WHEN: Today, Wednesday, January 29, 2020
WHERE: CNBC's "Closing Bell"
The following is the unofficial transcript of a FIRST ON CNBC interview with Goldman Sachs CEO David Solomon and CNBC's Wilfred Frost on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, January 29th. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2020/01/29/watch-cnbcs-full-interview-goldman-sachs-ceo-david-solomon.html.
All references must be sourced to CNBC.
CARL QUINTANILLA: First, Goldman is hosting its first ever Investor Day. And our Wilfred Frost is sitting down for a first on CNBC interview with the Chairman and CEO David Solomon. Hey, Wilf.
WILFRED FROST: Hey, Carl. Thanks so much. Good afternoon to both you and Sara. And David, thanks so much for having us here at the Investor Day.
DAVID SOLOMON: Absolutely. The first ever. The first in 150 years.
WILFRED FROST: I'm glad. The first of 150 to come. Did you enjoy it enough to have many more?
DAVID SOLOMON: Well, we'll see how things progress forward. But for the moment, I'm focused on finishing this one today.
WILFRED FROST: Yeah, well thank you again for having us. The share price, the guys were talking a bit earlier, it did turn around a little bit in the middle of the day, which by the way is going to happen when you pass the mic over to John Waldron, so you should probably pick that up with him later. But all in all, the feedback I've had talking to lots of investors, and particularly in the share price, when we consider it since you started making announcements and changing the structure from a couple of weeks ago is year to date, you're well ahead of the pack. Is that kind of a relief to you that all of these changes you've announced and accommodating to-date have gone down well?
DAVID SOLOMON: Well, I really appreciate the feedback that I've heard from investors today as I've moved around during the course of the day. The feedback has been overwhelmingly positive that we did it. They appreciate the transparency. They appreciate an outline of our plan going forward. But we're focused on building shareholder value over a long period of time and I'm not really focused on the share price in a short-term period. Obviously, I like it better when the stock goes up versus the stock going down. But we're focused on our plan, we're focused on executing on our plan over the next three years. And I was really encouraged to hear the feedback today from investors that they really appreciated the work that we put into doing this today.
WILFRED FROST: The main sets of targets you set, the medium-term target you said was a three-year period of time. Clearly, as a bank there is a large part of your business that's tied to macro and a lot can happen in three years. So, how confident are you that you can hit and beat these targets?
DAVID SOLOMON: We're confident in the plan that we've put forward. And we're going to work toward that plan. We did state, as all financial institutions do, that that assumes a normalized operating environment. So, if for some reason we went into a significant period of economic contraction or something like, it could affect, you know, the timing of our executing on this. But assuming a normal operating environment we're confident and we're working hard to execute.
WILFRED FROST: On some of the lines, you're still forecasting behind some of your peers or ahead of your peers. A couple of investors I spoke to thought perhaps you haven't been aggressive enough. It shows improvement from where you've been the last couple of years, but perhaps you could outdo that quite significantly?
DAVID SOLOMON: Well, we've really worked to put together a three-year plan and then a longer-term plan as we're making investments that we think can enhance Goldman Sachs' franchise over a period of time. We're looking to broaden the business that we have, strengthen the existing businesses, there are opportunities we talked about today in our existing businesses and then we have a handful of investments we're making where we think we can diversify our revenue, create some more durable revenue that mixes with our capital markets heavy revenue. And the result of that is drive returns higher over a period of time. So, I feel very good about the plan that we've laid out. I think if we work toward it and deliver on that plan, I think shareholders are going to do well.
WILFRED FROST: I think one of the standouts wasn't just the revenue opportunity, but also the impact that changing your funding structure is having on the bottom line. So, when we think of the consumer business, should we be thinking of that as something that will be challenging retail banking in America and taking 5% market share one day or is it purely beneficial just simply because it's lowering your cost of funds?
DAVID SOLOMON: Sure, we really believe that we can build a very interesting world-class digital bank. Of course, one of the ways we got into this strategically is we really felt we needed to do diversify our funding mix and become a deposit taker. And digital deposits seemed like the right path for us, since we weren't historically a deposit taker. But as we laid out in the Investor Day today, we think there's a real opportunity to build a very strong digital bank. And I said this during the Q&A, the big leading U.S. banks, the top four, have approximately 50% share of the U.S. consumer business. But then there are 4,000 banks that share in the other 50%. And I think Goldman Sachs is very well positioned, given our scale, our balance sheet, our risk management capabilities, our ability to make significant technology investments, to compete for a share of that business as disruption and digitization goes on in consumer banking. So, we think we can build a nice business and it doesn't even have to be 5% share and we would have an excellent business that would be very accretive for Goldman Sachs.
WILFRED FROST: You talked a lot about the benefits of One Goldman Sachs. And in fact, how the Apple Card was an example of where your great investment banking relationship with Apple led to the partnership for the card and consumer business. Are there any other big tangible examples of One Goldman Sachs like that that you can point to to come, perhaps?
DAVID SOLOMON: Well, we gave a handful of examples of client experience where clients are dealing with us across the firm. And this was something else that I tried to emphasize in the Q&A today. I think the world has changed. If you look at our industry historically, our industry was silo-ized and people sold products to clients. But today, we deal with complex organizations that need to connect with Goldman Sachs across a range of activities, across a range of geographies and an ability to really put yourself as an organization in the shoes of the client and say 'How is this experience for the client? Is the experience working? Are they getting what they need?' That's something I think is really advantaging all of our client businesses around the firm. So, it's been a real focus of ours to really install this One Goldman Sachs culture throughout the organization. We think it enhances and strengthens all our businesses.
WILFRED FROST: And the targets you laid out today, they're based on no further acquisitions or could the targets improve if you found the right target?
DAVID SOLOMON: Well, the targets are based on our plan today. Obviously, inorganic growth is not part of that plan. We are always looking for opportunities to accelerate some of the things we're trying to do, especially some of the new business fields. If we found an interesting opportunity like last year, we found United Capital, now if we found another opportunity like that that could accelerate our wealth management business, we're always looking. But as I've always said, the bar to make an acquisition at any point in time is very, very high. But I think it's important for an organization like ours always to be open to that.
WILFRED FROST: And there were no further specific updates on 1MDB on potential settlements today?
DAVID SOLOMON: There were no questions that were asked. I did right upfront in my remarks, right at the beginning, address the fact that we're very, very focused on integrity in the organization and learning from the experience of having gotten ourselves entangled in 1MDB. As I said to you the last time we talked, we're doing everything we can to get this behind us as quickly as possible, but other than that I really can't comment on, you know, where the settlement talks stand. Just that we're engaged in trying to put it behind us.
WILFRED FROST: To your point on the integrity and I listened to that and the importance you put on that. You're confident there will never be a repeat of the 1MDB issues?
DAVID SOLOMON: Well, what I can tell you is we're incredibly focused on integrity in our organization. We're incredibly focused on our control processes and our ability to always upgrade and improve those. It's very, very hard for me to say to you that never again in the history of Goldman Sachs will someone do something very wrong. But we're going to try to do everything we can to protect and diminish that from ever happening again. But as I talk to other CEOs, when you run big organizations, occasionally people do bad things. And we're going to try to make sure we protect as good as we can against that.
WILFRED FROST: I wanted to touch on an announcement you made to our "Squawk Box" colleague in Davos about not taking on any future IPOs, unless there's a female representation or minority representation on their boards. Have you made assessments as to whether that could lead to you losing business, and if it does do that, would you still proceed with the policy?
DAVID SOLOMON: Well, we've thought a lot about this over a long period of time. And to be perfectly honest, Wilf, I'm amazed in 2020 that Goldman Sachs has to say that they don't want to take a company in the United States or Europe public without at least, you know, one diverse board member, going sometime in 2021 to two diverse board members. There's no question that diversity on boards benefits the performance of companies. And, you know, I'm hopeful by our taking this action some of the companies that are preparing to go public in the future that haven't really thought about the structure of the board and how important it is in the context of the IPO will start thinking about that earlier. And I think we're very well positioned with qualified diverse candidates to help companies have opportunities to talk to and network with people that could join their board. I said on CNBC when I was in Davos that we might lose business, but we think this is the right thing to do. So, I stand by that. We might lose some business, but we think it is the right thing to do. But this is just -- this is good governance, it's common sense and I think, based on the response we've received, overwhelmingly, people agree this is the right thing.
WILFRED FROST: As you said, people do agree it's the right thing. And I wonder whether you would consider in the years ahead taking it a step further and applying it to listed companies who you bank with and do business for as well. Is that something that could come next?
DAVID SOLOMON: Look, I think we sit in a position in markets and the capital formation process where we want to use your platform to help the communities we operate in to move in the right direction. We want to use the position that we sit in with respect to governance to see that governance is always improving, you know, for public companies. In the context of that, we'll always think of ways we can do that and advance what is a healthy dialogue on capital markets, capital formation, business governance, et cetera. We don't have any plans to do anything differently. But this was one that just was -- it was so obvious that it needed to be advanced and it could be advanced. And I do think that most companies as they get into the public market are already doing this. It's that transition period, especially for a lot of the private companies that are transitioning where I think this deserves more focus.
WILFRED FROST: I want to ask you about the Coronavirus. So, where do things stand? Goldman Sachs has got a big footprint in China, Hong Kong, in the region. What's your latest policy for your workers there?
DAVID SOLOMON: Well, first and foremost, we're very focused on it because we have a couple of thousand people, you know, right there in the region and we're obviously very concerned about those people, about their families, et cetera. I think it's too early to say where this will go. We obviously have a lot of people working from home and are, you know, restricting travel, like many companies. But we're watching very, very closely and are obviously concerned for our people and doing everything we can to help and protect.
WILFRED FROST: Just one final question on the Fed, just kept rates on hold, of course. As you look at the U.S. economy and the strength of it, if you had to guess now, which is likely to be the direction of their next move in interest rates?
DAVID SOLOMON: Boy -- by the way, if you said of course the Fed didn't move today. Well, I knew the Fed wasn't going to move today, and until we sat down, because I've been a little bit busy, you told me that the Fed didn't move today. When you lookout, we're still pretty constructive on economic growth. You know, our economists, putting the virus aside, which obviously could affect global and U.S. growth are still a little bit above the consensus on U.S. growth. A little bit above 2%. You know, at the moment, as I sit and look at where we are, I don't think we're going to see the Fed move until at the earliest, late in the year or sometime early next year. And so, I'm not going to speculate because there are a lot of variables that can change that. But I think for the moment we're going to have a stable environment around monetary policy for at least a few quarters.
WILFRED FROST: David, congratulations again on a great start to the year.
DAVID SOLOMON: Thank you.
WILFRED FROST: Share prices, outperformance year-to-date. And thank you for having us along for your first Investor Day.
DAVID SOLOMON: Absolutely. Thanks – thank for having me on. And also, thanks for spending the day here and really listening to the presentation and listening to our story. You know, we're hopeful that this helps people have a better understanding of what we're trying to do at the firm.
WILFRED FROST: I think there's still time for me to join the deep dive on risk management and compliance. David, pleasure, as always.
DAVID SOLOMON: Thank you very much, Wilf. Good to see you.
WILFRED FROST: Guys, I'll send it back to you in the studio.
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