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Below is the transcript of a CNBC Exclusive interview with John Waldron, President and COO, Goldman Sachs. The interview was first broadcast on CNBC's Squawk Box Asia on 6 June 2019.
All references must be sourced to a "CNBC Interview'.
Interviewed by CNBC's Nancy Hungerford
NANCY HUNGERFORD: The COO and President of Goldman Sachs that is John Waldron joining me here. It's a pleasure to speak to you John. Thank you for your time on CNBC
JOHN WALDRON: Thank you for having me.
NANCY HUNGERFORD: As my colleague Mandy in Sydney was just alluding to I mean there seems to be almost these conflicting forces in the market on the one hand you still have the fears out there over what is happening with tariffs and on the other you have the sentiment of, oh well the Fed is going to come to our rescue come what may. Have you been reassured by the recent comments we heard from Fed Chair Jay Powell?
JOHN WALDRON: Well we've been pretty constructive on the global economy and nothing in the data at this point would change our general view that global economic growth continues to be strong , U.S. economic growth continues to be strong. The data we see is we're a little bit more mixed recently but fundamentally in terms of performance of our own companies talking to our clients companies we see basic strength in the underlying economies. However the recent escalation in the tariff discussions have weighed on sentiment very negatively and obviously sentiment is a more forward leaning indicator and sentiment matters in markets and ultimately starts to matter in the real economy. So we're watching that carefully. I think the Fed has stepped in and you know kind of allayed or put to rest the question of whether there is a tightening bias or an easing bias that clearly stated that there's more of an easing bias. The interesting question will be whether they focus on the sentiment which is a more short term indicator in terms of how markets are trading or they wait for more data down the line.
NANCY HUNGERFORD: What do you think they should do because from your standpoint when you look at your business. Do you think it is warranted in terms of the two cuts the market is currently expecting or do you worry that perhaps the market is getting ahead of themselves and then we could be facing a rude awakening at some stage.
JOHN WALDRON: Well we're not the business of giving the Fed advice as to what they should do with their policy. But I would observe as you point out that the market is pricing in a fairly substantial set of moves by the Fed. I worry a little bit that the market is too optimistic about how much and how soon the Fed will move kind of relying on sentiment being the key driver versus data. So that'll be the swing factor in terms of how the markets react to what the Fed ultimately does
NANCY HUNGERFORD: And the swing factor when it comes to sentiment at the moment seems to be very much based on the trade tensions the day by day news that we're following. You just talked about concerns about an escalation here out in Japan the focus has really been on China and the US but what about the latest developments around Mexico and that terror threat. Does that worry you?
JOHN WALDRON: Yeah I think for sure Mexico has to worry you. You're seeing the U.S. administration increasingly use tariffs as a tool in the toolbox to affirm their objectives. You know from a policy standpoint in a number of areas in Mexico obviously it does enormous amounts of trade the United States there. They have the US NCA trade agreement kind of before Congress right now. So it's off putting I think for a number of people United States to think about how is this going to play forward. And it clearly adds more fuel to the fire and the overall trade dynamic.
NANCY HUNGERFORD: And it does simply add to the volatility we've been seeing in the market as well although the opinion seems to be a bit mixed when it comes to the C suite as to whether or not the tariffs are worth the long term fight if it does bring about changes coming from China in the way of opening markets. Lloyd Blankfein someone you know very well recently went out on Twitter and said hey tariffs aren't necessarily a bad thing because they couldn't be the only tool we have in so many words to get some changes from China. Do you agree?
JOHN WALDRON: Well I wouldn't comment on Lloyd's tweet but I would say the following I think CEOs are broadly supportive of trying to have a better overall relationship with China. American CEOs in particular they want to do more business in China. They see the Chinese as supportive of American business and facilitating more cross-border investment. And so fundamentally they want to see this relationship be a positive relationship and a constructive relationship. I do think the administration has been generally right to focus on some of the technology transfer issues and some of the more sticky intellectual property issues and I see U.S. CEOs broadly supportive of that dynamic. And we'll continue to be so. But I think the longer this goes on the more it escalates the more you're going to see sentiment in CEO offices CFO offices boardrooms and playing through the real economy to be more negative.
NANCY HUNGERFORD: When we talk about the way in which technology has really become the center of the focus here and bringing about changes in technology. What about the financial sector? Because Steve Bannon is among those out there saying changes need to be made, restrict the access of Wall Street to Chinese firms and vice versa. Do you worry that the financial sector could be the next to really fall in this fight?
JOHN WALDRON: You know I really don't worry so much about that the sense I get from my conversations on both sides of the ledger is there is a broad consensus and in the trade discussions and more broadly that that there ought to be some reform in China for financial market liberalisation which would be a good thing for U.S. banks and other institutions. And likewise I think the U.S. administration is broadly supportive of American banks to continue to give us the opportunity do more business abroad.
NANCY HUNGERFORD: The U.S. administration might be supportive but when we talk about access in China we've already heard some pretty strong numbers coming from the American Chamber of Commerce survey for instance saying about 50 percent of companies see non-tariff barriers to trade. I assume that means in the way of licensing, access. Are you seeing any non tariff barriers to trade with your business in China today?
JOHN WALDRON: It's certainly more complicated to do business in China. It takes longer. There are more barriers they make it or more complicated than we're used to seeing in some of the other Western markets. But I'm broadly pretty optimistic and constructive on the direction of travel. When I was over there a couple weeks ago I certainly felt a very warm embrace in terms of their desire to want to have American business particularly banks and other financial institutions to be facilitating cross-border flows. I think they want us to own more of our business there over time. They want us to be a bigger facilitator of capital flows. And so I think the direction of travel is a good one it may take longer. Most certainly will but I think you have to have a longer term perspective.
NANCY HUNGERFORD: If things don't pan out here though in the way of negotiations on trade between the two. Do you worry that you could eventually see yourself at a disadvantage relative to your European peers?
JOHN WALDRON: I don't. I don't think that's the case. I think American financial institutions are very important. Chinese companies want access to the American capital markets. That's fundamental to facilitating flows around the world. So I'm not so worried about losing ground to our European competitors. I think this is going to work out fine. It's going to take a longer time.
NANCY HUNGERFORD: And when it comes to the progress on getting majority ownership the 51 percent of your joint venture in China. Can you give us an update on how those talks are going?
JOHN WALDRON: Well we're in good conversations with the Chinese. And as I said I think they're supportive broadly of our firm and other firms having more ownership in their businesses in China over time. None of it happens as fast as any of us want it to happen. But broadly speaking I'm pretty optimistic about where it's going.
NANCY HUNGERFORD: How was business in China and perhaps in Asia-Pacific more broadly at this time and we're talking here at the IIF but also gearing up for the G20 meeting and there's so much anxiety about what is happening in the way the global growth slowed down
JOHN WALDRON: Our business in China is good. I mean last year was extraordinarily good. It's a little bit less good this year based on the fact that last year was really driven by more IPO activity. Some of the large technology businesses in China coming public some in the Hong Kong markets and many of the U.S. markets and we haven't seen quite the same level of flow this year. But there's a good backlog and I'm constructive on our business in China. We continue to be very bullish on the long run opportunity for Goldman Sachs.
NANCY HUNGERFORD: Let's talk a bit more about IPO activity in the United States this time. I mean talking about the likes of the big tech names where Goldman has always really enjoyed kind of pole position though most are among the leaders when it comes to underwriting these IPO is when you look at the likes of Uber there was some disappointment with the way in which the pricing happened in the first day of trade. What do you think went wrong?
JOHN WALDRON: Well I think Uber specifically was a challenging setup for any IPO significant amounts of private market capital raised including more recently at pretty high prices relative to where you know where public market values were and needing to get that company public and have all the support of public market investors who were already invested in the private rounds made the technical setup more challenging. Obviously you had the Lyft transaction, which didn't go as well and set up the broad dynamic more negatively and a little bit more challenging and more volatile market structure, market timing, made it more challenging. But Uber is a great company. We know they are going to do terrifically well in the markets and I'd give them a chance to perform and take a longer term view.
NANCY HUNGERFORD: Do you think it's giving any of the other tech companies who are gearing up for their IPO some of which I know Goldman Sachs has already been enlisted on to help with the underwriting some cause for concern or perhaps bringing a reality check across the industry in terms of what they should expect at their valuations and IPOs?
JOHN WALDRON: Our backlog is very strong. We're still constructive on the IPO markets. Obviously your first set of questions on the macro if the macro continues to be to be more negative in terms of sentiment that will have negative implications for IPOs because IPOs are really risk pricings. They're not signed a comoditized product in our view. So you need sentiment to be broadly positive for them to price well and trade well. So we're watching that carefully. But I still feel good about our backlog and I think we'll see a number of important and very strong companies come to market.
NANCY HUNGERFORD: Do you think if the markets were to take a turn for the worst though that a few companies might say o.k. let's just shell them entirely.
JOHN WALDRON: Undoubtedly it would cause some companies to want to take a pause and sit and watch, which is the right advice for them. But I don't think it's going to. I don't see the market closing unless we get to a really negative place in the trade discussion.
NANCY HUNGERFORD: And you spent most of your career in investment banking. So you've seen a fair few IPOs and there were some voices getting ready for this launch of tech IPOs this round I should say. People said wait a minute all these companies that can't even prove a profit in Uber's case you know it's far far down the road they struggle to say when they will be profitable fetching these valuations. Does some of it make you worried or do you think they're justified?
JOHN WALDRON: Well I think everyone has its own dynamics. Some companies have more losses other companies are showing a path to profitability. Obviously the more negative sentiment the market the more concerning the more concerned investors will have on the longer run prospects of companies that don't show profit or a path to profitability. But I think you have to remember with a number of these companies they've got enormous scale and are really it's a land grab in the context of winner-takes-all in some of these industries. And so you know you look at a company like Amazon didn't make money for quite a long time ultimately turn that into quite a profitable enterprise. So I think investors are willing to give companies a lot of runway if they believe that the long run opportunity is is profound.
NANCY HUNGERFORD: Can you give us an update on what's happened in the way of M&A activity in this environment in this period? What are you seeing at the bank?
JOHN WALDRON: So our M&A backlog is good. It's definitely down a bit from where it's been. And you know the volumes in the market from an announced M&A standpoint are down about 15 percent year to date. Not surprising given the overall sentiment. You know it hasn't been the smoothest of years in terms of market sentiment. But we've seen a number of big deals announced recently including a number in the last 10 or so days large sized deals that we've been involved in that have gone very well the market's been receptive. I think that's a very good sign. I still think CEOs are on the front foot wanting to do transactions wanting to grow their businesses. And so we're pretty optimistic about the forward. Obviously the sentiment will have a big impact in the coming months.
NANCY HUNGERFORD: One area that you've been speaking about recently is Goldman Sachs's expansion into the consumer side really going into more of the retail mainstream if you will not always as far as mainstream but in terms of the Marcus unit. And the other day you were talking about the online wealth platform that you intend to roll out. Can you give us a better idea of what exactly that's going to look like? How many people you really want to bring on board and when will this be profitable?
JOHN WALDRON: Well we love our wealth business. We have a terrific wealth franchise, which tends to focus at the ultra high net worth level mostly in the United States focusing on ultra wealthy thirty million dollars of investable assets plus minus and above and a very good position there. Fragmented market where we think we can continue to take share. We more recently acquired a business called United Capital which is more in that I'd say high net worth segment which married with a business that we own called AYCO is really focused on the corporate workplace and penetrating corporations both from the c-suite and down into the employee base where we can provide services that are advisor-led but digitally empowered for wealth management and financial counseling. And we see that as a significant opportunity for Goldman Sachs. And then to your question we're going to build a digital offering at the mass affluent level really on the back of our Marcus platform as an important component of our Marcus digital storefront across a series of products.
NANCY HUNGERFORD: So when will this be ready for consumers to get on board?
JOHN WALDRON: We haven't announced when we're gonna be ready but we're working diligently to get ourselves ready to do it. And we're building a lot of technology and working on the platform and more to come later.
NANCY HUNGERFORD: Do you envision the U.S. first sent out to Asia potentially later?
JOHN WALDRON: Undoubtedly we'll focus on the United States market where we have the bulk of our markets operation now and our Apple card partnership, which we're excited about as well.
NANCY HUNGERFORD: Before we go I have to ask you about 1MDB and I know you can't comment on the specifics of the case given the legal restrictions around it but I do wonder when you look at your share price how much of a discount do you think it's tied specifically to the 1MDB concerns?
JOHN WALDRON: Well on 1MDB as you said there's not much new that I can offer as you might imagine we're in conversations with the appropriate authorities. We'd like to put it behind us and do what's right and appropriate and doing so. There's nothing really new to say and we don't comment on our stock price. We feel good about our business we feel good about our franchise we're focused on growth. And optimistic about the future.
NANCY HUNGERFORD: Let me put it this way if we get a G20 deal President Trump and President Xi do you think we will see a big upside to your stock price then?
JOHN WALDRON: That would certainly be a rally in the marketplace and I'm sure we'd benefit from it.
Communications Manager APAC, CNBC International
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