own discussions and obviously what we see right in the front. You will see in our 10-Q which will be out shortly, in the last quarter, we disclosed a reasonably possible loss of $3.5 billion at the end of June. That will be up to $4 billion, when you see the Q and I just encourage everyone to obviously review the disclosure and the Q should be out in the next 24 hours. So you will have it available. And to the extent you obviously have an additional questions as you go through it, I just encourage you reach out to Heather and Dane.

David Macgown – Morgan Stanley

And any look forward on provisions Harvey?

Harvey Schwartz

No, as I said we access them, as we go through so there is no assessment in terms of forward-looking provisions.

David Macgown – Morgan Stanley

Right. All right, thanks.

Harvey Schwartz

No problem.

Operator

Your next question is from the line of David [Jane with Prudential]. Please go ahead sir.

Unidentified Analyst

Hi, Harvey. I just had a real quick question, sorry if this has been asked but is there a stated operating buffer that you intend to upgrade at over the SIFY surcharge?

Harvey Schwartz

Are you talking about in terms of our Basel III capital charges?

Unidentified Analyst

Right.

Harvey Schwartz

Yeah so historically what we had said earlier in the process, working through the Basel III after was that we have grown with a 100 basis points over which would bring us to 9.5 after you go through the minimum capital contribution plus the SIFY surcharge and as I said we were at 9.8 at the end of third quarter and that’s before you get the immediate benefit of any transitional provisions.

But we’re living with it now and so we’re going to continue to monitor it but as I said in the past we were targeting a 100 but that’s going to adjust overtime and really will be driven by market activity and client demand and so we’re over our minimum target.

Unidentified Analyst

I guess if you have a 100 basis points or more of buffer, operating buffer does that preclude less of a need for the other parts of the capital stack in terms of additional tier 1 and tier 2 in that?

Elizabeth Robinson

Yes we believe that you can use if you have excess common equity we can use that to fill the lower capital buckets.

Unidentified Analyst

Okay does that mean that you may want to optimize it that way?

Harvey Schwartz

I think at this stage you’ll really see it as we go through it and a lot of will depend again by the operating environment. I mean we had an operating environment in the last several years which I can characterize as dynamic but again it’s been a little bit of an economic environment globally where it’s been two step forward and one step back. And so as we move into hopefully more of a stabilized and global recovery which is really the best thing for our business, we’d love to see more client demand across all of our business lines and so we remain flexible.

Unidentified Analyst

Got it. Thank you.

Harvey Schwartz

Sure.

Operator

And thank you sir. Please go ahead with any closing remarks.

Harvey Schwartz

Okay so I will repeat my closing remarks for everybody who is still on the line. Again Liz and I really appreciate everyone for taking the time to dial in and to the extent to which there is any other follow up please reach out Heather and the team and we’re happy to engage and I hope that Liz and I both get to spend the time with all of you in the next couple of months. Take care and thanks again.

Operator

Ladies and gentlemen this does conclude the Goldman Sachs Fixed Income Investor conference call. You may now disconnect.

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