WHEN: Today, Thursday, September 7, 2023
WHERE: CNBC’s “Closing Bell: Overtime”
Following is the unofficial transcript of a CNBC exclusive interview with Goldman Sachs Chairman & CEO David Solomon on CNBC’s “Closing Bell: Overtime” (M-F, 4PM-5PM ET) today, Thursday, September 7 from the GS Communacopia + Technology Conference in San Francisco. Following are links to video on CNBC.com: https://www.cnbc.com/video/2023/09/07/goldman-sachs-ceo-david-solomon-i-definitley-feel-better-about-capital-markets.html and https://www.cnbc.com/video/2023/09/07/goldman-sachs-ceo-solomon-i-dont-recognize-this-caricature-thats-been-painted-of-me.html.
All references must be sourced to CNBC.
DAVID FABER: Jon, thank you. Appreciate it. And David, thank you for both having us here at the conference and joining me for an interview.
DAVID SOLOMON: Well, I’m delighted to be with you, David. I have to start by thanking you for being here. I mean, this is a super conference. We’ve got over 2,500 investors here for a couple of days. 200 companies, a lot of dialogue. There’s a lot going on in the technology space. And you know, it’s great to be out here and it’s great to have you out here so appreciate that.
FABER: Yeah, it’s great to have both of us fly across the country so we can talk to each other when we’re off—
SOLOMON: Well I flew across the country to be at the conference and talk to a bunch of clients but I’m delighted to talk to you too.
FABER: I’m so glad you’re with me as well, David. Alright. Now that we are laughing a little bit, I do want to start off on kind of what I’ve rarely seen in my career. Sort of this highly unusual avalanche of stories focused really, David, on your personality defects. I mean, it’s been bizarre, New York Times, Wall Street Journal, Bloomberg, New York Magazine. Why is, why has this happened?
SOLOMON: You know, I, I can’t give you a good reason why it’s happened. What I what I can say to you, David, is it’s not fun. You know, obviously watching some of the personal attacks in the press. Obviously, we’re a big organization. We’re doing a lot of things in the world. And you know, we should be scrutinized and we are scrutinized and, you know, we watch that you know that scrutiny very, very carefully. I don’t recognize the caricature that’s been painted of me. I have a lot of colleagues and clients I talk to, they don’t recognize that character either. And I tell you a lot of the particularly my colleagues are not shy about expressing their, their personal views. But look, I always reflect on it. You always look at it. And we’re focused on doing what we’re doing. I think we’ve made a lot of progress in the last five years growing the firm, serving our clients, executing on the strategy—
FABER: I just wonder David—
SOLOMON: So we’re going to stay focused on that.
FABER: Yeah, and I want to obviously we’re going to talk about that but I mean, do you feel, you know, to your point, it’s a rare thing to see these personal attacks. You know you run a company like a lot of guys run a company and ladies run companies. Do you think it’s an orchestrated campaign of some kind? Is it based simply on the frustration of your partners because they didn’t get paid as much in 2022 as they did in ’21.
SOLOMON: Goldman Sachs is a very visible organization. If you go back and you look historically, there have been lots of times where the person sitting in this job has been scrutinized by the press. I’m going through a period where there’s been a bunch of scrutiny as I said to you, I reflect on it, you know, try to understand it. Always try to think about ways that you know, we as an organization, and I personally can do better but we’re focused on running the firm. This actually isn’t what we’re focused on.
FABER: I know, but does it affect your ability to lead? I mean, you know, “David’s not likable. He’s a tough guy with a short fuse. He dehumanizes you when he talks to you, he doesn’t have a personality.” I mean, on and on, like, does that impact your ability to lead?
SOLOMON: I think that I wake up every day thinking about Goldman Sachs, thinking about our clients, trying to move forward. You’ve known me for a long time. In fact, David, you were asked about this on TV a few weeks ago, and you said you thought I was doing a good job. You thought I was leading the firm effectively.
FABER: Well, I’ve dealt with you David and in fact, you’ve actually called me and sometimes even taken issue with some things I’ve said and I don’t get upset about it. In fact, there was one instance and I won’t share it where you were absolutely right. You may remember during the pandemic, does everybody just have a really thin skin now they don’t like to be talked to in some way that you talk to them that you know, perhaps that you’re just too tough for or what?
SOLOMON: David, I wake up every day, I’m focused on our clients. I’m focused on our people. I talk to our colleagues, you know, constantly about the characters, this character that has been painted is not one that I recognize. We’re focused on running the firm. We’re focused on serving our clients. We’re focused on growing our business. We’re focused on delivering for shareholders and at the end of the day, that’s what we’re spending our timeline. You know, I know, I understand why this is interesting and attractive and—
FABER: Well, I mean this is the only time you’re going to have to talk about it with me but I mean—
SOLOMON: I understand why it’s interesting and attractive to the media, but it’s not what the people at Goldman Sachs are focused on.
FABER: Did you, does it come though from perhaps pushing too much change too quickly. Did you try to evolve things too quickly, is that sort of part of this backlash? Well, I do think on on the –, we are evolving the firm. And I think it’s important, I think companies have to evolve. If they don’t evolve, you know, they wind up losing their edge or their competitive position. And so of course, you know, Goldman Sachs has evolved a lot over the last 154 years and it will continue to evolve. There’s no question I think some of the noise comes from the fact that we did extraordinarily well in 2021. And everybody benefited for that. 2022 was the first time in over a decade that we had a meaningful down move in compensation and that was off of—
FABER: 1.5 billion less.
SOLOMON: It was off of a very, very significant high the first year, I think that contributed to it and, you know, I’d also say we’ve made some significant strategic decisions. I think one I’d highlight is we took five or six asset management businesses that were separate businesses and we put them together in a much larger, more powerful platform. We think this is super important for the firm going forward. But that’s not an easy thing. And if you’re a student of the history of Goldman Sachs, in the early 1990s when – were put together, there was a bunch of tension and a bunch of disruption and people got aggravated during that period when Hank Paulson asked Lloyd Blankfein to put – and equities together in the early 2000s. There were complications around that and getting those two big businesses closer together. So putting these five or six asset management businesses together, of course, that creates a lot of disruption. So I think there are things that we’re doing that are that are changing the firm that are important strategically. But I think candidly with investors and with our partners, the strategy is very aligned, and they think we’re doing the right things, but those things can create some noise, but I think it’s, I think it’s been amplified in an extraordinary way. We’re focused on our clients, getting really really good feedback from our clients on how we’re serving them. I did a dinner on Tuesday night with—
FABER: But you’ve got to keep morale. Up. You’ve got to obviously also cater to your partners and all your employees. I mean, I just wonder does this is constant criticism pose a risk to your ability to lead the firm.
SOLOMON: I’m leading the firm. I’m working with an incredible team on our management committee that’s leading the firm. We have 400 partners, by the way, that’s something that’s unique about Goldman Sachs, and actually makes running an organization like this more complicated that partnership culture, but it differentiates us. I wouldn’t have it any other way. The community—
FABER: Do you ever remind them that they don’t actually own that much equity in the company?
SOLOMON: The community of the partners is super, super important. Both the partners and the former partners, I wouldn’t have it any other way. And it’s my responsibility to leave the organization for them. At the end of the day what matters is performance. And when I look at the body of work over the last five years, we’ve accomplished a lot, we have more to accomplish. The performance is good, and I think the performance will continue to be good. And I think at the end of the day, if we can serve our clients well and our clients believe we serve them with excellence with distinction with commitment, you know, with effort every day, and we can deliver for our shareholders, we’re going to do just fine and that’s what the people of Goldman Sachs are focused on and that’s what I’m focused on.
FABER: Right. 200 partners have left the firm since you took over, is that typical?
SOLOMON: That is absolutely typical. In fact if you looked at, you know, any five year period, that’s roughly in the range. And here’s here’s the math and you and I’ve talked about this, you know, I think one other time. We made in the fall of 2022 the last time we made partners, 80 partners. We target now post-election kind of 425 to 435 partners post-election if we want to make another 80 partners two years from now and keep the partnership the same size that means 80 partners have to leave over the next two years. So if you if you do the math, just simply you know 80 partners times two and a half is 200 partners, and it’s not inconsistent with what you would see in any other period. It’s a function of we always make room for new talent. And so if the partnership’s a certain size and we want to make a certain number of partners, we have to create that amount of movement over the course of every two year period.
FABER: Yeah. You talk about evolution of course something else that has gotten outsized attention in the media given its size in the firm is your consumer efforts which you have scaled back. What have you learned from sort of the decision making there in trying to build that consumer franchise?
SOLOMON: Well, we accomplished a bunch of things that I think have been very positive for the firm over the course of the last seven or eight years in building a consumer franchise significant of which is we built a very, very big deposit platform. We now have more than $30 billion in digital deposits. We’re no longer the largest wholesale funder in the world, we fund a significant portion of our business with deposits, and that’s been a huge strategic, you know, advantage for the firm. We made a decision, you know, 6, 7, 8 years ago when we started this, 7, 8 years ago, to also get into credit, you know, for consumers and the variety of things that have changed what we think that we shouldn’t, you know, enter that space as aggressively and so—
FABER: What are the, what are the—
SOLOMON: I think the regulatory environment has changed. I think that scaling those businesses, you know, in this environment is a little bit harder than it might have been in a different environment. And so we made the decision to pare it back. What I hear from most of our investors and shareholders is they admire that we tried something. And they also admire that we quickly made the decision that we didn’t think it was working the way we wanted to pare it back and make a change. And so we made change, that we’re very, very focused on our core business of banking and markets, which we’ve grown really nicely. We’re very focused on the asset and wealth management platform, we put a bunch of things together, and we’re growing them nicely. And so, you know, the firm is really focused on those two big platforms. We’re making progress in paring back the consumer activities. There’s real alignment—
FABER: But you’re going to stay in the credit card business though to some extent, right?
SOLOMON: At this point, we’re in the credit card business—
FABER: And Marcus stays, I mean, I’m not – Marcus savings account.
SOLOMON: Marcus stays.
FABER: 4.3% or whatever I’m getting.
SOLOMON: You have your savings account and that you know that continues—
FABER: But no checking.
SOLOMON: No, no checking, no checking. So although you can you know, if you’re if you’re a private wealth client at Goldman Sachs, you can have checking and so, you know, we’ll continue to narrow that, make it profitable. But as you highlight, it’s a very small piece of firm. And the core of the firm is what we do in our big muscle group, our core business of global banking and markets, where I think we have the leading franchise and we’ve strengthened it, we’ve grown it and we’re very excited about the opportunity that we have in asset and wealth management.
FABER: I want to talk let’s talk about that. And then we’ll get to global markets. And we’ll talk about the things that we typically do talk about as well. But, you know, I think there’s always been I’ve seen some frustration that you have this growing fee base in alternative assets as well. You’re talking about getting the alternative business or at least the fees, over 10 billion in overall management fees for 24 I believe, with about 2 billion from alternatives is that being in your opinion adequately recognized by investors?
SOLOMON: Well, I think investors that have been supporting us see the movement that we’ve made with respect to management fees and also other durable revenue streams across the firm but with respect to that fee target, we will hit that fee target that’s a fee target that we set. When we got our first Investor Day. We will hit that fee target my guess is sometime next year. Both in terms of the overall management fees, and also the alternatives fees, and we can continue to grow from there at the Investor Day that we did in February, just a few months ago, six months ago, Mark Nachman stood up and said that he thought we could grow this asset and wealth management platform now that we’ve really got it together. And we’ve got the right focus on it. We can grow at high single digits, we can prove the margin to 25%. You also said that 25% for a business like this, from a margin perspective wasn’t aspirational. So I think over time as we continue to grow the business, we’ve got real upside.
FABER: Is there a point at which David do you think that you get to a fee number given the recurring nature of those fees in particular that your multiples go up?
SOLOMON: Well, I think if we continue to grow that business, and that business continues to be larger, and the margin structure improves, and we continue our strategic decision to get out of the very heavy balance sheet concentration that we had, which is very, very capital intensive. Over time, I think the market will recognize and appreciate that growth and that earnings and you know, the firm from makes a lot of money, it generates a lot of capital. And that should strengthen our position. But I think one of the reasons why the firm has performed well when you look at our performance over the last three years and five years is we are reducing the capital density of that business. We are growing that business. We’ve also grown our core business of banking and markets material and we are taking material wallet share and market share over the course of the last five years, and so I think we’re in a good position to continue to grow the value of the firm. We’ve grown it meaningfully over the last five years and we’re gonna continue to focus on it. As I said earlier, we’ve accomplished a lot but we’ve got a lot more to do.
FABER: Yeah, well, you know, you mentioned regulatory scrutiny, for example, as well, David, in particular in the consumer business, but it extends well beyond that. I wonder, does private credit and the private markets have more allure as a result of perhaps lower regulatory barriers?
SOLOMON: Well, there’s no question that over the course of a long period of time, there has been a significant growth in activity, you know, banking activity, including lending outside of the regulated banking system. If you look at the mortgage market today, a very significant portion of our mortgage activity is outside of the regulated banking industry. There’s no question there’s significant growth in private credit activity. And that goes on, by the way, in the regulated market, you know, in the regulated industry to Goldman Sachs has over $100 billion of private credit on our asset and wealth management platform, and it’s a big growth area for that part of the business. I think there’s going to be good secular growth and private credit activity. I think given the shift in the interest rate environment, and the change in the capital markets that we’ve kind of gone through and the shift that we’re experiencing right now. That’s obviously making those markets very, very attractive. So I think that’s an area where one there’s real opportunity for players that are private credit players, but there’s also real opportunity for an institution like ours, that finances all their positions, that helps put deals together in that space. And so, you know, there’s a tailwind there for us too.
FABER: And so those are mediated by the Blue House, the Blackstone’s of the world who are providing so much private credit, not the case.
SOLOMON: Well we were never Goldman Sachs as you know, is never a huge lending bank we actually are a huge financer yes of those clients and by financing them you know, that makes you know, our value to them, you know, more important and so that’s a business that we’ve also grown very significantly over the course of the last three to five years.
FABER: Let’s talk about M&A and the capital markets. We got a we got a big IPO coming next week you guys are
SOLOMON: we do have a big IPO we have a few IPOs coming in
FABER: Are you feeling better about things?
SOLOMON: I definitely do feel better about the capital markets and if you asked me to kind of look ahead, you know, over the course of the next few months, especially if ARM and some of these other IPOs you know, go well, I think you’re going to see a meaningful increase in activity now. David is often anemic and anemic, amount t nothing happened. Luckily now. It’s really investment banking activity. If you go back to the second quarter investment banking activity, the second quarter was a 10 year low. And so it’s not hard to improve off of that, but I think we could very quickly get back to what I call a more normalized level of activity in the capital markets, and that’s obviously very, very good for Goldman Sachs and I see a real improvement. I’m quite optimistic about what I have seen.
FABER: Is ARM important next week.
SOLOMON: Well, it’s of course, it’s important to be super important to the client. We’re very we’re very, very focused. On on executing for the client. But yes, if a few of these IPOs go well, it will create, you know, a virtuous, you know, kind of, of system of pulling more stuff forward. There’s a lot of stuff in the backlog. And I think we’re gonna see an improvement in activity levels over the next four months and into 2024.
FABER: Alright now M&A course again, which you and I have discussed through the years. I mean, the regulatory view that M&A is under certainly seems to have had a mitigating effect on the willingness of people to announce deals. Is that changing in particular, because let’s say for example, the FTC has either lost or settled a couple of high profile cases.
SOLOMON: Well, I make a couple of comments on this, David, and you’re right. There’s no question the regulatory environment has had as an effect, but I’ve always said that M&A is really derived from the confidence that CEOs feel in the environment. And you know, it’s not surprising the M&A market was ripping as we came out of 2021 into early 2022. But in February of 2022, there was an event, the war that kind of changed the sentiment going forward. And also, you know, if you go back to last summer, and you think about where inflation was and what the rhetoric was out of the Fed, you know, confidence levels last summer were very, very low. It’s not surprising given that combination of factors than M&A activity grinds to a halt, it really ground to a halt. Now, of course, the regulatory environment wasn’t accommodating, but I think the environment itself was more important and really stopping that M&A activity. So here we are a year later and you know, you and I were talking about this a little bit. The economy has been more resilient than people expected.
FABER: Including perhaps you
SOLOMON: it’s absolutely including me. I mean, I if I was sitting here a year ago would have been much more cautious about the chances of recession that I am at this point now. And so CEOs feel better, their confidence is higher. They’re looking forward. And by the way, there’s been a bunch of bunch of cases, you know, where the FTC has lost. And I think the sentiment that I’m hearing from CEOs broadly is, you know, it’s time to get back at it. And so, this takes time. You can’t turn it on right away. People don’t decide they want to focus on doing big strategic things on Tuesday, and do them by Thursday. But, you know, we were turned off last summer. When I look at the dialogues that are inside our shop where I look at our backlog, there’s definitely a pickup but that pickup will be slower than the pickup in capital markets activity, pickups and capital markets activity. We’ll leave that the other thing I’d point to that’s important, David is that the financial sponsor community is a huge part. Private equity. Financial Responsibility is a huge part of the ecosystem of capital markets and M&A activity. It turned off for the last year, and one thing
FABER: rates going from you know, zero to five,
SOLOMON: nobody’s sold anything, and nobody’s bought anything. One thing I know for sure that community makes money when they sell things, or they buy things and so that’s going to start up again. And, you know, that also, I think, is a tailwind for more activity, and we’re starting to see, you know, we’re starting to see more activity.
FABER: Do you think we will start to see more announcements even in the fourth quarter or in 2024
SOLOMON: I do think we’ll see more in the fourth quarter, we’ll get back to what I’ll call normalized in the fourth quarter, but heading in that direction. So quite, I’m quite optimistic about the direction of travel in this activity pickup, you know, barring some further disruption, which just doesn’t seem likely based on the trajectory. I think one of the reasons why the economy has been so resilient through here is, is the amount of government spending has has kept this economy, you know, going on a more resilient basis than we might expect it right.
FABER: Finally, just a couple of quick other things, capital rules are coming from the Basel III Endgame. You know, I know you guys had a relatively muted, at least the way the analysts talked about, for example, return to capital in terms of buyback, does that impact how you allocate capital?
SOLOMON: Well, you know, it’s interesting and I think there’s, you know, there’s a broad issue here that I just, you know, I just want to highlight and give you a couple of thoughts on. You know, first, the amount of regulatory scrutiny or burden that our industry has faced over the course of the last, you know, 10 to 15 years has grown materially. I’m a big believer that we need safety and soundness in the banking system. That’s very important. But we also need the banking system to allocate capital in a way that spurs economic activity and growth. When you look at the large banks, I think they’ve done that very, very well through a variety of different environments over the course of the last decade, and I think the U.S. economy has benefited from that. The large banks have been a real source of strength and resilience when there’s been some volatile times recently. If you step back and you go back to the financial crisis, and the Dodd Frank reforms that came after the financial crisis, the largest banks have materially increased their capital, significantly increased their liquidity and significantly decreased their leverage. They go through a very significant stress test every single year. And in addition, we’ve had some real life stress tests in the context of the pandemic, Treasury market disruption and other things –
FABER: And the banking crisis we had in the spring.
SOLOMON: And they have done very, very well. You know, in the context of that we think these new capital rules have gone too far, they will hurt economic growth without materially enhancing safety and soundness. And so we and I know a number of the other bank CEOS are — and bank organizations – are expressing that view to the regulators and also to members of Congress. There’s going to be a debate around this and we will see –
FABER: Can you carry the day there, though? Do you have, you know – in this environment?
SOLOMON: We will see. I don’t have the answer, but we’re expressing a view because we feel strongly about it. And, you know, that’ll get debated out. There’s a comment period on all these things, as you know, and so we’re commenting.
FABER: All right, I’m hearing you right here. And this is going to take years, right? I mean, this is not something –
SOLOMON: This is going to take – this is going to take a period of time to sort out for sure. Yeah.
FABER: David, finally, you ever going to DJ again?
SOLOMON: I’m focused on Goldman Sachs, David and so –
FABER: So does that mean no?
SOLOMON: — I’m focused on Goldman Sachs, David. I’m focused on Goldman Sachs. You know, I wake up every day, I’m very lucky to have the privilege of stewarding this incredible company, working with an extraordinary team of leaders through the firm, you know, to move Goldman Sachs forward to serve our clients. We’re very proud of what we do. We’re very proud of what we’ve accomplished. And I know we’re going to accomplish a lot more and so that’s what we’re focused on. And we are going to continue to focus on it.
FABER: I get it. And finally, though David, you know, you talk about focus. But when you wake up in the morning, you read some of these stories – not that they’re going to be anymore – do you focus on yourself as well? Do you say, maybe I could do or relate to people a little differently or does that – that’s just, you know, you’re 61 years old, it’s too late?
SOLOMON: You know, I said to you at the beginning when we started David, that I don’t recognize the caricature that is painted of me. And when I talked to colleagues and I talk to clients, they don’t recognize it either. But that doesn’t stop me from reflecting on anything that’s said. And always trying to think about how I can do better, how I can lead this company better, how I can do better in serving our clients. So of course I do. But that’s my job. And by the way, that would be my job whether there is criticism or not, is to wake up every day and look in the mirror and say, What can I do better for Goldman Sachs? What can I do better for our clients? What can I do better for our people? And even before there was a bunch of noise in the press, that’s what I did every day. And so I just keep doing it. Our people will keep doing that. And, you know, I’m just hugely optimistic about the forward for Goldman Sachs.
FABER: And I look forward to sitting down with you in future and talking about that. David, thanks for taking the time.
SOLOMON: Absolutely. It’s good to see you, David. Thanks for having me. Appreciate it.
FABER: You’re very welcome. Thanks for having us at the conference. David Solomon, CEO of Goldman Sachs, send it back to you, Morgan.
