Financial Roadmap - Goldman Sachs 2020 Investor Day

Strategic Context & Medium-Term Targets

• Goldman Sachs aims to achieve a Return on Equity (ROE) of >13%, Return on Tangible Equity (ROTE) of 14%, and an efficiency ratio of ~60% within a three-year medium-term horizon.
• Long-term aspirations project mid-teens or higher returns as new investments mature and expense growth subsides.
• The firm is folding its previous $5 billion revenue target into a broader, more holistic strategy focused on bottom-line returns and shareholder value.
• Strategic planning assumes a normalized macroeconomic environment while retaining the agility to pivot if conditions change.

ROE Improvement Drivers

• The path from 2019's reported 10% ROE relies on three primary components: revenue growth, expense reduction, and capital optimization.
• A 50-basis point ROE lift is attributed to business activity, including revenue expansion offset by investment spend and consumer reserve builds (CECL).
• Funding optimization is projected to generate a 75-basis point ROE lift by reducing interest expenses by approximately $1 billion.
• A three-year, $1.3 billion expense initiative is expected to drive a 125-basis point ROE improvement, offsetting near-term investment costs.
• An initial 75-basis point adjustment to the starting ROE figure accounts for elevated 2019 litigation expenses and a lower tax rate.

Revenue Growth & Investment J-Curves

• The firm anticipates $2–3 billion in medium-term revenue growth from incumbent businesses via expanded global footprints in investment banking, markets, and private wealth management (PWM).
• An additional $1–2 billion in revenue expansion is expected from new initiatives, including transaction banking, third-party alternatives, and scaled consumer/high-net-worth offerings.
• Consumer banking (Marcus/Apple Card) and transaction banking are projected to reach break-even status within a three-year timeframe.
• GAAP pre-tax income curves include the full impact of CECL reserve builds, with reserves set to increase in 2020 due to portfolio growth and regulatory requirements.
• The firm will prioritize investment only in opportunities that are accretive and enhance shareholder returns; otherwise, capital will be returned to shareholders.

Funding Optimization & The "Bank Model"

• To lower the cost of funds, the firm plans to diversify its liability stack by replacing wholesale funding with deposits, targeting a 50% deposit mix in the medium term (up from 43% in 2019).
• Replacing $10 billion of wholesale funding with deposits is estimated to save approximately $80 million in annual interest expense.
• The strategy aims to reduce the firm's overall cost of funds by 30 basis points through deposit growth and enhanced asset-liability management.
• Goldman Sachs is increasing the portion of activities booked within bank entities (currently >80% of HFI loans) to leverage regulatory advantages and lower funding costs.
• The weighted average maturity of debt is approximately eight years; deposit growth will slightly shorten duration to better match asset liabilities.

Efficiency & Expense Management

• The efficiency ratio target of 60% will be achieved by growing revenues faster than expenses while reducing the run-rate cost base.
• A $1.3 billion expense reduction plan over three years is designed to offset the cost of new investments and revenue-associated growth.
• The firm maintains dynamic expense management, adjusting both compensation and non-compensation costs to align with revenue volatility.
• Revenue mix is shifting toward more durable, fee-based income to drive lower earnings volatility compared to historical peer trends.

Capital Management & Allocation

• The firm targets a Common Equity Tier 1 (CET1) ratio at the lower end of a 13% to 13.5% range in the medium term.
• The CET1 target comprises a 4.5% minimum, an expected 3% GSIB surcharge category, a 50% stress capital buffer (SCB), and a 50–100 basis point management buffer.
• To manage the SCB, Goldman Sachs plans to reduce on-balance sheet equity investments in alternatives and lower the stress loss intensity of its asset portfolio.
• Capital attribution is fully allocated to all business segments with no corporate center, allowing for dynamic redeployment to high-return opportunities.
• Over the past five years, the firm returned over $30 billion of capital to shareholders, representing more than 90% of net income.
• The firm explicitly avoids a fixed payout ratio, preferring to prioritize meeting capital targets while capturing growth opportunities.

Risk Management & Segment Outlook

• Global Markets business currently reports a 7% ROE but is targeted to reach 10% ROE in the medium term through expense savings, funding optimization, and transaction banking scale.
• Market risk-weighted assets have decreased by 38% since 2015, while credit risk-weighted assets have increased by 16% due to expanded lending activities.
• The firm is enhancing risk controls for new areas including consumer credit, fraud, anti-money laundering, and cyber risk, hiring external talent where necessary.
• Unsecured consumer credit extension is managed carefully, with a focus on client-adjacent lending and secured financing activities (Prime/Repo).
• Goldman Sachs distinguishes itself from peers by separating Global Markets and Investment Banking segments rather than combining them for reporting.