Below is the transcript of a CNBC Exclusive interview with David Solomon, Goldman Sachs Chairman and CEO. The interview was first broadcast on CNBC's Squawk Box Asia on 17 April 2019.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Tanvir Gill
Tanvir Gill (Tanvir): The energy here is palpable, great energy, great vibe at the summit, great exchange of ideas. My only question is what took you so long to come to Asia given Asia's potential and given the fact that the summit has been running in the U.S. for the last seven years?
David Solomon (Solomon): Well we're excited to bring builders and innovators which has been one of our flagship U.S. conferences to really develop and help mentor and coach entrepreneurial talent in the U.S. we're excited to bring it to Asia. And this is the first time we've done it here. I don't have a good answer for you as to why we didn't soon do it sooner but it's really been a flagship conference for the firm. It gives us an ability to convene really interesting entrepreneurs that are doing very exciting things. Gives them a chance to network with a group of their peers. It gives them a chance to hear from people who have built big businesses in front of them. And the feedback we've gotten over the years around this event is terrific and I'm sure now we'll build a platform here in Asia that'll continue. You know that rich tradition.
Tanvir: Well the startup community over here would be very excited and very happy with this venture. I want to ask you whether you would expand the scope and scale of this platform to include mentorship programs and help with execution provide the entire supply chain from idea origination to idea execution because that's where you know young entrepreneurs really need guidance.
Solomon: Yeah. Look, I think that one of the things that is difficult for people when you're starting a business is finding the resources to give you help, advice etc. This forum is a way of our leveraging our resources to try to provide that to a very exclusive group of some of the most intriguing or fastest growing companies here in the region. We've thought about ways that we can lever you know and expand that. But for now you know we're excited to bring 100 plus entrepreneurs together for a couple of days to have exclusive discussions and spend some time you know learning and growing together.
Tanvir: Yeah. And like I said Asia will definitely benefit from such forums. I have to talk about the news at hand. I have to talk about your earnings. Let me just start off by asking you how you're feeling about your Q1 earnings report.
Solomon: I think the firm performed well in the first quarter. As I said, if you listen to the earnings call wasn't a perfect quarter operationally in terms of the environment that we operated in. We're still a firm that when you look at our business and our mix of businesses we're very sensitive to capital markets activity broadly and due to kind of the change in markets at the end of the fourth quarter, due to the government shutdown in the United States the year started relatively slow and a little bit of a risk-off mode and a result of that we didn't really gain the momentum that we saw from market participants as you might expect normally at the beginning of the year. So despite that though I think the firm performed well we still delivered a return on uncommon equity in the elevens. And I think our client franchise remains very strong. So I felt good about our performance but certainly you know we aspire to operate to higher returns over time and we're very focused on that.
Tanvir: What would those high returns look like? You touched upon the ROE coming in at double digits. That was the case in the previous quarter as well. Can you continue the run rate? And what are you targeting in terms of ROE's?
Solomon: Well we certainly think we can continue to perform at this level or better. We don't have a public ROE target but we've been very clear that we're working to continue to strengthen our existing businesses, add in some adjacent ways to the markets we serve for our clients and by doing that over time, we'll continue to grow our returns for our shareholders.
Tanvir: Okay. You have pushed back your strategy review to 2020. Why did you do that? Do you find the environment being tougher than anticipated earlier and with regards to executing a diversification plan?
Solomon: We never had said that we were we were putting forward a big strategy day or an investor day specifically this year. I think investors whenever there's a change in leadership investors are anxious for that leadership to come out and talk to the market and explain its strategy. I would say that this new leadership team has been far more transparent and it's our plan to be far more transparent going forward than the farm has been historically. I think what we did in this quarter is we clarified a timing and a process that we thought we could get the necessary work done to have publicly you know a more fulsome strategy presentation. But we also highlighted in our earnings that we'll continue to give the market more information about what we're doing and how we're progressing as we're in a position to do so.
Tanvir: With regards to giving the market more information I want to talk about FICC the trading revenue there. This quarter was a bit better but it's been a bit of an issue over the last two years quarter on quarter. Are you reassessing the size of the business? Do you think the problem with the business is more structural than cyclical?
Solomon: I don't think there's a problem with the business in fact I think it's a very good business and I like the fact that we have a leadership position in the business. By any metric that is available when you look at our client franchise and the clients we serve in the fic business we're one of the top firms in that business and I think our market share, which increased over the course of the last year with a large institutional clients that participate in that activity, I think we have the number two market share position. So we have a very strong business and it's a very good business. What has changed is the available wallet for all the participants in that business has gotten a lot smaller over the last decade. Our market share actually now versus a decade ago has actually improved. If you look at our market share in that business before the financial crisis, our market share ran between 8-9 percent of the available wallet. Now it runs at about 11 percent. So we have a very strong business there. There are always things that we can do to tweak that business and make it stronger. And if you listen to the earnings call you heard Stephen Scherr, our CFO talk about some of the things we're doing to continue to strengthen it. But we're very focused on delivering high quality execution for our clients in that business and I think we do that as well as anyone else given our risk management capabilities, our data analytics, our resources-- we're very committed to that business and it's a good business.
Tanvir: I want to talk about markets their consumer lending platform is doing really well. I think the focus is also on that apple card and what that collaboration would mean for your consumer finance business. Apple has 190 million users in the U.S. how much of that market do you hope to capture?
Solomon: Well, I think you've got to step back and you've heard us talk a little bit about our consumer business-- new platform for us. Yes, we haven't traditionally been someone who's provided financial services to consumers but we really saw an opportunity especially given that we had no legacy platforms, no legacy systems, to take out a white sheet of paper and say hey if we want to build a really good digital interface for consumers to interact with a large scale financial institution what are the things we can do that will help solve pain points provide better interactivity over time and we'll really provide a higher quality integrated platform and we've started down that road. We're excited about the card. The card is a big step for us that partnership. I'm going to be excited to talk more about it once we launch it. And you know there's more out publicly but obviously if you're building a consumer business access to customers is important and this is something that increases our ability as we build out our digital platform to scale our business and so we're excited about it.
Tanvir: Also because it's a competitive market. Would you look at more such collaborations with other technology companies? I know it's still early days because you know you still haven't hit the ground running with Apple but is that the broad strategy focus on expanding market share?
Solomon: Well, I think the focus for us is to get a really great integrated digital store for, a digital platform that can provide multiple services and lots of information including access to financial wellness etc. For consumers, get it to work, get it to work well and then we can worry about growing at market share. For the moment, we're working on delivering something that we think has differentiated that consumers will really enjoy and we'll really think is bringing benefit to them is solving their pain points is helping them in a differentiated way. And the feedback we're getting on the initial products and services we're providing on markets is very positive, clear, transparent, simple, easy to use, consumer-oriented, and that's going to be our focus as we build this but it's going to take a number of years. We're building this so that when you wake up and you look at Goldman Sachs a couple of decades from now we have a really solid consumer business. It's the same way we've built our asset management business over the last few decades.
Tanvir: A couple of decades you're not giving us a five year timeline or a five year vision and perhaps extending it out to seven years. It's going to be 10 years hence?
Solomon: We're going to make progress and over time as we feel that we're in a position we'll get more information about what people can expect in that kind of a time period. But my point is when we started building an asset management business back in the 1980s, we certainly had ambitions to have a very big asset management. The fact that now we have one of the largest global active asset management platforms in the world. It was something that took a number of decades for us to get to that point of view. So we're building a business. Goldman Sachs has been around for 150 years. We're building a business for the long term for Goldman Sachs but of course we're going to be focused on what kind of metrics and short term performance we can move forward.
Tanvir: I'll take one question on 1MDB. I'm not going to ask you for a number. I think it's difficult to assess that right now. I understand that. But how would you prepare the stakeholders involved for the risk associated with 1MDB how are you preparing yourself for the risk associated with 1mdb because you know a worst case scenario and the market is rife the speculation on some big number. So what would you say.... Because market works with information and uncertainty is obviously not welcome. So what would you say to investors kind of tell them that this is a risk associated with that.
Solomon: Look I think there's not a lot more that I can say about 1MDB. You heard me on the earnings call we're working to resolve this as quickly as we can. There's a process that we have to go through to resolve it. We obviously with our accountants and our lawyers have a whole process around reserves and we feel good about our reserves and how we're moving forward. I wish I could say more but I'm just not in a position to at the moment. I appreciate your asking but it's our goal to get this behind us as quickly as possible and we're working toward doing that.
Tanvir: Could you say more about the U.S. economy. Could you say more about U.S. growth. What is happening there?
Solomon: Well I mean I you know I think the U.S. economy is chugging along pretty well. I think the U.S. economy is growing at trend at the moment. I do think as we came into the end of the year there was some fear that we really were in a place where economic growth was really pivoting into a very significant slowdown. I do think growth slowed around the world. And I do think that trajectory of growth slowed in the United States as we finished that 2018 but it's pretty clear to me that while the first quarter was sluggish the second quarter is chugging along pretty well and certainly where we're at trend. And I think central banks around the world including in the U.S. have become much more accommodative here in the new year. And so I think that bodes well for... You know continuing you know continuing the expansion.
Tanvir: What about recession talk then? Three months ago in Davos you told my colleagues at CNBC U.S. there's a 50 percent chance of a recession in 2020. What's your chance today?
Solomon: You know I think it's I think it feels less than that today. You know if you're referring to an interview I did with your colleagues it was in the middle of January around Davos it was before the Fed had pivoted so abruptly. But look I'm not a great speculator and if you go back and you look at that interview you'd said I kind of said 50 50 but you know my guess is probably not. I think the chance of a recession in the near term in the U.S. is low. And I don't see any data in any way shape or form that leads me to believe that that chance is accelerating at the moment.
Tanvir: You talked about the Fed switching over you know going from too hawkish to too dovish in a matter of six months. What does that mean for your outlook on rates do you think rates have peaked in the cycle?
Solomon: Well those were your words too hawkish too dovish. I didn't say that. So I think the Fed definitely became much more accommodative. You know here in the first quarter look you know our forecast the firm forecast John Hatzius you know our chief U.S. economist you know has pushed out any forecast of an interest rate increase until the back end of 2020. So he sees very little action from the fed through the rest of 19 into 2020. He also sees the chance of a rate reduction as very low at this point too. So you know our forecast is kind of steady as we go for a period of time here.
Tanvir: President Trump tweeted over the weekend that... And he was targeting the fact that if the Fed had done his job properly we would have seen growth of over 4 percent. Do you agree with him?
Solomon: I'm not a good speculator on this that or the other. You know the reality that I'm living in is that U.S. economic growth is at trend and is doing quite well and the expansion is extending. I wouldn't speculate as to if this or if that what would have happened. But you know I think Jay Powell has done a very good job chairman Powell a very good job. And you know being the chairman of the Federal Reserve is not easy. And I think he's executing his duty responsibly and appropriately.
Tanvir: Not easy at all. You're in China.
Solomon: Yes it's beautiful. I mean it's absolutely beautiful.
Tanvir: It's a great occasion. We have to talk about china.
Tanvir: What's your outlook on China's growth? And you know all that talk about slowdown, you know looking at the GDP numbers coming out today, six, six and a half percent on a base of 14 trillion. Is that really bad?
Solomon: Well I actually think China is also chugging along quite well and I think the trajectory of growth here seems to have picked up a little bit over the course of the last few months. Look China is going to continue to grow. It's just a question of you know to what degree and over what period of time, but obviously a huge economic force and very important, and global growth broadly. There's no question it feels like there's been a little bit of an acceleration as late now, but I'm watching the data just as you are.
Tanvir: When do you think the deal will happen between the U.S. and China?
Solomon: Well again, I'm not a great speculator. I think it's very important that the U.S. and China make progress on these trade talks. I think this tension isn't good for either economy and given the size of both economies, I think it's important we make some progress. You know candidly-
Tanvir: For businesses as well.
Solomon: Right. I think it's important. I think it's important for both economies and you know as a U.S. businessman, I'm glad that the U.S. administration has been engaged in this debate and trying to level the playing field a little but I think things got out of balance. And I think it's constructive that we're moving toward rebalancing some things that I think are important for both significant economies to operate constructively in a global marketplace.
Tanvir: You know Treasury Secretary Stephen Mnuchin just spoke about enforcement mechanisms being put in place and setting up enforcement offices. Do you see that as a meaningful breakthrough because enforcement and verification have been the sticking point?
Solomon: It's hard for me to speculate on what this will look like and how a deal will operate when it's done. What I'm encouraged by is they are having real discussions to try to move forward in a way that balances the interests of both. And so deals only work when you balance the interests of both and hopefully we'll have something that's more constructive and positive that comes out of this. But I'm not going to speculate as to how it's going to work.
Tanvir: We leave the speculation for now. David. Coming to the last question for this interview, you know it's been six months since you took over as CEO of Goldman Sachs. As an outsider, it's not really been the easiest start as I see it. But you know I look at you you're full of energy and you know raring to go. What's driving you within in terms of as a leader, how do you introspect the challenges that you're facing and what motivates you and also what helps you motivate your team at a time like that?
Solomon: Goldman Sachs is an incredible organization and I'm very proud to have worked at Goldman Sachs over the last 20 years. Goldman Sachs is celebrating its one hundred and fifty anniversary. There aren't a lot of companies that that make it that long and have the position or the franchise, the client relationships that we have. I feel an enormous sense of responsibility to steward the organization forward in a constructive way. I've got a great leadership team that surrounds me; there's a great partnership at Goldman Sachs it's very strong. If you were here last night, Joe Tsai talked a lot about partnership with Alibaba and you know they've got a longstanding partnership at Goldman Sachs and so our client franchise is in great shape. Our business is operating and performing very well. Are there some speed bumps or some headwinds? Of course there are. But you know what? There are in any business, any business, and we're excited about the opportunities that we see to really serve our clients in a differentiated way and grow our franchise. And if we do that well, if we stay focused on our clients, our stakeholders will do very well over time.
Tanvir: So David as a wrap of this interview, I'm going to wrap up on a personal note, and this is a request going up from Tanvir Gill, not to the CEO of Goldman Sachs but to DJ soul, why don't you try mixing some Bollywood music?
Solomon: well you know we could try that. There's a lot of my plate at the moment, so I do a little bit of music but maybe there'll be an opportunity to try that in the future
Tanvir: Maybe when you go to India. But thanks David, appreciate it.
Communications Manager APAC, CNBC International
D: +65 6326 1123
M: +65 9852 8630
CNBC is the leading global broadcaster of live business and financial news and information, reporting directly from the major financial markets around the globe with regional headquarters Singapore, Abu Dhabi, London, and New York. The TV channel is available in more than 415 million homes worldwide.
CNBC.com is the preeminent financial news source on the web, featuring an unprecedented amount of video, real-time market analysis, web-exclusive live video and analytical financial tools.
CNBC is a division of NBCUniversal. For more information, visit www.cnbc.com