Goldman Sachs CEO Exclusive CNBC Interview

um you know for Bank activity in our business there are places where it's been accelerating I think we've seen a real acceleration in debt Capital markets activity some meaningful Improvement in equity Capital markets and m&a activity uh in equity trading pretty good fixed income a little weaker uh we obviously had a pretty volatile event in August um that I think kept people on the sidelines a little bit as that sorted out also with the August holiday but one of our jobs is to try to communicate in the short term and we have opportunities to speak publicly about what's going on in the business quarter to quarter if you step back a little bit Bank stocks have done incredibly well for the last 12 months I think our stock you know even today you know since we sat here at this conference a year ago I think our Stock's up 43% um JP Morgan up similarly so the stocks have had a very very big move um and you know the forward expectation I think is a little bit softer based on the commentary you saw the Barclay's conference in New York but you know still it's it's it's actually a pretty benign environment for activities I wouldn't call it an A+ environment um but um but a pretty benign environment we're seeing an acceleration of activity particularly on the banking side which is quite encouraging the more challenging macro that you cited do you see that persisting um I was speaking when I spoke at Barclay's you're you're taking a sound bite out of my comments in Barclay's I said a more challenging macro environment in August referring specifically to that August volatility has that fully passed you do expect more volatility I am look there's a lot going on in the world um we've got elections that obviously the result of which will have impacts on how people think about policy going forward but no that was an event you know at that moment in time I think generally speaking the economy is still in pretty good shape I think we're going to get a couple of interest rate Cuts here that has been widely you know telegraphed at this point in time and so you know base case I can point to things that are slowing a little there's some consumer you know spots you've heard it through earnings Etc where there's a little of softness but generally I think the econom is in pretty good shape and my base case is we're going to continue to chug along through the fall with a lot of attention to the news whether political geopolitical or otherwise are you still in the soft Landing Camp then I'm still in the soft Landing Camp yes I'm still in the soft Landing Camp um I I think that is the most likely scenario you know I can't tell you that there Can't Be A disruption or something that can set that off but I think we've navigated to this point where the likely scenario is we navigate with a soft Landing but certainly got continue to watch consumer Behavior continue to watch inflation indicators will put more pressure on consumers we've made real progress on inflation but we'll watch the data and we'll see how things unfold through the fall what are you hearing from your own clients about the consumer because you could look at some of the commentary all over the place and formulate a different opinion based on which company you're talking to I think that's I think that's very fair Scott um we had a big consumer retail conference in New York last week I think we had about 85 uh company CEOs and CFOs there I spent a little bit of time at the the conference and I would say you know there were some mixed views but generally speaking relatively benign consumer still healthy you know particularly so in Services businesses there were some pockets of softness um I think in particular when you look at consumers that are in the lower part of the economic strata because of the you know the inflation and the cumulative increase in prices they're feeling a little bit more pressure and you're seeing that in some places but generally speaking I found the CEO set if this consumer retail conference quite constructive you just talked about the prospect of rate Cuts your own view on that has evolved AB right from you thought there was going to be zero to well maybe we'll get one and now do you think we'll get how many so I think when you look uh when you look forward at the moment I think it's clear that the FED has gotten comfortable with the fact that at 2 and a half% inflation rate the funds rate should be lower you know I don't know if the right rate for that is 4 and a qu 4 and a half um but I certainly see you know two maybe three Cuts as we move through the fall I think to go further than that it's really going to depend on are we continuing to make progress or is inflation you know more stuck at 2 and a half% and that you know I think the FED will watch the data we'll watch the data and we'll see my my view on this has always been you know very data dependent and the data has evolved during the year and like anybody else I look at the data I evolved my view is to what I think's right it's it's one of the criticisms though of the FED is that now they're too data dependent that the rate where it is now is already too high they should have cut in July what do you think uh there there are people that have that view there are people that don't um you know I think generally speaking this is navigated pretty well I go back to what you said am I in the soft Landing Camp I am predominantly in the soft Landing Camp our economic research in the soft Landing Camp I talk to most CEOs the consensus is in the soft Landing Camp I think this is the navigated reason ably well of course you can in hindsight criticize here and there but I think we're in a relatively good place and the FED will take action as appropriate you think they'll go 25 basis points next week our our best guess is 25 but you know I think there's a case to be made for 50 based on a little bit more softening in the labor market um I think we'll see I think the you know I think the percentage chance was in the low3s um you know was kind of where the the the odds percentages weighed out what's your case would you would you go 50 my my my expectation at the moment is for 25 I don't have to make the decision so I'm not going to comment on what I would do and by the way I don't have all the data that they have all the access that they have I mean I've got a lot of information and a lot of input but my base case is 25 but I I I could given there's been some softening labor signals see them cutting 50 but my base case is 25 we talked about some of the commentary this week at the various conferences that have been going around yesterday Jamie Diamond said he wouldn't take stagflation quote off the table what do you make of that comment how do you feel about that issue itself I um I I didn't I didn't see Jamie in the context of all his comments but I think we have to watch carefully the trajectory of inflation and also the trajectory of growth and candidly it's very hard you know to speculate about that as you look forward because the policy Direction the policy kind of program that we're going to have as we look into 2025 and 2026 is very uncertain at the moment very uncertain and so it's it's hard you know it's hard to think about that is there a risk of that yes I think there's I think that in the distribution of outcomes there's a risk of slow sluggish growth and higher inflation than people want I wouldn't call that my base case but certainly it's something to think about let me ask you another piece of news you made this week the pre-tax charge on the unwind of the credit card business is is that unwind proving to be messier than you thought I I I actually I actually don't think it's proving to be messier than we thought you know it's it's very unusual for people to transition credit card programs in the middle of contract periods and there is a little bit more friction than that but we you know we anticipated that you know remember we want a very big firm and a very big business um you know we're focused on our forward we're running our business forward these consumer businesses that we continue to narrow continue to be a very very very small portion of the firm and so we're focused on making sure we serve our clients well that we have responsibilities to as we trans transition these programs um but it's you know this is small in the big game of the progress we're making executing on our strategy growing our asset wealth management business moving the firm forward I think the stock price reflects that could that number grow large could that number of the 400 million could that grow for the transition of the GM card no we can't that's I mean it's that is we've we're we're we put out a number because we have confidence around the GM card and the context of what the transition will be and what the cost and effects of that transition are the Wall Street Journal wrote a story yesterday I'm sure you saw it suggesting your lending standards there were two lcks were they uh you know the Wall Street Journal wrote a story I'm not going to comment on you know that particular particular comment we've run a credit card program I think we've run it well I don't think the story had transparency on what the costs and the frictions are in the transfer we disclose the overall cost of actually two activities the credit card and our exiting small business loans it adds up to $400 million as a pre-tax uh as a pre-tax impact we haven't put more out than that as it relates to your business you I think have been a bit more optimistic than some others about the trajectory of capital markets and IPOs and m&a you talked about a quote substantial backlog in your last earnings call though recently you said the IPO Market was slower than you hoped it would be at this point so where are we where are the deals and where are the IPOs well you're you're going to see you know as um as more uh Banks report earnings as we go through the fall you're going to see that there's a material Improvement in Investment Banking activity particularly strong Improvement debt Capital markets activity and Improvement in both m&a and Equity Capital markets activity but what I would say Scott is I would have expected at this point in time more of an acceleration back to what I'd call normalized levels we're still on Equity Capital markets in m&a running below 10year averages I see no reason why we're not going to get back to 10e averages somewhere quickly this would fall into the category of I thought by this time we'd be back to 10 year averages and we're not quite there yet um but we are going to move in that direction and I think there are variety of reasons that have held it back a little bit I think the big one is financial sponsors have been slower to move forward and engage and monetize on their portfolios because they've had a lot of these assets marked higher and they've been hoping for more of a recovery a couple of interest rate Cuts this fall help that a little bit probably we've had a bunch of significant IPOs in the market there have been some big m&a transactions but I'd be the first to say it's been a little bit slower in the recovery now that said there's nothing that's fundamentally changed that says all this pent up activity that's been held up won't come through and when it does we're incredibly well correlated to it and I do think it's going to come through so I do think you'll continue to see a pickup through the fall of 24 and into 25 nothing seems to be slow as it relates to a AI or spending on it as you've heard firsthand at your own conference so it's an interesting time to have this conversation given some of the disruption in some of these stocks as well can you describe the tone of the conversations that you've had thus far with the CEOs who were here about AI the spending that they're making and the expected return on that investment sure I I only got here late last night so I've had a few conversations this morning um I was on stage with um with Jensen from Nvidia uh you know this morning but there's been you know everywhere you go people want to talk about this and and and what I'd say is from a macro perspective this is a big secular Trend an acceleration in the speed of compute and all businesses are thinking about how they can create real use cases to change processes serve their customers or clients better create efficiencies in their business and it depends who you talk to what kind of business they have when you step back and say how are we going to implement this I'd say when we think about at Goldman Sachs we have lots of super smart people we're thinking about productivity first but when you look at lots of businesses they're thinking about productivity and they're also thinking about cost efficiency cost efficiency requires you to make investment and change processes that takes time so what I'd say is going on when you're engaged with CEOs on this topic is they're really trying to figure out how can we take this increased compute capacity and how can we use it in a way that can both increase productivity and and allow us to gain efficiency but any you know executive that you would talk to would say changing processes significantly in business is hard and it takes time and so I think this is going to be a process I think it's going to be ongoing um and um but I think it's real and it's something that's going to have a big effect on the way people operate their businesses just as the cloud did just as the internet did you know just as the growth of compute 40 years ago did so this is this is real and you know I think people are very very focused on it what was the big takeaway for you personally from the conversation you had with Jensen this morning I just his optimism about the pace at which they're innovating and the ability to use compute to accelerate that Innovation you know is really compelling he's he's quite excited about the pace of their Innovation and very excited about you know the new platform the new chip Blackwell and the pace and the speed um you know uh you know particular inference with that and so you know I think he's he's quite optimistic that the impact they're having on their customers and the demand for the products is quite strong you've been on Wall Street a long time when you see what's going on with his stock what do you think you know I'm not a stock picker um I have been on the Wall Street a long time and it's hard for me to imagine I'm a stock Watcher I've been on I've I've um you I've been around for over 40 years doing this I um I'm more focused you know on good companies and kind of understanding the execution their plan it's a super company it's incredible ibly well positioned you know I'm not smart enough when you have you know this kind of momentum in stocks you know they're up and down what you really have to say is what's this going to look like 5 years from now um this is a super important company it's going to be a super important company I'm not smart enough to call balls and Strikes on short-term valuation sure but I'm sure people have walked the halls of Goldman Sachs or popped into your office and said wow this is unbelievable what's happening in the market around these a I give them i' give them the same answer I'd send them to our research analyst that focus on it say ask them for evaluation opinion I don't you know I I I don't I don't call balls and Strikes and valuations of individual stocks you have opine though on whether you think AI is a bubble or not you said it was not I am I think I think AI okay is something very very substantive that doesn't mean that certain companies can't be traded in valuations that look very very robust and wind up being very significant companies with lower valuations it doesn't mean that there are shifts in all of this I mean you're you're you're a great student of the market too you know things move up and down that doesn't mean that they're a bubble let's talk some politics debate was last night not sure if you had a chance to see it or not your own economic team of course has made news of late suggesting that the bigger boost to growth would come from the Harris economic plan at least over the first couple of years she mentioned it last night you feel the same so that report which was mentioned last night in the debate came from an independent analyst and it's it's interesting Scott I think a lot more has been made of this than should be what the report did is it looked at a handful of policy issues that have been put out by both sides and it tried to model their impact on GDP growth the reason I say a bigger deal has been made of It Is What It showed is the difference between the sets of policies that they put forward was about 2/10 of 1% okay so economy grows okay if you took these particular sets of policies they looked at and by the way we have no idea whether these polic IES these things that are talked about were ultimately we imp implemented what was the growth impact and the differential was 2/10 to 1% so you know I think our clients are trying to look at what's going on from a policy perspective and make judgments I think this blew up into something that's bigger than what it was intended to be you said in August though I'm going to quote here we need a set of policy decisions that help us deal with the trajectory of spending the level of debt and the cost of that debt whose policies fit that well I I think one of the interesting things I did watch the debate last night um and just one of the interesting things and I I I could be wrong about this but this is my recollection of what I watched did the debt come up once in the conversation all night I don't think there was any discussion about the debt you know at all in the debate last night I do think this is a policy issue that's going to have to be wrestled with um but I didn't hear any discussion about it last night there are obviously policy decisions that some will suggest are better or worse for growth there are then decisions that will impact Goldman directly whose policies are better for the firm you know I think that's a complicated question and I think one of the things that's important you know at this moment in time we're two months away from an election um there's a lot of political rhetoric political rhetoric is very different from policy implementation and so our job is to be prepared to run Goldman Sachs and serve our clients regardless of what the outcome is and also to participate actively with either Administration to try to allow you know America to accelerate and do as well as it can do and so you know we we stand ready to do that in Nei outcome I mean it's been hard to make deals obviously under this current Administration are you looking for Relief a change on that front so you can actually execute on what part of the bread and butter of your business is well I I definitely think that one of the themes of the last four years last three and a half years has been an increase in regulatory impact across all Industries and this is actually something that I'm hearing from CEOs across all Industries the FTC is obviously one you know one Avenue of that um I don't think the FTC has been in the right place on a whole significant number of issues and I do think the FDC this FTC has been a headwind to activity that actually strengthens us business strengthens us competiveness and I don't think that's a good thing and so I do think from a policy perspective whatever Administration comes forward should take a hard look at that you seem to have won the fight over Basel 3 you feel that way with the decision this week from Vice chair bar the capital buffer is going to go up obviously but not nearly as much as you had feared it could well what I what I'd say about bosel 3 at this point is I I obviously heard what Vice chair bar said yesterday um and there's no question that it's moved from what was originally proposed um uh you know a number of months or you know meaningful period of time ago um what I'd say is I have not seen the details okay the details will come out next week there were a number of areas that weren't addressed or weren't touched on in particular the capital markets impact and the fundamental review of the trading book so I want to look at it and you know I'll Reserve comment to then um but I think this is a process and I'd say we're still in the middle of the process we're far from the end of the process let's finish by talking about you for a moment your stock you mentioned it earlier that your stock has had a great run before this week I was up 30% I think going into this week for the for the year I saw a fortune headline from early July and I want to read it to you and I want to get your reaction to it Goldman sachs's CEO was seen as as a dead man walking a year later the David Solomon era is being hailed as a success what what is the David Solomon era that's being hiled as a success I'm I'm running Goldman Sachs now for I think next week or the week after I start my seventh year we have an incredible team of people that have done an unbelievable job growing The Firm when I look back over the six years I'm incredibly proud of how our team has grown the firm and has enabled us to be better positioned to serve our clients we've materially gained market share with our clients we've really gravitated to a very very strong one Goldman Sachs ethos that is helping us serve our clients more holistically and better and I think improving our market shares we've got an asset and wealth management business that's set up that's really positioned to grow and grow nicely we're continuing to change the mix of activities in The Firm around our two core businesses Banking and markets and asset and wealth we're running the firm more efficiently we're making substantial technology Investments and we've grown the market cap very materially we have more work to do it hasn't been perfect there were things that we tried that we decided weren't right and we've narrowed on them but I try really to stay focused on what we're trying to do over the next few years how we're trying to execute you know are we executing correctly are we serving our clients well and if we are you know we keep going and I try not to read all the ups and downs in the Press if you you know you read the press last few months it says we're doing quite well if you read the Press 12 months ago it had other things to say you know we're focused on our clients we're focused on our people we're focused on executing and I think we're making good progress I feel really good about the way the firms position really good about on the way our people are performing for our clients and very optimistic about the progress Goldman Sachs will make over the next 5 years does the Solomon era have a long runway in front of us you're relatively young man 62 I'm 62 years old I'm I'm working hard I'm f Focus forward uh and we're going to continue to work hard to drive Goldman Sachs forward I appreciate you so very much sitting down with us today my pleasure Scott thank you for having yeah that's David Solomon he