WHEN: Today, Wednesday, September 11, 2024
WHERE: CNBC’s “Halftime Report”
Following is the unofficial transcript of a CNBC exclusive interview with Goldman Sachs Chairman & CEO David Solomon on CNBC’s “Halftime Report” (M-F, 12PM-1PM ET) today, Wednesday, September 11. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/09/11/goldman-sachs-ceo-david-solomon-says-the-economy-is-in-pretty-good-shape.html.
All references must be sourced to CNBC.
SCOTT WAPNER: Joining me now is Goldman Sachs Chairman and CEO David Solomon, our host here at the Communacopia and Technology Conference. Thanks for having us and thanks for being here with us.
DAVID SOLOMON: Absolutely, Scott. Thank you for being here. And thanks for having your team here. And happy to spend some time with you today.
WAPNER: So we will get to all things Communacopia in a minute. I do want to start, though, with the markets because the banks have been the story over the last couple days. Financials are down today. They’re the worst sector out of the S&P. You have made some news this week. Your stock’s gotten hit, along with the others. You talked about trading revenue down 10 percent. You blamed a tough comp, but also a — quote — “more challenging macro.” What exactly are you seeing right now?
SOLOMON: So the environment — the environment’s actually OK, I would say, for bank activity in our business. There are places where it’s been accelerating, I think we have seen a real acceleration in debt capital markets activity, some meaningful improvement in equity capital markets and M&A activity, in equity trading pretty good, fixed income a little weaker. We obviously had a pretty volatile event in August that I think kept people on the sidelines a little bit as that sorted out, also with the August holiday. But one of our jobs is to try to communicate in the short term — and we have opportunities to speak publicly — about what’s going on in the business quarter to quarter. If you step back a little bit, bank stocks have done incredibly well for the last 12 months. I think our stock even today, since we sat here at this conference a year ago, I think our stock’s up 43 percent, JPMorgan up similarly. So the stocks have had a very, very big move. And the forward expectation, I think, is a little bit softer based on the commentary you saw at the Barclays Conference in New York.
WAPNER: Sure.
SOLOMON: But, still, it’s actually a pretty benign environment for activities. I wouldn’t call it an A-plus environment, but a pretty benign environment. We’re seeing an acceleration of activity, particularly on the banking side, which is quite encouraging.
WAPNER: The more challenging macro that you cited, do you see that persisting?
SOLOMON: I was speaking when I spoke at Barclays — you’re taking a sound bite out of my comments in Barclays. I said a more challenging macro environment in August, referring specifically to that August volatility.
WAPNER: Has that fully passed? Do you expect more volatility?
SOLOMON: I am — look, there’s a lot going on in the world. We have got elections that, obviously, the result of which will have impacts on how people think about policy going forward. But, no, that was an event at that moment in time. I think, generally speaking, the economy’s still in pretty good shape. I think we’re going to get a couple of interest rate cuts here that has been widely telegraphed at this point in time. And so, base case, I can point to things that are slowing a little. There’s some consumer spots — you have heard it through earnings, etc. — where there’s a little bit of softness. But, generally, I think the economy is in pretty good shape. And my base case is, we’re going to continue to chug along through the fall with a lot of attention to the news, whether political, geopolitical, or otherwise.
WAPNER: Are you still in the soft landing camp, then?
SOLOMON: I’m still in the soft landing camp. Yes, I’m still in the soft-landing camp. I think that is the most likely scenario. I can’t tell you that there can’t be a disruption or something that can set that off. But I think we have navigated to this point where the likely scenario is we navigate with a soft landing. But, certainly, you have got to continue to watch consumer behavior, continue to watch inflation indicators, will put more pressure on consumers. We have made real progress on inflation. But we will watch the data and we will see how things unfold through the fall.
WAPNER: What are you hearing from your own clients about the consumer? Because you could look at some of the commentary, all over the place, and formulate a different opinion based on which company you’re talking to.
SOLOMON: I think — I think that’s very fair, Scott. We had a big consumer retail conference in New York last week. I think we had about 85 company CEOs and CFOs there. I spent a little bit of time at the conference. And I would say there were some mixed views, but, generally speaking, relatively benign, consumer is still healthy, particularly so in services, businesses. There were some pockets of softness. I think, in particular, when you look at consumers that are in the lower part of the economic strata, because of the inflation and the cumulative increase in prices, they’re feeling a little bit more pressure. And you’re seeing that in some places. But, generally speaking, I found the CEO/CFO set at this consumer retail conference quite constructive.
WAPNER: You just talked about the prospect of rate cuts. Your own view on that has evolved—
SOLOMON: Absolutely.
WAPNER: Right, from you thought there was going to be zero to, well, maybe we will get one. And now do you think we will get how many?
SOLOMON: So, I think when you look forward at the moment, I think it’s clear that the Fed has gotten comfortable with the fact that, at 2.5 percent inflation rate, the funds rate should be lower. I don’t know if the right rate for that is 4.25, 4.5, but I certainly see two, maybe three cuts as we move through the fall. I think, to go further than that, it’s really going to depend on, are we continuing to make progress or is inflation more stuck at 2.5 percent? And that, I think the Fed will watch the data. We will watch the data and we will see. My view on this has always been very data-dependent. And the data has evolved during the year. And, like anybody else, I look at the data, I evolve my view as to what I think is right.
WAPNER: It’s one of the criticisms, though, of the Fed is that now they’re too data-dependent, that the rate where it is now is already too high, they should have cut in July. What do you think?
SOLOMON: There are people that have that view. There are people that don’t. I think, generally speaking, this is navigated pretty well. I go back to what you said. Am I in the soft landing camp? I am predominantly in the soft landing camp, our economic research, in the soft landing camp. I talk to most CEOs. The consensus is in the soft landing camp. I think this has been navigated reasonably well. Of course, you can in hindsight criticize here and there, but I think we’re in a relatively good place and the Fed will take action as appropriate.
WAPNER: You think they will go 25 basis points next week?
SOLOMON: Our best guess is 25, but I think there’s a case to be made for 50, based on a little bit more softening in the labor market. I think we will see. I think the percentage chance was in the low 30s is kind of where the odds percentages weighed out.
WAPNER: What’s your case? Would you go 50?
SOLOMON: My expectation at the moment is for 25. I don’t have to make the decision, so I’m not going to comment on what I would do. And, by the way, I don’t have all the data that they have, all the access that they have. I mean, I have got a lot of information and a lot of input, but my base case is 25. But I could, given there’s been some softening labor signals, see them cutting 50, but my base case is 25.
WAPNER: We talked about some of the commentary this week at the various conferences that have been going around. Yesterday, Jamie Dimon said he wouldn’t take stagflation — quote — “off the table.” What do you make of that comment? How do you feel about that issue itself?
SOLOMON: I am — I didn’t see Jamie in the context of all his comments, but I think we have to watch carefully the trajectory of inflation and also the trajectory of growth. And, candidly, it’s very hard to speculate about that as you look forward, because the policy direction, the policy kind of program that we’re going to have as we look into 2025 and 2026 is very uncertain at the moment, very uncertain. And so it’s hard to think about that. Is there a risk of that? Yes, I think there’s — I think that, in the distribution of outcomes, there’s a risk of slow, sluggish growth and a higher inflation than people want. I wouldn’t call that my base case, but certainly it’s something to think about.
WAPNER: Let me ask you another piece of news you made this week, the pretext charge on the unwind of the credit card business. Is that unwind proving to be messier than you thought?
SOLOMON: I actually — I actually don’t think it’s proving to be messier than we thought. It’s very unusual for people to transition credit card programs in the middle of contract periods. And there is a little bit more friction than that, but we anticipated that. You know, remember, we run a very big firm and a very big business. We’re focused on our forward. We’re running our business forward. These consumer businesses that we continue to narrow continue to be a very, very, very small portion of the firm. And so we’re focused on making sure we serve our clients well that we have responsibilities to as we transition these programs. But it’s — this is small in the big game of the progress we’re making, executing on our strategy, growing our asset wealth management business, moving the firm forward. I think the stock price reflects that.
WAPNER: Could that number grow larger?
SOLOMON: I’m sorry?
WAPNER: Could that number, the $400 million, could that grow?
SOLOMON: For the transition of the GM card?
WAPNER: Yes.
SOLOMON: No, it can’t. That’s — I mean, it’s — that is — we have — we’re — we put out a number because we have confidence around the GM card in the context of what the transition will be and what the cost and effects of that transition are.
WAPNER: The Wall Street Journal wrote a story yesterday, I’m sure you saw it, suggesting your lending standards there were too lax. Were they?
SOLOMON: The Wall Street Journal wrote a story. I’m not going to comment on that particular comment. We have run a credit card program. I think we have run it well. I don’t think the story had transparency on what the costs and the frictions are in the transfer. We disclosed the overall cost of actually two activities, the credit card and our exiting small business loans. It adds up to $400 million as a pretax — as a pretax impact. We haven’t put more out than that.
WAPNER: As it relates to your business, you, I think, have been a bit more optimistic than some others about the trajectory of capital markets and IPOs and M&A. You talked about a — quote — “substantial backlog” in your last earnings call, though, recently, you said the IPO market was slower than you hoped it would be at this point. So where are we? Where are the deals and where are the IPOs?
SOLOMON: Well, you’re going to see — as more banks report earnings as we go through the fall, you’re going to see that there’s a material improvement in investment banking activity, particularly strong improvement in debt capital markets activity, and improvement in both M&A and equity capital markets activity. But what I would say, Scott, is, I would have expected at this point in time more of an acceleration back to what I’d call normalized levels. We’re still on equity capital markets and M&A running below 10-year averages. I see no reason why we’re not going to get back to 10-year averages somewhere quickly. This would fall into the category of I thought by this time we’d be back to 10-year averages, and we’re not quite there yet. But we are going to move in that direction. And I think there are a variety of reasons that have held it back a little bit. I think the big one is financial sponsors have been slower to move forward and engage and monetize on their portfolios because they have had a lot of these assets marked higher, and they have been hoping for more of a recovery. Would a couple of interest rate cuts this fall help that a little bit? Probably. We have had a bunch of significant IPOs in the market. There have been some big M&A transactions. But I’d be the first to say it’s been a little bit slower in the recovery. Now, that said, there’s nothing that’s fundamentally changed that says all this pent-up activity that’s been held up won’t come through. And when it does, we’re incredibly well correlated to it. And I do think it’s going to come through. So I do think you will continue to see a pick up through the fall of ’24 and into ’25.
WAPNER: Nothing seems to be slow as it relates to AI or spending on it, as you have heard firsthand at your own conference. So it’s an interesting time to have this conversation, given some of the disruption in some of these stocks as well. Can you describe the tone of the conversations that you have had thus far with the CEOs who are here about AI, the spending that they’re making and the expected return on that investment?
SOLOMON: Sure. I only got here late last night. So I have had a few conversations this morning. I was on stage with Jensen from Nvidia this morning. But there’s been — everywhere you go, people want to talk about this. And what I’d say is, from a macro perspective, this is a big secular trend, an acceleration and the speed of compute. And all businesses are thinking about how they can create real use cases to change processes, serve their customers or clients better, create efficiencies in their business. And it depends who you talk to, what kind of business they have when you step back and say, how are we going to implement this? I’d say, when we think about it at Goldman Sachs, we have lots of super smart people. We’re thinking about productivity first. But when you look at lots of businesses, they’re thinking about productivity and they’re also thinking about cost efficiency. Cost efficiency requires you to make investment and change processes. That takes time. So what I’d say is going on when you’re engaged with CEOs on this topic is, they’re really trying to figure out, how can we take this increased compute capacity and how can we use it in a way that can both increase productivity and allow us to gain efficiency? But any executive that you would talk to would say changing processes significantly in business is hard and it takes time. And so I think this is going to be a process. I think it’s going to be ongoing. And — but I think it’s real. And it’s something that’s going to have a big effect on the way people operate their businesses, just as the cloud did, just as the Internet did, just as the growth of compute 40 years ago did. So this is real. And I think people are very, very focused on it.
WAPNER: What was the big takeaway for you personally from the conversation you had with Jensen this morning?
SOLOMON: I just — his optimism about the pace at which they’re innovating and the ability to use compute to accelerate that innovation is really compelling. He’s quite excited about the pace of their innovation and very excited about the new platform, the new chip Blackwell and the pace of the speed, particularly on inference with that. And so I think he’s quite optimistic that the impact they’re having on their customers and the demand for the products is quite strong.
WAPNER: You have been on Wall Street a long time. When you see what’s going on with his stock, what do you think?
SOLOMON: You know, I’m not a stock picker. I have been on Wall Street a long time. And it’s hard for me to imagine—
WAPNER: You’re a stock watcher.
SOLOMON: I’m a stock watcher. I have been on — I have been around for over 40 years doing this. I am — I’m more focused on good companies and kind of understanding the execution of their plan. It’s a super company. It’s incredibly well-positioned. I’m not smart enough. When you have this kind of momentum in stocks, they’re up and down. What you really have to say is, what’s this going to look like five years from now? This is a super important company. It’s going to be a super important company. I’m not smart enough to call balls and strikes on short-term valuation.
WAPNER: Sure, but I’m sure people have walked the halls of Goldman Sachs or popped into your office and said, wow, this is unbelievable. what’s happening in the market around these AI stocks.
SOLOMON: And I would give them the same answer. I’d send them to our research analysts that focus on it and say, ask them for a valuation opinion. I don’t — I don’t call balls and strikes on valuations of individual stocks.
WAPNER: You have opined, though, on whether you think AI is a bubble or not. You said it was not.
SOLOMON: I think AI, okay, is something very, very substantive. That doesn’t mean that certain companies can’t be traded in valuations that look very, very robust and wind up being very significant companies with lower valuations. It doesn’t mean that there are shifts in all of this. I mean, you’re a great student of the market too. Things move up and down. That doesn’t mean that they’re a bubble.
WAPNER: Let’s talk some politics. Debate was last night. Not sure if you had a chance to see it or not. Your own economic team, of course, has made news of late, suggesting that the bigger boost to growth would come from the Harris economic plan, at least over the first couple of years. She mentioned it last night. You feel the same?
SOLOMON: So, that report which was mentioned last night in the debate came from an independent analyst. And it’s interesting, Scott. I think a lot more has been made of this than should be. What the report did is it looked at a handful of policy issues that have been put out by both sides and it tried to model their impact on GDP growth. The reason I say a bigger deal has been made of it is what it showed is the difference between the sets of policies that they put forward was about two-tenths of 1 percent, okay? So economy grows, okay, if you took these particular sets of policies they looked at. And, by the way, we have no idea whether these policies, these things that are talked about will ultimately be implemented. What was the growth impact? The differential was two-tenths of 1 percent. So I, think our clients are trying to look at what’s going on from a policy perspective and make judgments. I think this blew up into something that’s bigger than what it was intended to be.
WAPNER: You said in August, though — I’m going to quote here — “We need a set of policy decisions that help us deal with the trajectory of spending, the level of debt, and the cost of that debt.” Whose policies fit that?
SOLOMON: Well, I think one of the interesting things — I did watch the debate last night. And just one of the interesting things, and I could be wrong about this, but this is my recollection of what I watched. Did debt come up once in the conversation all night? I don’t think there was any discussion about the debt at all in the debate last night. I do think this is a policy issue that’s going to have to be wrestled with, but I didn’t hear any discussion about it last night.
WAPNER: There are obviously policy decisions that some will suggest are better or worse for growth. There are then decisions that will impact Goldman directly. Whose policies are better for the firm?
SOLOMON: I think that’s a complicated question. And I think one of the things that’s important at this moment in time, we’re two months away from an election, there’s a lot of political rhetoric. Political rhetoric is very different from policy implementation. And so our job is to be prepared to run Goldman Sachs and serve our clients regardless of what the outcome is, and also to participate actively with either administration to try to allow America to accelerate and do as well as it can do. And so we stand ready to do that in either outcome.
WAPNER: I mean, it’s been hard to make deals, obviously, under this current administration. Are you looking for a relief, a change on that front so that you can actually execute on what part of the bread and butter of your business is?
SOLOMON: Well, I definitely think that one of the themes of the last four years, last 3.5 years, has been an increase in regulatory impact across all industries. And this is actually something that I’m hearing from CEOs across all industries. The FTC is obviously one avenue of that. I don’t think the FTC has been in the right place on a whole significant number of issues, and I do think the FTC, this FTC has been a headwind to activity that actually strengthens US business, strengthens US competitiveness, and I don’t think that’s a good thing. And so I do think, from a policy perspective, whatever administration comes forward should take a hard look at that.
WAPNER: You seem to have won the fight over BASEL III. You feel that way with the decision this week from Vice Chair Barr? The capital buffer is going to go up, obviously, but not nearly as much as you had feared it could.
SOLOMON: Well, what I’d say about BASEL III at this point is, I obviously heard what Vice Chair Barr said yesterday, and there’s no question that it’s moved from what was originally proposed a number of months or a meaningful period of time ago. What I’d say is, I have not seen the details, OK? The details will come out next week. There were a number of areas that weren’t addressed or weren’t touched on, in particular, the capital markets impact and the Fundamental Review of the Trading Book. So I want to look at it, and I will reserve comment to then. But I think this is a process. And I’d say we’re still in the middle of the process. We’re far from the end of the process.
WAPNER: Let’s finish by talking about you for a moment. Your stock — you mentioned it earlier that your stock has had a great run. Before this week, I — it was up 30 percent, I think, going into this week for the year. I saw a Fortune headline from early July, and I want to read it to you and I want to get your reaction to it: “Goldman Sachs’ CEO was seen as a dead man walking. A year later, the David Solomon era is being hailed as a success.” What is the David Solomon era that’s being hailed as a success?
SOLOMON: I’m running Goldman Sachs now for, I think next week or the week after, I start my seventh year. We have an incredible team of people that have done an unbelievable job growing the firm. When I look back over the six years, I’m incredibly proud of how our team has grown the firm and has enabled us to be better positioned to serve our clients. We have materially gained market share with our clients. We have really gravitated to a very, very strong one Goldman Sachs ethos that is helping us serve our clients more holistically and better, I think improving our market shares. We have got an asset and wealth management business that’s set up that’s really positioned to grow and grow nicely. We’re continuing to change the mix of activities in the firm around our two core businesses, banking and markets and asset and wealth. We’re running the firm more efficiently. We’re making substantial technology investments. And we have grown the market cap very materially. We have more work to do. It hasn’t been perfect. There were things that we tried that we decided weren’t right and we have narrowed on them. But I try really to stay focused on what we’re trying to do over the next few years, how we’re trying to execute, are we executing correctly, are we serving our clients well? And, if we are, we keep going. And I try not to read all the ups and downs of the press. If you read the press the last few months, it says we’re doing quite well. If you read the press 12 months ago, it had other things to say. We’re focused on our clients. We’re focused on our people. We’re focused on executing. And I think we’re making good progress. I feel really good about the way the firm’s positioned, really good about the way our people are performing for our clients, and very optimistic about the progress Goldman Sachs will make over the next five years.
WAPNER: Does the Solomon era have a long runway in front of us? You’re a relatively young man. Sixty-two?
SOLOMON: I’m 62 years old. I’m working hard. I’m focused forward. And we’re going to continue to work hard to drive Goldman Sachs forward.
WAPNER: I appreciate you so very much sitting down with us today, David. Thank you.
SOLOMON: Sure. It’s my pleasure, Scott. Thank you for having me.
WAPNER: Yes, that’s David Solomon, he, of course, the chairman and CEO of Goldman Sachs.
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