Deep Dive
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Bloomberg Audio Studios. Podcasts, radio, news. I'm delighted to speak to the Goldman Sachs chief executive, David Solomon. David, thanks so much for joining us. First of all, welcome to Oslo, Norway. I know we'll talk about Europe, but we have to start with Trump policies. It's been 100 days since the inauguration. Like, where are we? We've seen a lot of volatility. How would you describe this moment in time?
Well, first of all, thank you for having me and it's good to be with you here in Oslo. We're 100 days in and I would say there are a handful of policy initiatives that are being put forward.
Some of them certainly are very, very interesting and intriguing to the market. But what's been put forward on trade so far has raised the level of uncertainty very significantly. And so I'd say 100 days in, we need another 100 days to kind of see where the policy directives are going.
and to try to have a better understanding of how what's talked about so far, particularly with respect to trade, is ultimately going to be put in place, how it's going to play out. But the policy actions to date have raised the level of uncertainty to a degree that I don't think is healthy for investment and growth, and I think it's going to be important that we get more clarity on the direction of travel from here. What, for the markets? So if you look at markets, there's been a sell-off, a pretty dramatic sell-off in U.S. assets.
It's somewhat come back, but has it been too drastic? Well, it's not just for the markets. First and foremost, it's for businesses, it's for individuals. When there's a high level of uncertainty, people tighten their belt, they invest less, they spend less, and all those things slow down growth. And so one of the things that has happened over the course of the first 100 days is that the perspective on forward growth has been decreased.
And so when you decrease that perspective on forward growth, that changes investors' perspective of equity values. So what we've seen is a relatively orderly kind of repricing of equity assets. And what's unusual in the context of this repricing is generally when you have that kind of equity market stress,
People run to treasuries or safe haven, but here we're seeing a slightly different rotation because of the nature of the policy. We've seen a weakening of the dollar at the margin, and so that's been different than I think what people expected. Are treasuries still a safe haven? I think U.S. treasuries absolutely are a safe haven, but you can reprice a safe haven asset as people's preferences shift slightly. I think at the margin, we've had for a long period of time
a trend of capital flows into U.S. assets. And at the margin, people are looking at their portfolio constructions and saying, given the uncertainty that's been raised in the U.S., do we want to rebalance that a little bit? And I'd say the rebalancing so far has been at the margin.
Investors can rebalance their portfolio in two different ways. If you're over here in Europe and you have a European investor, they can sell U.S. assets. But also if the relationship between the dollar and the euro changes, that rebalances their portfolio weighting too. And so we've seen that over the course of the last few weeks. But, David, so investors are asking a risk premium, a pretty hefty risk premium, to own U.S. assets at the moment, even if there's a reversal in terms of tariffs. Does it come back to what it was like, or is there a permanent...
I'm not sure that they're asking a pretty hefty risk premium. They're certainly asking a different premium than where we were three months ago. But I think everything's got to be looked at, you know, in a broader perspective. You know, the moves have been real in terms of the repricing of equities, particularly some of the
the growth stuff, the Magnificent Seven, some of these stocks that really led the last rally. But I'd also step back and just say, when you look at where stocks were a year ago, when you look at where stocks were six months ago, we had a big move up in the early part of the year, and we've kind of reset
to kind of where we were, you know, six to 12 months ago. And what's really important is people need to understand the policy set going forward and the prospects for growth going forward. And at the moment, as I said to you a few minutes ago, the level of uncertainty is just too high. And so until we have more certainty about the policy directive, it's hard for you to see, you know, more capital allocation, more investment. Does the dollar
remain a reserve currency? Absolutely. In 10 years, 20 years? I absolutely think the dollar is going to be the reserve currency, but the value of the dollar relative to other alternatives can shift. And I do think over time...
The U.S. needs to be very focused on our levels of debt, our deficit spending, etc. And I think to the degree that we don't handle that appropriately, it can put more pressure on the dollar. But I don't see a scenario in the near term where I think it's likely that the dollar is not the reserve currency for the world.
So I know you're basically saying, look, keep a cool head until we have a better understanding, right, of some of the policies put in place. But what does it do to the U.S. economy going forward? Does it mean, you know, does the Fed need to cut rates because of uncertainty on growth? Well, I think it depends. You know, Goldman Sachs has lowered its growth forecast from 2% to 0.5%. You know, I'm not – it's not clear.
How this will all play out in the coming months, no one really knows. But to the degree that the economy slows, ultimately the Fed will try to act to buffet some of that slowdown in the economy. To the degree that we go into recession, that will lead to a different reaction. So again, the Fed will look at the data, will look at the information, they'll look at labor, they'll look at growth, and they'll make decisions based on that.
Everyone wants to project forward and know the answer. We're in a moment in time where it's more uncertain than makes everybody comfortable. And I just say it's a moment in time. Let's step back.
Let's see how some of these trade deals are cut. Let's see what policy actually does go into place. And that will help us better understand the forward growth trajectory. But it's clearly been slowed by these actions. And as I'm talking to CEOs, as I'm talking to our clients, they are holding back on investment. And they're certainly tightening their belt. You're going to see some companies laying off employees and running their businesses tighter because of this level of uncertainty.
Were you surprised and are your clients surprised that it's hit growth maybe more than inflation? I think you're going to have pressures on both fronts. But again, it depends. It's one thing to talk about reciprocal tariffs, but from an inflationary perspective, it actually depends on what tariffs go into place.
With respect to growth, there's no question the uncertainty slows down growth. And so everyone's growth forecasts have come down. By the way, not just in the U.S. This affects global growth everywhere. And so the forward trajectory of growth, given the current policy initiatives, has slowed. And now we're going to have to wait and see how this all moves forward to have a clearer sense of how much, how long, et cetera. Where's China in all of this? Well, China...
Well, China's a hugely important trading partner to the West, to the US, to Europe.
At the moment, we're in the early stages of what I think is an obvious negotiation between the U.S. and China, and we need more clarity. But the current state of affairs is not sustainable, and so that's why I think there will be some change. We're starting to hear the administration talking about the fact that there needs to be change and what's in place is not sustainable, but no one knows exactly how this will play out at the moment, and that's increasing the level of uncertainty.
David, when you look at a lot of investors, and I think also Goldman Sachs did quite a lot in the Middle East, is this one of your main points of focus? And is that in case things dry up in the U.S., or is it just business sense to go for the Middle East right now? Well, the Middle East is a very, very interesting business opportunity for a firm like Goldman Sachs. They have enormous capital resources that they export around the world and they invest. We want a big asset in wealth management business, and there are many of these companies
these Middle Eastern nations and their pensions and their funds are partners of ours and other asset management firms all over the world. I think that continues. It's not a function of the U.S. The U.S. has 35% of consumption in the world. That's not changing. That's not changing. The U.S. is a very, very attractive market.
I think Middle Eastern investors appreciate that opportunity as they appreciate opportunities in Europe and other parts of the world. I think one of the most interesting things about what's going on is it would be really good for global growth and good for the global economy if Europe can make more progress on capital markets reform,
European champions really bringing together and harnessing the power of the European Union. And one of the things I'm encouraged by as I'm over here visiting in Europe right now is I definitely take away a sense of resolve, of excitement about actually moving forward
breaking down some of the regulatory barriers that have been in inhibition to growth here. And I think that would be quite constructive and more stimulative fiscal action here in Europe also would be quite constructive for growth. So, you know, there are gives and gets, but it would be really terrific
to see some progress on the economic trajectory of Europe holistically here. And I'm encouraged by some of the things I'm hearing from our clients over here. Where do you see opportunities in Europe? And again, is there like a six-month window where if Europe doesn't get its act together, it's just too late? No, I think there's never just a six-month window. Here or in the U.S.,
You know, it's a great soundbite, but these are big, important economies. I do think that European growth has been hampered by a very complex regulatory environment, particularly in Brussels, and by a sense that many of the nations
have acted more nationalistically than holistically. I think given what's going on with the U.S., there's really a push to break down some of that regulatory bureaucracy, to really think about how European champions can be bolstered and there can be more investment. And I think that's a big opportunity. There's more tech innovation going on here. It doesn't quite match up or compare to what's going on in the U.S., but there's more opportunity here. And so, you know, I'm hopeful that
that this is a moment in time where we can see
greater investment and a greater sense of the opportunity of Europe holistically. And that would be quite constructive for global growth if we could see some progress on that. Talking about regulation, what are you expecting regulation for banks to look like in the U.S.? Does Doge rip up some of the regulators? Well, I think we saw an enormous pendulum swing in the last four years toward a much tougher financial regulatory environment in the U.S. I don't think it was constructive. Mm-hmm.
And I do think, from a positive perspective, this administration would like to reset that. I'm hearing some very constructive things along three fronts. One, obviously, is the leverage ratio, which is very, very important for the Treasury market. Two is on the capital regime and CCAR.
and G-SIB and the construct of how bank capital is calculated. And third is just on the supervisory process. Supervisory process should be focused on ensuring that we have a safe and sound banking system and it shouldn't get distracted into other areas. And so I'm encouraged by what I hear out of Treasury. I'm encouraged by what I hear more broadly. And so I do think there's an opportunity to take that pendulum, which really was an inhibitor
to growth, free up some capital, get that capital recycled into the system, increase lending activity. And so I'm quite constructive that we're going to see some positive change.
on the front of financial regulation in the U.S. How quickly could that come? You know, I think we'll see the beginnings of that in the coming months. And, you know, certainly if you and I were sitting here a year from now, I would hope I could point to a handful of very specific things that have swung that pendulum back to a more constructive place. Do you think Europe then follows suit in deregulating...
at the margins or otherwise it puts European banks in a very difficult position? Well, I think one of the issues for Europe is that the banking system in Europe has not come along over the last 15 years the same way as the US banking system has. When you look at Europe, whether you're looking at BNP is probably the largest European bank with probably a 70, 75 billion dollar market cap today.
UBS would be larger than that, but just over 100 billion. There are obviously lots of institutions in the United States that are bigger, broader, much larger market cap banks. And so in the context of that, consolidation and growth in Europe and a capital markets union in Europe would be a very constructive thing for the capital markets more broadly.
But Europe's been slow to make progress in that. I'm hopeful that we'll see more progress in the coming 12 to 24 months. David, there's a lot of talk about credits and, of course, private equity and some of the alternative investments that also Goldman's trying to take advantage of. How much does that grow in these uncertain times? Well, when there's a higher level of uncertainty, the growth of private capital slows, just like the growth of asset management business and public capital slows, too, when there's uncertainty.
But I think the long-term secular growth trends around private capital formation are solidly intact. And if you step back and you step out of this moment in time, I think with a five or ten year view, we still have very good secular growth in private capital formation. With respect to private credit, we haven't had a credit cycle in quite some time.
If we have a real economic slowdown or ultimately a recession, you will have a credit cycle. We'll have to manage through that. But with a 5-10 year view, I still think growth...
and private capital formation is a long-term trend that's firmly in place. And a firm like Goldman Sachs and what we do in our asset wealth management business is very well positioned to benefit from that. We often talk about a canary in the coal mine. Is there anything in either private credit or anything that you're watching out for for an indication of a significant souring, I guess, of the economy or markets? What has happened that we're all watching is the level of uncertainty has changed dramatically
the prospects for growth in the short term. And as a result of that, companies slow down capital plans. People, because they have less confidence, spend less. You know, I think there was evidence in late January, early February, that when you looked at certain consumer discretionary businesses, we were starting to see a little bit of slowdown. Obviously, with the level of uncertainty we have now, that's been accelerated.
And so, you know, there's no canary in the coal mine. The prospects for growth are slower. And as a result of that, investment will be slower. And until there's more confidence in the policy path forward, you know, we're going to have to manage through a slower growth environment. And so M&A and IPOs will take a backseat?
Too strong a statement again. Are you telling me I'm too punchy as a journalist? Well, I mean, it's your job to be punchy. It's my job to try to listen and try to find some balance. Capital markets activity was up year over year in the first quarter. M&A activity for deals above $500 million, so the kind of M&A you and I talk about, was up in the first quarter year over year. Sponsor M&A was up in the first quarter year over year.
I think it depends on where we go from here. If you look at the month of April, there's still been a reasonable amount of M&A activity. IPO activity's slower given the level of uncertainty. If the level of uncertainty grows from here, yes, you won't see the same amount of capital markets activity, but my own belief is things will settle down, we'll have a clearer policy perspective, and some normalization of capital markets as we shift into '25 and '26. Even if we have a slower economy,
Or even far worse, we have a recession. Ultimately, when the market adjusts to that and resets, people need to transact. They need to raise capital. They need liquidity for their investments. And so part of this is just a reset of expectations, and we're in the process of that happening. Given all of this, where do you see hiring and firing and what divisions and where geographically at Goldman's?
Well, I think this firm always manages its headcount with a long-term perspective, and we will continue to do that. I think that in an environment like this where there's more uncertainty, we probably control our headcount by doing less hiring, not by, at the moment, based on what I see, doing more
firing. But I do think one of the things that the labor force broadly will have to deal with when there's uncertainty with companies, and I'm hearing this from CEOs more broadly, CEOs tighten their belts. And when CEOs tighten their belts, they get focused on expenses. And so I think we're going to go through a period here in 2025 where expense management is going to be more in focus for CEOs running big businesses than capital investment.
And if we get more certainty as companies head into their planning processes in the summer, that might change. But if we have the level of uncertainty we have now, that probably won't change in 2025. David, thanks so much for joining us. That was David Solomon, Chief Executive Officer there of Goldman Sachs.
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