CNBC's full interview with Goldman Sachs CEO David Solomon - Davos 2019

[00:00:00] Speaker 1: Joining us right now is Goldman Sachs CEO David Solomon and David it's great to see you thank you so much for being here thanks for having me guys great to see you guys yeah I thought we could start big with this we've had so many questions about what's happening with the economy and with the markets and you did a better job than investors had been expecting in the fourth quarter but it was the markets part the trading desk that plagued everybody out there it was a very difficult fourth quarter I'm just wondering if you give us an update obviously the markets aren't as volatile right now but what are you seeing have things stabilized and you think we've seen the worst of [00:00:28] Speaker 2: the volatility well it's certainly it's certainly a different first couple weeks of January than it was the last couple weeks of December and it's actually interesting I saw the statistic I guess the day before yesterday if you're looking at U.S. markets it's been the best start for U.S. markets since 1987 but that obviously was after a you know a very very bumpy December there's a lot going on in the world I think people are watching what's going on in the world it's hard to say how all the big picture things that you guys have been discussing on the show during the course of the last two days are going to play out those can have an impact in markets but I think as we turn the corner on the new year people are getting focused on the forward and if you step up at a high level broadly speaking while the trajectory of global growth has slowed a little bit economy's still doing okay [00:01:10] Speaker 1: we spoke with Larry Fink last week and he talked a little bit about how he sees things and he said this is just a short-term call and it depends on all the things that you just mentioned but for now he does think we've kind of hit that base bottom that he doesn't expect heavy-duty trade issue or heavy-duty trading issues unless one of those things kind of pops up in a direction that people aren't anticipating at [00:01:30] Speaker 2: this point yeah well I'm I am not good at making short-term market calls but like everybody else I'm watching and I said you know the underlying economy is okay I think the underlying economy is okay our economists are talking about three and a half percent global growth for the year a little bit more than two and a quarter percent in the U.S. and if you think about that as a base case it's not as robust as people were thinking about on the forward curve last year but it's not bad the issue is when you think about government shutdown you think about the 90-day deadline on trade you think about the negotiations of Brexit you look at some of the bigger macro issues that are out there you know any one of these individually probably doesn't slow us down but a combination of things not going the right way will have an impact on markets and will have an impact on sentiment but then I think the [00:02:13] Speaker 3: other issues you layer on top the Ray Dalio's of the world and the Seth Klarman's of the world all of whom are talking about potential recession come 2020 when you get in the boardroom and you're talking to companies about either merging pursuing buybacks thinking about all of those things is there a sense of let's wait and see what happens and is that let's wait and see what happens is that become a self-fulfilling prophecy well in terms of in terms of slowing things down yeah so I mean [00:02:38] Speaker 2: Andrew that's the the big question is where are we in the cycle and of course it's very easy easy to say we're somewhere closer to the end than the beginning um could there be a recession in 2020 there could um I think the chance of a recession in 2019 is relatively low our economists put it at 15 percent but if you're running a company when you're in the boardroom with a CEO and you're running a company CEOs can't manage their business saying what if there's a recession in 2020 they've got to look at their plan they've got to put forward they've got to expect that there's going to be some volatility in economic activity but CEOs aren't very good at kind of looking 18 months 24 months 36 months out and saying what if they're better at saying okay what are the factors I have at my [00:03:17] Speaker 3: disposal today and how am I going to manage even longer term I mean I there are so many CEOs we should we've had on this very set talking about how they now need to think about their supply chain for the next 10 years in a way that they would have never even thought 12 months ago different [00:03:32] Speaker 2: different topic I think there are macro issues that are affecting how people invest where they invest [00:03:38] Speaker 3: how they think about their supply chain that goes also to what company you could buy acquire of course it is [00:03:42] Speaker 2: but that's different I was answering the question really in the context of worrying about a recession there will be a recession at some point whether it's in 2020 or it's in 2021 or how the cycle runs that's not a big factor in the context of CEOs thinking about exactly the things you're talking about what's my three-year plan where am I investing what markets are most open or most accommodating for what I want to accomplish what are the big picture supply chain issues I have to deal with those are the [00:04:05] Speaker 4: things I think China's events are going to want to supply all the elements of the supply chain and somehow this you can you can only hold out for so long until they want to be part of the part of the there's there's there's no question supply chain will be intact again at some point David what about um just the global debt versus global GDP which we now know is over 200 percent I don't know what it is but it's bad it's high but but when I think about it inflation and and currency debasement hasn't been our big problem recently it sort of has it it's been sort of the opposite we've been worried about deflation and and the horrible things that you know that's probably worse I don't know they're both bad can we handle it is that looming or or a little bit of inflation wouldn't be the worst thing in the [00:04:52] Speaker 2: world right now I don't think yeah look I I personally agree with you a little bit of inflation won't won't be the right would not be the worst thing in the world right now you know I do think when we think about big picture concerns that we're concerned about and we think about places where there are financial imbalance where there are financial imbalances and where there are risks we're certainly thinking about the growth of debt in the world particularly the growth of government debt you know all over the world and so that's definitely an issue that's out there at number one um I don't know if it's number one but it's one of maybe it's one of maybe a few that certainly will finally seems [00:05:21] Speaker 4: to get you I mean I'm talking about a recession I'm trying to think of why else are we do things don't die of old age we say that all the time yet it has to be usually a policy mistake or or economy [00:05:30] Speaker 2: overheating or something so I well we recently we recently put out a research report that talks about if you look historically at recessions in the U.S. the five things that can lead to a recession some of them like oil shocks or industrial disruptions that were largely due to inventory rebalances things like that less prevalent given the way the economy's evolved but then you get into things like an overheating and inflation doesn't seem like that's on the radar screen now financial imbalances and a tightening cycle and so we're definitely in a tightening cycle you know are we are we're stopped already they've slowed they've definitely slowed but if you listen to our economists our economists are more in the view they're a little bit more hawkish with respect to next year in other words they agree that we're slowing down but they'd probably say two two hikes next year as opposed to tightening the balance sheet [00:06:16] Speaker 4: itself is tight that's true that's true but but the 2020 moving towards you know 2020 the the the recession forecast I don't know if that's any better than I don't know if their guess is any better than my guess that whether 2020 is a recession do you think that what do you think the chance would you think [00:06:32] Speaker 2: it's better than 50 50 that we have a recession I I in 2020 yes I would have told you if you asked [00:06:37] Speaker 4: me 15 percent this year 50 percent next year 50 so you think it's even and see I think that's high [00:06:43] Speaker 2: maybe it's possible 50 next year 2020 not 2019 right yeah meaning 2020 2020 not 2019 but part of that is and I said it before I'm not good at predicting these things I'm better at looking at the facts that we have [00:06:56] Speaker 4: and trying to manage purely based on how sorry purely based on how long the the cycle that's what all these things are coming from is that we're due and I don't know if that if yeah I think your point's [00:07:06] Speaker 2: a fair point and I wouldn't be tremendously surprised if this cycle ran longer than everybody expects and one of the things I'd say also joe that's interesting generally we don't worry ourselves into a recession right there's really no precedent for that well everybody's saying that everybody comes to [00:07:22] Speaker 4: Davos everybody's everybody stay here we're going to have a recession but historically we haven't but [00:07:28] Speaker 1: one of the reasons it's so interesting to talk to you and why we're so glad to have you here is you're talking about this as a ceo who's looking at investment who's looking at other companies making investment who's looking at mergers and acquisitions but you are so good at risk assessment and what that means for how you play that in the market so how do you take what you can best guesstimate on this and then play it safely in the markets how do you end up doing that well we are our whole franchise is [00:07:48] Speaker 2: focused on our clients and so one of the whether we're dealing with corporates or we're dealing with institutions we're intermediating risk for our clients all the time and part of that is affected you know by our own risk view you know I would say at this point in time you've got always you have top-down bottoms up and both you know I think we're we're more cautious around risk based on where we are in the cycle but that doesn't mean that the cycle won't run for another two three years and it's our job to be in a position to serve our clients and our clients are active at the moment because they're trying to wrestle with this I know that we get a lot of attention around the cycle and when there's going to be a recession you know in the short term thinking about 2019 we're much more focused on these big governmental issues and whether or not they have the propensity to really disappoint markets and therefore change would be 49 51 49 51 51 no recession yes yeah I got to ask you uh about [00:08:41] Speaker 3: a government issue but it's a different one related to your firm you took a half a billion dollar uh reserve uh legal reserve uh against this one mdb uh issue talking about risk uh assessing risk [00:08:55] Speaker 2: how did you come up with that number so when when you file financial statements you work with your accountants your legal team your auditors to make an assessment of what's the appropriate reserve like any other company we have information at our disposal and based on that information we made the assessment that we our auditors our legal team felt was the appropriate assessment based on that situation as [00:09:18] Speaker 3: we're working through it right as but for investors who are looking at the stock and trying you know there there are some investors who are betting that that number will ultimately be more there are other investors that are really hoping that the number is actually a lot less and what do you tell them [00:09:30] Speaker 2: what i tell investors is the same thing that i said on our earnings call you know this is something that we're working through we're managing through the process you know on earnings call i raised the point that we're spending a lot of time trying to look at and understand and think about the fact that we had somebody in our organization that we hired and promoted that actually became a criminal along with leaders in the malaysian government jolo other people and what's a very very significant financial fraud and we're reflecting on all that we have to resolve this and we're going to resolve it in an appropriate way and we're going to work through it you know in the process there's a process do it clients and prospective clients ask you about it um absolutely clients ask us about it we're very open to talking about it um i don't see it affecting our client franchise in any way at this point in time but sure clients ask us about it we talk to them about it and you know my job my role in setting a message inside the firm but also with our clients is to take ownership of the parts of it that we're responsible for but also make it clear you know as to you know what we think the facts are to the best we can most of that i've said publicly so i don't think i i have to say a lot more about that now but also to let people know we're focused on resolving it more importantly we're focused on our clients we're focused on our business we're focused on our strategy and i think some of that came through in the earnings call and i think the market appreciated that is it fair to say though i i [00:10:44] Speaker 1: think of you as you guys as being as pretty conservative in terms of making sure that you're going to be looking at things from the broadest perspective i would think that you'd be taking a big number just because you're conservative and you want to make sure when you're when you're dealing with the financial [00:10:56] Speaker 2: statements we're always conservative and doing the right thing and working with our auditors and our our our lawyers and so i feel good about what we've done and you know based on the facts that we have [00:11:04] Speaker 3: today okay i got one just final one for you so you've been now the ceo for three months four months okay so biggest upside surprise and take one mdb out of it biggest downside surprise honestly on both [00:11:19] Speaker 2: ends the the biggest if you take the situation with malaysia aside the biggest upside surprise has been you know i i knew this was a great organization i knew we had great people i knew we had great opportunities but when suddenly you step into the position of leading the organization and you can feel the organization really rallying behind the direction that you want to go that's really that's that's endorsing and i'm i'm incredibly optimistic about our firm the things we can do for our clients our client franchise i get around with clients and i listen to clients talk about the firm in a much broader way in this position and i feel good about all that you know downside surprise it's um it's a big complicated organization and while i've counseled ceos for a long time and i've had a lot of ceos talk to me about what it feels like to be a ceo and you feel a little bit lonely and a little isolated and information flows are different i thought i understood that when you sit in the seat it's really different and so i'm sitting and i'm going to do the best that i can i think you feel pretty good though don't you oh you do that you do the best we can every every day for our clients that's what we [00:12:23] Speaker 1: do david uh time management is that the the hardest thing to have figured out before is it i guess you're not spending your time exactly the way you thought you would maybe some projects take more it evolves a [00:12:33] Speaker 2: little bit but i think you know i think any executive has to have a high level view of how you're spending your time and a high level i think about a third of it on strategy a third of it on our people and a third of it on clients and you know you have to evolve that based on things that are things that are thrown at you but i i do think one of the hard things for any business leader to do is a lot's thrown at you what do you say yes to what do you say no to and you've got to be better at saying no to things that aren't really relevant for your core mission or what you're really trying to accomplish for the [00:12:59] Speaker 4: organization that's great i think if you didn't have to do anything it'd be like what is this for i mean what and really i mean it's the few things you got to make a few decisions i i i one of the [00:13:08] Speaker 2: things i i find we're making decisions every day and i'm very very lucky to have an incredible team i feel very good about the team we've put in place um but their decisions when you got the nod you went yes right didn't you huh come on i i was excited to have this on we were excited i'm excited to have [00:13:24] Speaker 3: this opportunity right on my right sorky what do you think huh you did the uh what was it what was the what was the thing you uh what's what's the car azuzu oh yeah yeah that's an old old ad you heard me you [00:13:35] Speaker 2: heard me talk about doing the joe azuzu yeah that kind of dates me a little bit you know joe and i are roughly because we know what you're talking about i know what you're talking about okay you [00:13:45] Speaker 5: heard about it sometime later can you do the thing that people do now that dance can i can't slide i can't do can you do that no you know floss yeah oh the floss right right right do you do that i'm [00:13:55] Speaker 2: no i'm not a good dancer no i don't but he put you are a good dj but i am a dj do people do the floss to your music uh they do a lot of things but i can't say i've seen a lot of them do the floss but i'm going to be looking more carefully the next time i dj jake did you prepare him for everyone that you [00:14:10] Speaker 4: did didn't you because you know jake prepared me for everything but not not the question about the floss that was not in my preparatory notes that that you know that was actually not in ours either that's good i'm glad you guys came up with that okay good david thank you it's really great to [00:14:24] Speaker 1: absolutely great to be with you appreciate it thanks for having me thanks a lot davis holman