WHEN: Today, Wednesday, February 23, 2022
WHERE: CNBC’s “Squawk on the Street” and “Mad Money”
Following are excerpts from the unofficial transcript of a CNBC exclusive interview with Goldman Sachs Chairman & CEO David Solomon and CNBC’s Jim Cramer. Excerpts aired on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) and CNBC’s “Mad Money” (M-F, 6PM-7PM ET) today, Wednesday, February 23rd. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
Excerpt from CNBC’s “Squawk on the Street”
JIM CRAMER: This morning I had chance to sit down with Goldman Sachs CEO David Solomon and I began by asking him why despite the bank’s strong performance on every single line whether it be revenue, earnings, return on equity, the stock is among the lowest when it comes to our key ratio, which is the price to earnings multiple ratio in the S&P. Here’s what he told me.
DAVID SOLOMON: I think people are concerned that the capital markets’ environment is going to be less robust going forward in 2020 to 2023. But we, as we stated last week when I was down in Miami at our investor update are extremely confident that we can deliver over the next three years mid-teens returns for our shareholders, and we’re executing on our strategy and our strategy is working, Jim. I mean, we’re really, we are focused on clients. We’re focused on operating with real excellence and our strategy is working.
CRAMER: But is it possible that last year was as good as it gets even with the strategy working, you cannot replicate what you did in 2021.
SOLOMON: Well, I don’t think we’ll replicate what we did in 2021 and 2022. There are a number of people that said the firm could never earn over a 20% ROE ever again. And we did I’m not saying we’re gonna do that next year. In fact, I don’t believe we will. But it’s a long road. And what we’re really focused on for our shareholders is the consistency of returns over time, the durability of returns over time, and compounding our book value. I think book value growth underpins the value of a financial institution like ours, and we’ve shown over a very long period of time that we can grow our book value on a comparative basis. It’s very attractive relative to their institutions.
CRAMER: But one and five, 10 years, you’ve led in book value.
SOLOMON: We’ve led in book value growth.
CRAMER: Stocks have underperformed three of the major banks. If your thesis is true, how can that be possible?
SOLOMON: I think people, this is one of the parts of our strategy, we are diversifying our mix writing more asset management revenues, which is in the form of predictable fees. We’re adding more wealth management, which is in the form of predictable fees. We’re adding a digital consumer business, which basically takes lending book, which adds a predictability level to the overall mix of earnings. Capital markets’ revenues are hard to predict in every given year and the market’s clearly saying that they’d like a more diversified Goldman Sachs and so we’re moving in that direction.
CRAMER: Let’s talk about some of the capital markets which many people are concerned about, IPO market. There’s only one small deal this week. SPACs which were really, really lucrative for Goldman Sachs seem to be dying while at the same time Russia, Ukraine and Fed tightening. Isn’t this a mixture that is too hard to be able to even for the first quarter say that the consistency is going to be there?
SOLOMON: Well there’s no question that equity activity has come down meaningfully. I think if you look, if you look at the volumes is off the top my head so don’t hold me to it perfectly, equity volumes are down approximately 60%. But M&A volumes are still pretty active. The backlog still strong, debt volumes are still relatively active. So I think you have to when you look I’d say the activity levels feel better than 2019, but not as good as 2021. And so when you look at our banking business, our banking business does not have to look like it looked last year to be a very good, good return contributing, good earnings contributing business and clients are active because of what you said. There’s a lot going on in the world. People are transitioning to a world where inflation is above trend. There’s geopolitical risk in the world. And so with that activity comes opportunities for us also to serve our clients
CRAMER: Is it an opportunity, for instance, that the President announced sanctions on two Russian banks. In the 1997 Russian financial crisis, Goldman very much involved, knew everything. These kinds of actions would be enough to start a collapse of the ruble and the stock market. It seems like nothing is happening and that perhaps this is an opportunity for your clients.
SOLOMON: Well, you know, the market the last couple of days appears to be relatively resilient in the context of this news, but I would highlight that it’s early. Sanctions I think can be an effective tool to contributing to influence or behavior change over time and so, we’re watching this very closely and our clients are watching it very closely. And you know, we’ll have to see how this all unfolds.
CRAMER: But we had when I worked at Goldman Sachs Russian clients that were very wealthy. The President’s targeting those. You are client focused, what are you saying to them?
SOLOMON: Well, the particular clients that have been focused aren’t clients of Goldman Sachs to my knowledge, but we’ll watch with everybody else. I think it’s early. Jim. I think, you know, this is the first step in the process. I think the market was the market expected something and I think they got something on the lighter side of what the market expected but we’ll see how this all unfolds. It’s, it’s early and we’re watching it closely.
Excerpt from CNBC’s “Mad Money”
CRAMER: First, David, thank you for letting me into Goldman Sachs, most appreciative.
SOLOMON: Well, it’s great to have you here, Jim.
CRAMER: So let’s get right to it by any measure, revenues, earnings, return on equity, this was the best year ever and yet your stock is among the lowest when it comes to price to earnings ratios in the S&P. What am I missing?
SOLOMON: We’ve been focused over the last couple of years on laying out a strategy that we think will accrue a lot of value to shareholders and will allow the firm to serve its clients exceptionally well. In 2021, a combination of the environment and the execution of our strategy came together and we really delivered.
CRAMER: We’ve got an FTC and the, the person who’s in charge of antitrust the justice department uniquely focused on the idea that we need more competition which therefore means fewer mergers. How are you advising people in an era where they seem to want to take a lot of time to do a deal, which chills at any sort of thought of M&A?
SOLOMON: Well, I think you have to separate you’ve got to step back and separate the fact that our M&A business and M&A activity it’s a very, very broad platform. And so there’s no question that there are certain regulatory headwinds, particularly with certain types of merger transactions, particularly in certain spaces, large cap tech. And so when you look at that, and you separate that out, well, those deals are very visible and they get a lot of attention. The bread and butter of the M&A business is hundreds and hundreds of transactions for companies between a half a billion dollars and 5 billion dollars in size. And that activity and the continued consolidation across industries as people are trying to make sure they have scale, your scale’s winning at the moment, they have capacity to make tech investment because in almost anything you’re doing, investment and technology is helping you connect with your clients and delivering your products or services. And so that activity in that space continues to be relatively active.
CRAMER: Okay, let’s talk about the the look I’ll call it the consumer side. I think it’s bigger than that. But what’ve built and what you built to me, don’t do this, but if you were to get rid of capital markets and just think of consumer, you might have the same multiple say as a Morgan Stanley which has done very well doing this, and therefore your actual stock would be higher. How can capital markets be considered a detriment to Goldman Sachs’ stock?
SOLOMON: Well, I, when you look at it, when you look at our strategy, you step back and you look at our strategy. Our strategy was to continue to strengthen those core businesses, capital markets and investment banking, capital markets and trading and we’ve done that. We’ve expanded our market shares in those businesses meaningfully over the course of the last couple of years. We had a good problem. The problem was the environment created an outsized opportunity on an interim basis in that space, and we did a good job working with our clients to capture that on a relative basis. In the meantime, we laid out four areas where we wanted to grow, and we thought there were opportunities to build platforms that could add a lot of value to Goldman Sachs over the course of the next five to 10 years. One of them is this digital consumer platform, an integrated platform to help people manage their financial lives on an integrated basis. And since we started five, six years ago, we’ve taken it over $100 billion of digital deposits making us a very, very large depository institution. We had over 10 million clients and we just added 3 million over the weekend when the—
CRAMER: In the GM business. The ad tech. The Apple card.
SOLOMON: GM card came online. We’re growing our balances and we’re scaling that and at the investor update that I did last week in Florida, I put out a target for the end of 2024 of over $4 billion of revenue for that business. So we are showing that business by the way last year at about a billion and a half dollars in revenue. So we’re showing real growth in that business. We’re expanding the customers, we’re expanding the products that we can offer and when you look at that revenue going forward over the next three years, most of that growth is coming from investments that have been made Apple, GM, deposits, installment loans, GreenSky, the build portion is basically in the ground, basically the build portion’s basically in the ground. And so we’ve got a good runway to really expand the platform, but we continue to be optimistic and I know Jim, if we execute on it, ultimately, people will come to appreciate the value of what we’re doing.
CRAMER: Okay then maybe what Wall Street is doing the analysts, they sit there and I think they nitpick. I think they’re talking about an efficiency ratio, then you can actually have control more than any other bank because you have the levers you can even change compensation if you want to. Is the street just not behind what Goldman’s doing, they don’t get it?
SOLOMON: I am, we’re trying to be, you know, this firm and you know this firm well, was not always completely transparent. We didn’t lay out a roadmap, we’re trying to put a roadmap out with respect to how we’re executing on our strategy. And we’re going to continue to give people the information and the visibility on the platforms we’re building what we think they can contribute over time and then on the capital markets’ business, which is harder for the street to predict. We’re going to continue to execute at a high level. We are the number one M&A franchise, have been I think for 25, 23 of the last 25 years. We are the leading equity underwriting franchise. We have a very strong position here. It’s a big business. It might be hard to predict in any quarter or any year, but it’s a business that contributes to earnings and book value growth consistently and I think the bigger players are only getting stronger in those businesses.
CRAMER: Okay but let’s figure out what year will the consumer businesses shine? When will we see them so that it augments, when will we know GreenSky, markets, when will these come together, credit card, so that you can actually say this is the year where it’s going to break out?
SOLOMON: Well, what I would say Jim, and you know, you can look out for other data points. We’ve built a business from scratch that has a billion and a half dollars of revenue last year. Now 13 million customers that’s growing. Everybody knows it’s growing because we put out a target for the next three years through 2024 to get to $4 billion of revenue. I don’t know. That seems pretty good to me. I think if we stood it up separately outside of Goldman Sachs, people would say wow, that’s a really good platform. It’s growing nicely.
CRAMER: I agree with you.
SOLOMON: It’s adding customers, it’s providing valued services. So, you know, I’m patient with this stuff. I know that our job is to have a very clear strategy. We have one, it’s working and we’re going to continue to execute on it and—
CRAMER: It’s working but it’s not working on Wall Street. Now you said you want to put your money behind growth, but you’ve not accentuated dividend and you’ve not accentuated buyback even though book value’s high. If you flip it would it matter? Would the stock go higher?
SOLOMON: I actually, I actually think Jim that we have put more behind capital return in the context of dividend. Look at the dividend growth over the last few years and you know, you’ll you’ll see how we go forward with respect to capital return. One of the things that we have said very, very clearly is we see opportunities to invest in the growth of this franchise. And when we do, we’re going to deploy capital towards those opportunities if we think those opportunities deliver a creative returns. If we don’t see those opportunities, we’ll return capital through dividend and buyback. We’ve been very clear about that. At the moment, we see some opportunities and so, we, we bought a really terrific asset manager in Europe, that added into our asset management platform. I think we’ve got something really exciting with GreenSky. We bought this merchant network and that’s going to lead to originations that will grow the consumer platform exactly what you’ve been focused on. And so, we deployed some capital there but if we don’t see opportunities to add a creative returns, this company generates a lot of capital and we’ll, you know, we’ll focus on capital returns at that point.
CRAMER: In the time remaining, let’s just get personal. When I left the firm Richard Menschel who’s just a titan who was running my division wished me well. I was a buy side guy, I was a hedge fund. All you can do is say be a great client, there are stories even today in Bloomberg about how you’re no longer feel that way, that you have a policy and I’m going to use their terms, it’s a policy where you basically forfeit what you’ve had. You may even lose what you’ve earned if you go even to the buy side. Has your policy changed that much, has it changed toward say a Gregg Lemkau who went to Michael Dell, Dell. By the way, Dell was a great client when I was here in the 80s. What is the forfeiture policy for those who leave?
SOLOMON: The policy, we made a statement and the press Jim is clear, everybody that’s a partner of the firm, you know, or a managing director of the firm signs an agreement. Okay, and we are executing on those agreements consistently. The agreements say something, we execute on them. They’re very, very clear. And I’d encourage you pick up the phone and call Gregg Lemkau and Gregg Lemkau will tell you something very different than what you read in the, in the Bloomberg report today.
CRAMER: Well, that’s very important because I will pick up the phone because he’s an old friend.
SOLOMON: Pick up the phone and call. Pick up the phone and call Gregg Lemkau.
CRAMER: And I believe frankly that the firm has encouraged people who no one wants anybody to leave.
SOLOMON: We encourage people to go off and be great clients and one of the things when I look at people like Gregg Lemkau and Eric Lane, these are guys that served the firm incredibly well as partners, they had over 25 years here. Stephen Scherr, our CFO, pick up on the phone—
CRAMER: Absolutely.
SOLOMON: And call Stephen, and now they’re out in the world as terrific clients. We obviously support that. At the same point, we’re running a business, and we have agreements with everybody and there are rules and the thing that I’m trying to do is I’m trying to follow them consistently. I’m not trying to pick and choose this treatment for this person, this treatment for that person. We have consistent policy so people know what the rules of the road are. I think that’s a better way to run.
CRAMER: I will be cut off but I’m asking it anyway. Is everybody coming back? Do you want people back? Are there people who just say, you know what, I’m a smart guy. I can go West; I can go work for Facebook. I can go work for Apple. I’m not going back.
SOLOMON: I’m sure there are some people that aren’t coming back. We generally, we’ve been clear about this. We thrive when we bring people together and we see great collaboration and bringing people together. Our young people who come to the firm to get mentored, to be in an apprenticeship culture, to build a network. They, they want to be in and they’re coming back. And so, we’re coming back today. My guess is it will be 5,000 people or more than 5,000 people in this building. And we’re on a journey. We’re going to do what’s right to support our people, but to serve our clients and serve our clients well. Generally speaking, this organization comes together, other businesses might be different, but we know what’s right for Goldman Sachs.
CRAMER: Alright, I want to thank David Solomon, Chairman and CEO of Goldman Sachs. It is great to be here and great to talk to you. Thank you, sir.
SOLOMON: It’s great to talk to you, Jim, thank you for coming and always good to be with you. Thank you.
