Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: I'm delighted to speak to the Golden Sachs Chief executive
Speaker 2: David Solomon. David, thanks so much for joining us. First
Speaker 2: of all, welcome to Oslo, Norway. I know we'll talk
Speaker 2: about Europe, but we have to start with Trump policies.
Speaker 2: It's been one hundred days since the inauguration, Like where
Speaker 2: are we?
Speaker 1: We've seen a lot of volatility. How would you describe
Speaker 1: this moment in time?
Speaker 3: Well, first of all, thank you for having me, and
Speaker 3: it's good to be with you, you know, here in Oslo.
Speaker 3: Four one hundred days in, and I would say there
Speaker 3: are a handful policy initiatives that.
Speaker 1: Are being put forward.
Speaker 3: Some of them certainly are very very interesting and intriguing
Speaker 3: to the market. But what's been put forward on trade
Speaker 3: so far has raised the level of uncertainty very significantly.
Speaker 3: And so i'd say one hundred days in, we need
Speaker 3: another one hundred days to kind of see where the
Speaker 3: policy directives are going and to try to have a
Speaker 3: better understanding of how what's talked about so far, particularly
Speaker 3: with respect to trade, is ultimately going to be put
Speaker 3: in place, how it's going to play out. But the
Speaker 3: policy actions to date have raised the level of uncertainty
Speaker 3: to a degree that I don't think is healthy for
Speaker 3: investment and growth, and I think it's going to be
Speaker 3: important that we get more clarity on the direction of
Speaker 3: travel from here.
Speaker 1: For the markets.
Speaker 2: So if you look at markets, there's been a sum
Speaker 2: off for pretty dramatic self in US assets, it's somewhat
Speaker 2: come back, but hasn't been too drastic.
Speaker 3: Well, it's not just for the markets, you know, first
Speaker 3: and foremost, it's for businesses. It's for individuals. When there's
Speaker 3: a high level of uncertainty, people tighten the belt, they
Speaker 3: invest less, they spend less, and all those things slow
Speaker 3: down growth. And so you know, one of the things
Speaker 3: that has happened over the course of the first one
Speaker 3: hundred days is that the perspective on forward growth has
Speaker 3: been decreased. And so when you decrease that perspective on
Speaker 3: forward growth, that changes investor's perspective of equity values. So
Speaker 3: what we've seen is a relatively orderly kind of repricing
Speaker 3: of equity assets. And what's unusual on the context of
Speaker 3: this we're pricing is generally when you have that kind
Speaker 3: of equity market stress, people run to treasuries or safe haven.
Speaker 3: But here we're seeing a slightly different rotation because of the.
Speaker 1: Nature of the policy.
Speaker 3: We've seen a weakening of the dollar, you know, at
Speaker 3: the margin, and so that's been different than I think
Speaker 3: what people expected.
Speaker 2: Our treasury is still safe haven.
Speaker 3: I think US treasuries absolutely are safe haven, but you
Speaker 3: can reprice a safe haven asset as people's preferences shift slightly,
Speaker 3: you know. I think at the margin, we've had for
Speaker 3: a long period of time a trend of capital flows
Speaker 3: into US assets, and you know, at the margin, people
Speaker 3: are looking at their portfolio constructions and saying, given the
Speaker 3: uncertainty that's been raised in the US, do we want
Speaker 3: to rebalance that a little bit? And I'd say the
Speaker 3: rebalancing so far has been at the margin. Investors can
Speaker 3: rebalance their portfolio in two different ways. If you're over
Speaker 3: here in Europe, and if European investor, they can sell
Speaker 3: US assets, but also if the relationship between the dollar
Speaker 3: and the euro changes, that rebalances their portfolio waiting too,
Speaker 3: and so we've seen that over the.
Speaker 1: Course of the last few weeks.
Speaker 2: So investors are asking a risk premium, a pretty hefty
Speaker 2: risk premium to own US assets at the moment, even
Speaker 2: if there's a reversal in terms of terrorists, does it
Speaker 2: come back to what it was like or is there
Speaker 2: a permanent change.
Speaker 3: Well, I'm not sure that they're asking a pretty hefty
Speaker 3: risk premium. They're certainly asking a different premium than where
Speaker 3: we were three months ago.
Speaker 1: But I think everything's got to be looked at, you know,
Speaker 1: in a broader perspective.
Speaker 3: You know, the moves have been real in terms of
Speaker 3: the repricing of equities, particularly some of the growth stuff,
Speaker 3: the Magnificent seven, some of these stocks, you know that
Speaker 3: really led the last rally. But i'd also you know,
Speaker 3: step back and just say, you know, when you look
Speaker 3: at where stocks were a year ago, when you look
Speaker 3: at where stocks were six months ago, you know, we
Speaker 3: had a big move up in the early part of
Speaker 3: the year, and we've.
Speaker 1: Kind of reset to kind of where we were, you know,
Speaker 1: six and twelve months ago.
Speaker 3: What's really important is people need to understand the policy
Speaker 3: set going forward and the prospects.
Speaker 1: For growth going forward.
Speaker 3: And at the moment, as I said to you a
Speaker 3: few minutes ago, the level of uncertainty is just too high.
Speaker 3: And so until we have more certainty about the policy directive.
Speaker 3: It's hard for you to see more capital allocation, more investment.
Speaker 2: Does the dollar remain a reserve currency?
Speaker 1: Absolutely in ten years, twenty years.
Speaker 3: I absolutely think the dollar is going to be the
Speaker 3: reserve currency. But the value of the dollar relative to
Speaker 3: other alternatives can shift. And I do think over time
Speaker 3: the US needs to be very focused on our levels
Speaker 3: of debt, are deficit spending, etc. And I think to
Speaker 3: the degree that we don't handle that appropriately, it can
Speaker 3: put more pressure on the dollar. But I don't see
Speaker 3: a scenario in the near term where I think it's
Speaker 3: likely that the dollar is not the reserve currency.
Speaker 1: For the world.
Speaker 2: So I know you're basically saying, look, keep a cool
Speaker 2: head until we have a better understanding, right, some of
Speaker 2: the policies put in place, But what does it do
Speaker 2: to the US economy going forward? Does it mean, you know,
Speaker 2: does a FED need to cut rights?
Speaker 1: Because if I'm certain growth, well, I think it depends.
Speaker 3: You know, Golden Sacks has lowered its growth forecast from
Speaker 3: two percent two point five percent. You know, I'm not
Speaker 3: It's not clear how this will all play out in
Speaker 3: the coming months. No one really knows. But to the
Speaker 3: degree that the economy slows, you know, ultimately, the.
Speaker 1: FED will try to act to buffet, you know, some
Speaker 1: of that slow down in the economy.
Speaker 3: To the degree that we go into recession, you know,
Speaker 3: that will lead to a different reaction. So again, the
Speaker 3: FED will look at the data. We'll look at the information,
Speaker 3: they'll look at labor, the look at growth.
Speaker 1: And they'll make decisions based on that.
Speaker 3: Everyone wants to project forward and know the answer for
Speaker 3: a moment in time where it's more uncertain than makes
Speaker 3: everybody comfortable, and I just you know, I just.
Speaker 1: Say, it's a moment in time.
Speaker 3: Let's you know, step back, Let's see how some of
Speaker 3: these trade deals are cut. Let's see what policy actually
Speaker 3: does go into place, and that will help us better
Speaker 3: understand the forward growth trajectory. But it's clearly been slowed
Speaker 3: by these actions. And I'm talking to CEOs, as I'm
Speaker 3: talking to our clients, they are holding back on investment
Speaker 3: and they're certainly tightening their belt. You're going to see
Speaker 3: some companies laying off, you know, employees and running their
Speaker 3: businesses tighter because of this level of uncertainty.
Speaker 2: We're you surprised, and are your client surprised that it's
Speaker 2: hit growth maybe more than inflation.
Speaker 3: You know, I think you're gonna have pressures on both fronts.
Speaker 3: But again it depends. It's one thing to talk about
Speaker 3: reciprocal tariffs, but from an inflation every perspective, it actually
Speaker 3: depends on what tariffs go into place.
Speaker 1: With respect to growth, There's no question.
Speaker 3: The uncertainty slows down growth, and so everyone's growth forecasts
Speaker 3: have come down, by the way, not just in the US.
Speaker 3: This affects global growth everywhere, and so the forward trajectory
Speaker 3: of growth, given the current policy initiatives, has slowed. And
Speaker 3: now we're going to have to wait and see how
Speaker 3: this all moves forward to have a clearer sense of
Speaker 3: how much.
Speaker 1: How long, et cetera. Where's China and all of this.
Speaker 3: Well, China is a hugely important and trading partner, you know,
Speaker 3: to the West, to the US, to Europe.
Speaker 1: At the moment, we're in the early stages of what
Speaker 1: I think.
Speaker 3: Is an obvious negotiation between the US and China, and
Speaker 3: we need more clarity. But the current state of affairs
Speaker 3: is not sustainable, and so that's why I think there
Speaker 3: will be some change. We're starting to hear the administration,
Speaker 3: you know, talking about the fact that there needs to
Speaker 3: be changed and what's in place is not sustainable. But
Speaker 3: no one knows exactly how this will play out at
Speaker 3: the moment, and that's that's increasing the level of uncertainty.
Speaker 2: Devid when you look at you know, a lot of
Speaker 2: investors and I think also Goldman Sachs did quite a
Speaker 2: lot in the Middle East.
Speaker 1: Is this one of your.
Speaker 2: Main points of focus? And is that in case, you know,
Speaker 2: things dry up in the US or is it just
Speaker 2: business sense to go for the New East right now?
Speaker 3: Well, the Middle East is a very very interesting business
Speaker 3: opportunity for firm like Goldman Sachs. They have enormous capital
Speaker 3: resources that they export around the world and they invest.
Speaker 3: We want a big asset in wealth management business and
Speaker 3: there are you know, many of these these Middle Eastern
Speaker 3: nations and their pensions and their funds are partners of
Speaker 3: ours and other asset management firms all over the world.
Speaker 1: You know, I think that continues.
Speaker 3: It's not a function of the US Ralliot.
Speaker 1: The US is thirty five percent of consumption in the world.
Speaker 1: That's not changing.
Speaker 3: Okay, that's not changing. The US is a very very
Speaker 3: attractive market. I think Middle Eastern investors appreciate that opportunity
Speaker 3: as they appreciate opportunities in Europe and other.
Speaker 1: Parts of the world. I think one of the most
Speaker 1: interesting things about what's going on is.
Speaker 3: It would be really good for global growth and good
Speaker 3: for the global economy if Europe can make more progress
Speaker 3: on capital markets reform, European champions really bringing together and
Speaker 3: harnessing the power of the European Union.
Speaker 1: And one of the things I'm encouraged by as I'm over.
Speaker 3: Here visiting in Europe right now is I definitely take
Speaker 3: away a sense of resolve, of excitement about actually moving
Speaker 3: forward breaking down some of the regulatory bars that have
Speaker 3: been inhibition to growth here, and I think that would
Speaker 3: be quite constructive and more stimulative. Fixedtal action here in
Speaker 3: Europe also would be quite constructive for growth. So you know,
Speaker 3: there gives and gets, but it would be really terrific
Speaker 3: to see some progress on the economic trajectory of Europe
Speaker 3: holistically here. And I'm encouraged by some of the things
Speaker 3: I'm hearing from our clients over here.
Speaker 2: Where do you see opportunities in Europe? And again, is
Speaker 2: there like a six month window where if Europe doesn't
Speaker 2: get it sacked together it's.
Speaker 1: Just two lights.
Speaker 3: No, I think you know, there's never just a six
Speaker 3: month window, okay here or in the US. You know,
Speaker 3: it's a great sound bite, but these are big, important economies.
Speaker 1: I do think that European.
Speaker 3: Growth has been hampered by a very complex regulatory environment,
Speaker 3: particularly in Brussels, and by a sense that many of
Speaker 3: the nations have acted, you know, more nationalistically than holistically.
Speaker 3: I think given what's going on with the US, there's
Speaker 3: really a push to break down some of that regulatory bureaucracy,
Speaker 3: to really think about how European champions can be bolstered
Speaker 3: and there can be more investment. And I think that's
Speaker 3: a big opportunity. There's more tech innovation going on here.
Speaker 3: It doesn't quite match up or compared to what's going
Speaker 3: on in the US, but there's more opportunity here. And so,
Speaker 3: you know, I'm hopeful that this is a moment in
Speaker 3: time where we can see greater investment and a greater
Speaker 3: sense of the opportunity of europolistically, and that would be
Speaker 3: quite constructive.
Speaker 1: For global growth if we could see some progress on that.
Speaker 2: We're talking about regulation. What are you expecting regulations for
Speaker 2: banks to look like in the US? Just do rip
Speaker 2: up some of the regulators.
Speaker 3: Well, I think we saw an enormous pendulum swing in
Speaker 3: the last four years toward a much tougher financial.
Speaker 1: Regulatory environment in the US.
Speaker 3: I don't think it was constructive, and I do think
Speaker 3: from a positive perspective, this administration would like to reset that.
Speaker 3: I'm hearing some very constructive things along three fronts. One
Speaker 3: obviously is the leverage ratio, which is very very important
Speaker 3: for the treasury market. Two is on the capital regime
Speaker 3: and c CAR and GCID and the construct of how
Speaker 3: bank capital is calculated. And third is just on the
Speaker 3: supervisory process. Supervisory process should be focused on ensuring that
Speaker 3: we have a safe and sound banking system and it
Speaker 3: shouldn't get distracted into other areas. And so I'm encouraged
Speaker 3: by what I hear out of Treasury. I'm encouraged by
Speaker 3: what I hear more bloodly, and so I do think
Speaker 3: there's an opportunity to take that pendulum which really was
Speaker 3: an inhibitor to growth, free up some capital, get that
Speaker 3: capital we cycled into the system, increase lending activity, and
Speaker 3: so I'm quite constructive that we're going to see some
Speaker 3: positive change on the front of financial regulation.
Speaker 1: In the US.
Speaker 2: How quickly did that come?
Speaker 3: I think we'll see, we'll see the beginnings of that
Speaker 3: in the coming months. And you know, certainly, if you
Speaker 3: and I were sitting here a year from now, I
Speaker 3: would hope I could point to a handful of very
Speaker 3: specific things that have swung that pendulum back to a
Speaker 3: more constructive place.
Speaker 2: Do you think Europe then follow suits and deregulating at
Speaker 2: the margins or otherwise it puts European banks.
Speaker 3: In a very difficult position into well, I think one
Speaker 3: of the issues for Europe is that the banking system
Speaker 3: in Europe has not come along over the last fifteen
Speaker 3: years the same way as the US banking system.
Speaker 1: As you know, when.
Speaker 3: You look at Europe, whether you're looking at you know,
Speaker 3: BNP is probably the largest European bank, with probably a
Speaker 3: seventy seventy five billion dollar market cap. You know today
Speaker 3: UBS would be larger than that, but just over one
Speaker 3: hundred billion.
Speaker 1: You know, there are obviously lots of institutions.
Speaker 3: In the United States that are bigger, broader, much larger
Speaker 3: market caap banks, and so in the context of that
Speaker 3: consolidation and growth in Europe and a capital markets union
Speaker 3: in Europe would be a very constructive thing for the
Speaker 3: capital markets more broadly. But Europe's been slow to make
Speaker 3: progress in that. I'm hopeful that we'll see more progress
Speaker 3: in the coming twelve to twenty four months.
Speaker 2: If there's a lot of talk about credits and of
Speaker 2: course private equity and some of the old turn for investments,
Speaker 2: and also Goldman's trying to take advantage of how much
Speaker 2: does that grow in these uncertain times.
Speaker 3: Well, when there's a higher level of uncertainty, the growth
Speaker 3: of private capital slows, just like the growth of you know,
Speaker 3: asset management business and public capital slows too when there's uncertainty.
Speaker 1: But I think the long term secular.
Speaker 3: Growth trends around private capital formation are solidly intact. And
Speaker 3: if you step back and you step out of this
Speaker 3: moment in time, you know, I think with a five
Speaker 3: or ten year view, we still have very good secular
Speaker 3: growth in private capital formation. You know, with respect to
Speaker 3: private credit, we haven't had a credit cycle in quite
Speaker 3: some time. If we have a real economic slow down
Speaker 3: or ultimately a recession, you will have a credit cycle.
Speaker 1: We have to manage through that.
Speaker 3: But with a five to ten year view, I still
Speaker 3: think growth in private capital formation is a long term
Speaker 3: trend that's firmly in place, and a firm like Goldman
Speaker 3: SAD and what we do in our asset wealth management
Speaker 3: business is very well positioned to benefit for that.
Speaker 2: We often talk about a canary in the coal mine,
Speaker 2: or is there anything in either prior credit or anything
Speaker 2: that you were watching out for an indication of a
Speaker 2: significant souring. I guess of the economy or what.
Speaker 3: Has happened that we're all watching is the level of
Speaker 3: uncertainty has changed the prospects for growth in the short term,
Speaker 3: and as a result of that, companies slow down capital plans,
Speaker 3: people because they have less confidence spend less.
Speaker 1: You know, I think there was evidence.
Speaker 3: In late January early February that when you looked at
Speaker 3: certain consumer discretionary businesses, we were starting to see a
Speaker 3: little bit of slow down. Obviously with the level of
Speaker 3: uncertainty we have. Now that's been accelerated, and so you know,
Speaker 3: there's no canary in the coal mine. The prospects for
Speaker 3: growth are slower and as a result of that, investment
Speaker 3: will be slower.
Speaker 1: And until there's.
Speaker 3: More confidence in the policy p forward, we're going to
Speaker 3: have to manage through a slower growth environment.
Speaker 2: And so M and A and IPOs we'll take a backseat.
Speaker 1: Too strong a statement again, Are you.
Speaker 2: Telling me I'm too punchy as a.
Speaker 1: Journalist, Well, I mean it's your job to be punchy.
Speaker 3: It's my job to try to listen and try to,
Speaker 3: you know, try to find some balance. Capital markets activity
Speaker 3: was up year over year in the first quarter. M
Speaker 3: and A activity for deals above five hundred million.
Speaker 1: So the kind of m and AU and I.
Speaker 3: Talk about was up in the first quarter year over year.
Speaker 3: Sponsor m and A was up in the first quarter
Speaker 3: year over year. I think it depends on where we
Speaker 3: go from here. You know, if you look at the
Speaker 3: month of April, there's still been a reasonable amount of
Speaker 3: MNA activity. IPO activity is slower given the level of uncertainty.
Speaker 3: If the level of it certainly grows from here, yes,
Speaker 3: you won't see the same amount of capital markets activity.
Speaker 3: But my own belief is things will settle down. We'll
Speaker 3: have a clearer policy perspective and some normalization of capital
Speaker 3: markets as we shift into twenty five and twenty six.
Speaker 3: Even if we have a slower economy or even far
Speaker 3: worse we have a recession, Ultimately, when the market adjusts
Speaker 3: to that and resets.
Speaker 1: People need to.
Speaker 3: Transact, they need to raise capital, they need liquidity for
Speaker 3: their investments, and so part of this is just a
Speaker 3: reset of expectations, and we're in the process.
Speaker 1: Of that happening.
Speaker 2: I mean, given all of this, where do you see
Speaker 2: hiring and firing and what divisions and where geographically.
Speaker 3: At Golden's Well, I think this firm always manages its
Speaker 3: headcount with a long term perspective, and we will continue
Speaker 3: to do that. I think that in an environment like this,
Speaker 3: where there's more uncertainty, we probably control our headcount by
Speaker 3: doing less hiring, not by at the moment based on
Speaker 3: what I see doing more firing. But I do think
Speaker 3: one of the things that the labor force broadly will
Speaker 3: have to deal with when there's uncertainty with companies.
Speaker 1: And I'm hearing this from CEOs more.
Speaker 3: Broadly, CEOs titaner belts, and when CEO's titaner belts, they
Speaker 3: get focused on expenses. And so I think we're going
Speaker 3: to go through a period here in twenty twenty five
Speaker 3: where expense management is going to be more on focus
Speaker 3: for CEOs running big businesses than capital investment. And if
Speaker 3: we get more certainty as companies head into their planning processes.
Speaker 3: In the summer that might change, But if we have
Speaker 3: the level of uncertainty we have now, that probably won't change.
Speaker 1: In twenty twenty five.
Speaker 2: David, thanks so much for joining us. That was David
Speaker 2: Solomon's executive officer there of Golden Sachs