David Solomon

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0:34One of the most significant investment banks in the world is Goldman Sachs. It's had a gloried history. Recently, I had a chance to sit down with a current CEO of that firm, David Solomon, to ask him about the Federal Reserve, operating Goldman Sachs, and the current economic environment. So let's talk about some government matters now you're in Washington. The Federal Reserve, you've talked about the importance of the Fed being independent. So are you worried about the independence of the Fed? And the Secretary of Treasury has announced five potential next chairs of the Fed. Are any of them, are all of them acceptable to you?

1:11Well, let's get right into it, David. First of all, I just say, and I think it's a point that's worth emphasizing, central bank independence, not just here in the United States, but around the world, I think it's served us very, very well. and I think it's something that we should speak out for, we should strive for, and I think it's important. I'm not going to comment on the individuals other than to say I think all five individuals, you know, carry skills and experience that could make them credible candidates to be a Fed chair. I think we all know that there's one person that's going to make that decision as to who the next Fed chair is.

1:44Sometimes the government of the United States is moving, oscillating its policies a bit, like on tariffs or other things. Has that made it difficult to do well on Wall Street for Wall Street firms or Wall Street firms seem to be doing okay but has the changing in policy what the tariff we're having here or not having it or other kinds of things has it been difficult for Wall Street firms to deal with what the administration is doing or is actually not a big problem? Government, policymakers, you know there's always uncertainty there's always unpredictability in all different kinds of administrations and and I think our job as business leaders is to adapt and to adjust and and deal with it candidly.

2:23I think that's what I think we do. Right. So the debt of the United States is now $38 trillion. Some people would say that's a lot. Why is the business community not worried about, as a general rule, they don't seem to be as worried about the$38 trillion as I would have thought they would be? Well, I speak to a lot of people in the business community, a lot of people in the financial community, and I think people are worried about the level of debt and the fact that we've reached a point, and by the way, this is true in the United States, but it's true in every developed economy where kind of fiscal stimulus and an aggressive fiscal play is really just kind of embedded in the way these democratic economies are operating.

2:59And it's accelerated meaningfully in the last five years. I think the pandemic, you know, played an accelerating role and it doesn't seem like we have an ability to pull it back. And so we've taken the debt, you know, in the last 15 plus years, kind of since the financial crisis from 7 trillion to 38 trillion and just refinancing it for the rest of the decade, what's got to be refinanced if you look at current rates, is going to grow it into the low 40s for sure, and we're growing our spending at a reasonable rate still, and so this is an issue we have to wrestle with. Now, the path out really isn't a revenue path out.

3:38The path out is a growth path, and if you think about it, the difference, trend growth is 2%. The difference between compounding growth of 3 % and 2 % is monstrous in terms of dealing with this issue. So there's a lot of discussion about running, you know, real growth play. I think we have some things that are going on that give us a better opportunity to have a higher growth trajectory, particularly, you know, technology, AI, getting embedded into the enterprise, the productivity opportunity from that. but if we continue on the current course and we don't take the growth level up we will there will be a reckoning on this and the bottom line is we have to find people you know to buy and finance our debt and you know ultimately it's it's not going to be other people around the world if it keeps growing it's going to turn to us is wall street worried about the fact that government is shut down i mean this is a fairly long shutdown or people on wall street say well it'll get started again at some point?

4:36Or have you seen the adverse impact on your business as a result of the government shutdown? I think we all should be concerned about the fact that the government shut down. And I think it's unfortunate that we have government shutdowns, and this one's now going on for a period of time. As it goes on longer, it starts to have an economic impact. It starts to filter through the economy, and we're getting to that point in this shutdown. Who do you think is responsible for the shutdown? The government. Right. Well, let me ask you, I know you're not going to answer that question. So every seven years on average, the U.S.

5:11economy has had a recession, seven years on average. We haven't had a recession for quite a while. Are you worried about any potential recession coming or you think the economy is in pretty good shape? Well, I think the economy is in pretty good shape at the moment. And I think when you look at kind of the give gets, you know, in terms of tailwinds and headwinds, there are more tailwinds at the moment. I mean, I go back, we're still running a pretty aggressive fiscal play. The AI infrastructure investment boom, you've got six or seven large companies that are going to spend$350 billion this year on AI infrastructure.

5:47That has an effect on growth. We also, after a period of kind of heavier regulatory oversight a business broadly, there's now a pretty clear, by this administration, a pretty clear systematic look at regulation and more of a view toward what regulation is really necessary and works as effective. And that's a tailwind for growth. And you also have, as AI gets embedded into the enterprise, you have real productivity gains. So we've got a big, diverse economy. It's in pretty good shape at the moment. There are things we can't see that could set it off. but I think the chance of a recession in the near term is low.

6:26But that's one of the things about sentiment shifts and changes and surprises. You generally don't see them until they're right in front of you. On AI, some people would say that there's maybe a little bit of a bubble in AI. When you have companies with market caps of$5 trillion, you don't see any bubble there at all? Whenever we have an acceleration in technology and people get excited about it, you have significant capital formation around new companies that are trying to capitalize on that opportunity. And, you know, we've seen this before through history, and you're seeing it now. It won't be a straight line.

7:05The opportunity set with AI is enormous. There will be winners and losers, and it's hard to pick the winners and losers now. And certainly a lot of the capital that's being deployed will not produce adequate returns, and a bunch of the capital that's being deployed will actually not produce any returns. The dollar is down about 11 % or so against the euro and some other currencies as well. This year. Yeah, this year. I mean, in the last 15 years, it's up monstrously. Right. But do you worry that it's gone down or you think it was overvalued? And as a result of it having gone down, you think the chance of a plaza, a quarter, an orchestrated effort to take it down even further is unlikely?

7:46And you think the dollar decline now is okay? say it's adjusted appropriately? The dollar has been on a pretty good run over a long period of time, and it's certainly given back this year, given some of the policy actions, some of the gains. But fundamentally, the dollar is the reserve currency of the world. I don't see anything at the moment that threatens that. I'm not concerned that there's some fundamental shift. And actually, when you think about digitization and tokenization and access to the dollar, over time, it's actually allowing easier access to the dollar around the world, which in the long run is a benefit for the dollar and the dollar's position in the world.

8:18What about crypto? Is crypto now important for Wall Street? It's an important business. And are you a big believer in the viability and the good investment opportunities related to crypto? I'm a big believer in the technology of the blockchain and the ability for us to change the financial infrastructure, the rails, to increase speed and decrease friction. And that's a very, very good thing for the system. That's different than a debate on the long-term value of Bitcoin. I don't have a, I think Bitcoin looks like a store of value. I don't have a real long-term view, you know, on that, a strong long-term view, but I do, I do have a very strong view about tokenization, digitization, stable coins, and innovation around the whole financial infrastructure.

9:03It's coming. It's coming at a very quick pace. And to the degree that it increases speed, reduces friction, and allows for a more secure system, I think that's a very, very good thing. So firms like yours seem to have two main businesses, I'll say. One is investment banking, and the other is trading. Which is stronger right now, investment banking or trading, or both doing well? They're both big, important businesses. And it's evolved a little bit, David, because the way we run these businesses now, we run it as one business. It's called Global Banking and Markets, and it's our investment banking, fixed income currencies and commodities and equities franchises, and they're run as one business.

9:38We've obviously had an extraordinary leadership position in investment banking and M &A. And we've maintained and strengthened that. But in our trading businesses, we've increased our wallet share with our clients over the last five years by 380 basis points. And so we've really created an ecosystem by getting these businesses to work together as one Goldman Sachs that our clients really feel like they've benefited from. And so we've seen growth in those relatively mature businesses because of that. When COVID came, a lot of people worked by Zoom. They had to, really. And then when COVID was over, people were urging their employees to come back to work.

10:13And there's still a little bit of a fight on Wall Street about whether people should work in the office five days a week or four days a week. What is your policy? We don't have a policy. We work. Ours is a culture of teamwork and collaboration and apprenticeship. And that works when people come together. But people also travel to see clients and people also have busy, complex lives and we have to give them flexibility. We did that before COVID. We do that now. But fundamentally, people show up. They work. We don't have rules. They get their jobs done. They're accountable. They're present. And, you know, we come together.

10:45That's what we do. So you don't care if they're in the office five days or three days as long as a job gets done? As long as they're doing what they need to do. And part of what you need to do is you need to be present. You need to mentor people. By the way, young people, they're coming to Goldman Sachs to learn. All these young people we were talking about, they want to be present in the office and they want senior people around them. From providing extra support during busy seasons to replacing vacant roles, you need Express employment professionals on your team. Express can handle everything from contract placements to finding the right full-time team member.

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11:58That's expresspros.com They want to learn. What brings you to Washington other than this event? What are you doing in Washington today principally? Fifteen years ago, we created a program at Goldman Sachs called 10 ,000 Small Businesses. We had a thesis that if we could provide some boot camp business education for small businesses, given the importance that small businesses play in our economy here in the United States, the entrepreneurial spirit, I think 35 % of the private workforce in the United States is small businesses, that if we could make an investment in that community and use our expertise, our knowledge, and transmit it into that community, it would spur more investment, more economic growth.

12:42A few years ago, we created a platform called 10 ,000 Businesses Voices to bring graduates of that program to D.C. periodically to go up on the hill and spend time with members and senators on policy issues. And so we have 2 ,000 small businesses here. When you think about the power of the U.S. economy, you can't understate how important this entrepreneurial spirit, it's different from other places in the world. Let's talk about your background. Where were you born? I was born in Westchester County, outside New York City, White Plains, White Plains, New York. And what did your parents do? My father had a financial printing business, like mutual fund prospectuses and prospectuses in Manhattan, a small financial printing business.

13:26He was actually quite smart. He sold it in 2000 to one of the big financial printers that didn't exist after 2010. So I think he made a good trade. My mom was an audiologist at the Burke Rehabilitation Hospital in White Plains. And were you a star student when you were in elementary or junior high school or high school? I would not say I was a star student. And I would say that I was a distracted student, meaning I had lots of interests. And, you know, studying hard was not one of them. There was a point when I really kind of got it when I was in college. But I would say I coasted more through high school.

14:03Were you an athlete? Were you an athlete? I was an athlete, but I was extremely mediocre. Extremely mediocre. I know the feeling. Okay, so you went to Hamilton College because you admired Alexander Hamilton? Well, I went to Hamilton College because I didn't get into Williams. But Hamilton College is a great school. I'm really glad that I went there. And you're the chairman of the board. And I've devoted the last 25 years to service there, and I do chair the board. You're the chair of the board now. That's a fantastic institution. Congratulations. So you graduated from Hamilton. What did you major in?

14:37I majored in political science, and I really thought I was going to go to law school. and... You didn't miss anything, trust me. Well, it was very interesting. All my friends were moving to New York, and if you really think about it, it was 1984, and the financial services world, kind of the bottom of what I would call was a long drag from the late 60s to 1982. I mean, the moment would be September 15th, 1982, when the 10-year treasury had 15.9%. We were just starting to come out of that and see equities start to move again. And banks and financial firms were creating analyst programs, and banks were creating training programs.

15:18And all my friends were going to New York to do this. I didn't really know much about finance, but it was an opportunity to kind of continue what we were doing in college in an apartment in New York. And you could earn a salary of$22 ,000. So I got a job at the Irving Trust Company, which was a commercial bank, in a bank training program. and I went to work on Wall Street, actually literally on Wall Street. Irving Trust headquarters was number one Wall Street. Did you interview for a job at Goldman Sachs and get turned down? I didn't interview. I sent a letter asking for an interview and I got a reply back saying no thank you.

15:55After Irving, you went where? Back in those days, generally speaking, if you wanted a career on Wall Street, you had to go to business school. And so in the fall of 1985 and early 1986, I was applying to business school. But I got an interview with Drexel Burnham Lambert in the high-yield bond department in a small branch of it that was based in New York that basically traded and sold junk commercial paper, if you can believe that product existed. And I took that job and went to Drexel Burnham. I had a great experience at Drexel Burnham. I learned a lot. My background was all around high-yield bonds and credit trading.

16:28But you left before they went bankrupt. I did. I was competing for a piece of business with a Goldman Sachs partner whose name was John Winklereed. And at the end of competing for that piece of business and actually doing that piece of business, it was actually a financing for Sheldon Adelson, who was building big casino hotels in Las Vegas. We raised him$1.2 billion in 1998. I started getting recruited to come to Goldman Sachs. And I had been in a pretty senior position at Bear Stearns, but I really thought it was an opportunity to go to work for what I believed was, you know, the most extraordinary financial firm on Wall Street.

17:03It's very unusual for my mid-early career to go to Goldman because usually you hire people right out of business school or college. And you went kind of as a lateral, and that was unusual. I assumed you had some. At the time, it wasn't unprecedented, but it was unusual. The firm was just going public. I mean, I came right after the IPO. And the firm in that year had gone out and hired five or six partners that had real credibility because the firm was trying to grow and expand its footprint. So how many years were you there before you became the CEO? Well, I became the CEO in 2018, so that means I was there 19 years.

17:36So work your way up. Did you think when you joined you would wind up as a CEO? No. I didn't think I would be there for 20 years. I remember there was a partner who was a longtime partner named Bob Hurst who was talking, who was just kind of, he was kind of winding down when I joined the firm. And I remember being at an event with clients and he was talking about all the years he had been at the firm. And I remember looking at him and saying, well, I'll never make that many years. You became the CEO in October of 2018. the stock is up roughly 300 percent since then the market capitalization is up roughly 300 percent so people are pretty happy with you i assume this week i mean you know so you came out with your earnings uh because last week your earnings were up per share i guess 41 percent per share 46 percent 46 percent over year of year and uh but the stock went down two percent how can that be given how well you did i guess they wanted earnings to be up 55 percent i mean And, you know, we really don't.

18:31I mean, it's hard for me because like any human being, you know, I have the screen on my desk or on my phone. But we're really, you know, in 2018 when this leadership team started, you know, through 2018, the end of 2018 and 2019, we really developed a strategy to grow the firm. And we've made real progress. And we've grown the firm very materially. I mean, the market cap has grown, as you highlight, because we've grown the revenues. We've not quite doubled the revenues. We've taken the revenues from mid-30s to almost 60. and we've grown the earnings very, very materially, and that's grown the market cap.

19:02And so we're executing on that strategy. And I think we've got a great strategy, an incredible team. We've got a client. We're incredibly focused on our clients and our client franchise. And, you know, the stock will follow. Our job is to execute, to be patient, to take a long view. There will be cycles. At the moment, we're in a constructive cycle, so it feels like there are lots of tailwinds. There will be more headwinds. But, you know, over the next five years, I think we will continue to grow the firm. continue to deliver for our clients and continue to deliver for shareholders. What percentage of your employees are not men?

19:34We've made a bunch of progress, especially in the senior ranks, but candidly not enough. And we continue to be focused on creating opportunities, but it's a long, long road. What are the skill sets that enable somebody to rise up at Goldman? Goldman's no different than any other professional services firm. I think one of the things that's important to be successful in a professional services firm is you have to enjoy interacting with people. It's a people business inside the firm because you work collaboratively on teams and you work collectively for the betterment of a group out of the firm. And you have to like working with clients.

20:07You have to like serving clients. You have to like responding to clients. You have to like talking to, being with, building relationships with clients. And so, you know, those are skills that matter. To do those things, you have to be smart. You have to be motivated. We have four core values, client service, partnership, integrity, and excellence. And, you know, all great businesses are underpinned by the leadership and the organization living those values and really trying to compete to the best of their ability to deliver against those values. So it used to be the case you had to be a man to rise up at Wall Street.

20:37Today, what percentage of your employees are not men? We've made a bunch of progress, especially in the senior ranks, but candidly, not enough. And we continue to be focused on creating opportunities. But it's a long, you know, to get to the top of the funnel, it's a long, long road. And, you know, the sample said, I remember my training class, you know, it was 90-10, you know, men to women, you know, 42 years ago. Many people who go to a place like Goldman say that if you want to rise up, you have to have an MBA, but you don't have an MBA. And so do you think it's necessary to get an MBA to rise up at Goldman or equivalent firms?

21:10I think there was a period, you know, 30 years ago where it really was, you know, the vast majority of people that rose up in the organization did have a business degree. I think that's changed, and the vast majority of people that rise up in the organization do not have a business degree. That doesn't mean that a business degree is not a valuable thing, but the world's changed. We can train and develop people differently, and real-time experience is a valuable thing. One of the strategic things that the business schools did that I think had an effect, if you go back to when I first started, you worked for two years and you went to business school.

21:44The business schools went to a mode where they really wanted people to get four to six years or seven years of experience. And so they kind of wound up with people went to business school more to career change, not to career continue. Because if you worked in finance for four or five years, you had learned a whole bunch of things real time on the job where the value proposition for going to business school wasn't the same as it was if you were only two years in. And if somebody is watching here and you want to summarize what you wish somebody would know about Goldman Sachs, what would it be? It's filled with extraordinary people that are just zealously focused on doing the best we can to serve our clients, to build trust, to take a long-term view, to do the right thing, and really have the most, be a part of and steward what I believe is the most extraordinary financial institution in the world and to try to make it stronger, better than we found it.

22:35And your biggest worry today about what's going on in the world or the economy, is there any one worry you're worried about? There are always risks. There are always things to worry about. We're constantly looking at our processes, looking at our risk, thinking about what can go wrong. And the reason for that is not because things aren't going to go wrong. Things will go wrong. What defines a financial institution when things go wrong is how the institution responds to it. You know, we are zealously focused on that because I guarantee things will go wrong. They always do. Environments change. Bumps come.

23:07Risk is risk. And when you take risk, you know, you have periods of time when you lose money or it's hard to make money. And what defines organizations is how they respond when things are tough, not how they respond when things are easy. Can you go out to dinner in New York without somebody saying, here's a resume or here's a deal? The greatest, it's a privilege, and there's pleasure that comes with it. The greatest privilege of stewarding this firm is the people that you get to work with. The firm is filled with the most extraordinary people that work so incredibly hard, you know, day in and day out to serve our clients.

23:41They're smart, they're motivated, and it's incredible to work with them, to be with them, and then also our clients and the opportunity. Particularly the private equity clients, I assume. Private equity clients. I mean, I love the private equity clients. But I mean, it's just, the most enjoyable thing about the business is people and the ability to learn and to be with people and be motivated by people and stimulated by people. It's really extraordinary. Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.