By Jacob Wolinsky. Originally published at ValueWalk.
CNBC transcript: Goldman Sachs CEO David Solomon Speaks with CNBC’s “Squawk on the Street” today on coronavirus crisis
WHEN: Today, Thursday, April 2, 2020
WHERE: CNBC’s “Squawk on the Street”
Q4 2019 hedge fund letters, conferences and more
Watch CNBC’s full interview with Goldman Sachs CEO David Solomon on coronavirus crisis
DAVID FABER: So, very happy, as well, that this morning we are now joined by David Solomon, of course, the CEO of Goldman Sachs, who joins us from the company’s headquarters, where I would assume it’s a fairly lonely place. David, it’s great to have you this morning. Thank you for being with us.
DAVID SOLOMON: Good morning, guys. And thank you. Thank you for having me. And it is relatively quiet here at 200 West. We have about 98% of our employees working from home, working remotely. But there are some people that do have to be in the building to move money and for processes. And so, I have been making my center of operations from here. There are other people in the building. I feel like I should be here. And it’s certainly a very, very safe place to operate with so few people in the building.
DAVID FABER: Yeah. We are following similar protocols at CNBC. David, so much to ask you about. But let me just start off, broadly speaking, in terms of how you’re viewing risk right now at Goldman Sachs? A company that has been known, of course, for managing risk better than perhaps any of your peers. What is, right now, a real focus for you at Goldman Sachs in terms of what represents the biggest risk? Is it perhaps the CNBS market and real estate, is it private equity? I don’t know, but I’m curious as to where your focus is.
GOLDMAN SACHS CEO DAVID SOLOMON: When you have a change, when you have a change in the economic environment, and especially one that’s happening as swiftly as this change has happened, it creates a real change in the perception of the risks that we all hold across all asset classes. And so, one of the things that we have been trying to with our clients across banking, market clients, asset management clients, is be in a position to talk to them about how they can manage, pare risks, think about risks on an ongoing basis. And I think one of the things that makes this difficult is the uncertainty that exists. It’s very easy to think about the direction of things when it’s easier to plot a course.
And obviously here, the uncertainty is very high, so we have been advising clients, and we’ve thought about this ourselves, you have got to be very, very prudent and thoughtful about the risks you’re taking. And try to weight and evaluate and understand how confidence will reoccur and how we’ll ultimately get the economy going again.
DAVID FABER: Yeah, I would assume one thing you’re advising, as I hear from so many other bankers, is if you have an opportunity to raise cash, you probably should do it. Do you agree with that? Are you seeing a lot of your companies trying to increase the liquidity, certainly those that are investment grade, hitting the capital markets, if possible?
DAVID SOLOMON: I think there’s no question, if you’re running a company, and in my discussions with CEOs running companies, one of the risk management perspectives at every company, every business, even small businesses, has to focus on is do I have enough liquidity to weather the economic environment we’re faced with. And so certainly, if you have an opportunity to increase your liquidity, to access the markets, to work with banks, to access liquidity, it’s very important that you re-underwrite your plan and have adequate liquidity to weather through this. We will get to the other side of this, but you have to be in a position where you have adequate liquidity and make sure you can manage through.
We’re spending a lot of time with clients helping them. As you referenced, David, the investment grade market opened up quite strong over the course of the last two weeks. I think you have heard this from a number of guests. Record issuance last week, record issuance for the month, record issuance for the quarter.
And so, high-grade companies have had access. But one of the things now that’s going to be important is to try to provide opportunities for other companies that are below investment grade, for smaller businesses to have access for capital, and that’s something we’re very, very focused on.
DAVID FABER: You know, David, you mentioned, of course, getting to the other side of this. Goldman has always been fairly good at adapting to changing positions. I can recall in 2009 after the financial crisis, the company had I think what still stands as your record year, $13.4 billion in profits. What are you doing right now to position the company for what you believe will be certainly a changed environment once we are past the coronavirus?
GOLDMAN SACHS CEO DAVID SOLOMON: Well, I think there’s going to be a lot of discussion coming out of this crisis, as there is coming out of any crisis, as to what has to change, what adapts in society, how we change in society, so more people can participate, how things can be better, what can we learn from this? There will be a lot of that. For us, at the moment, we’re extremely focused in a different environment where people are working from home, how do we serve our clients?
How do we make sure that we can show up for our clients and help them at this difficult time? And also, because this is such a humanitarian crisis, how can we as an organization be helping those in need? How can we find ways to support those that are vulnerable and underserved? And so, at the moment, we’re focused on our people, we’re focused on our clients, and we’re focused on helping those that need. I think there’s plenty to do on those three things. And there will be plenty of time when we come out of this to focus on the way we and all other businesses will need to evolve.
DAVID FABER: David, I know you have had people there, of course, giving the ability you have to analyze things, analyzing the virus, trying to understand the progression, the spread. What are your best guesses in terms of when we will get to the other side of this? We’re obviously in the midst right now of unprecedented conditions. This unemployment claims number we got an hour or so ago was truly just shocking in so many ways, and many are preparing for what they believe will be a very deep recession. What are your views on that and on how quickly we’re going to come out of this?
GOLDMAN SACHS CEO DAVID SOLOMON: So, I’m obviously not a medical expert, although I find myself, you know, talking to lots of medical experts, and I think it’s important, you know, to listen and to try to learn and try to understand. But things are still very uncertain. And so, I think it’s very hard to predict. I do personally think we will move forward as we continue to build more confidence around our health care resources, and so I think it’s very, very important that the focus that’s now on improving our health care resources throughout the country, so that we can help people in need right now, it’s super important.
Testing is very, very important. There are a lot of advances in testing that are coming very, very quickly, but creating better access to testing, which creates better information and better data. These are the things, kind of the underpinning of the health care services we’re providing, that will allow us to build confidence and then, ultimately as that confidence is built and we have a better understanding of the trajectory of the virus, it will give us the opportunity to start to slowly open up parts of the economy to find ways to have people back participating safely so that we start to get things going again.
You know, there’s no question, David, that we were late to this. We were slow to adapt. But I really see now lots of focus. I see focus from government. I see enormous focus from the private sector. And I know with the resources we have, the ingenuity we have, the creativity, I’m very optimistic that we’ll make progress. It’s hard to predict, but I’m optimistic we’ll make progress and start to plot a path forward in the coming weeks.
JIM CRAMER: David, it’s Jim.
DAVID SOLOMON: Hi, Jim.
JIM CRAMER: How are you doing?
GOLDMAN SACHS CEO DAVID SOLOMON: I’m good. How are you?
JIM CRAMER: Last time I saw you was Super Bowl weekend, I think it was the last weekend in this country—the last weekend we’ll ever remember –
DAVID SOLOMON: It seems like a long time ago. And I’m glad you can see me because I can’t see you.
JIM CRAMER: I wanted to ask you, I mean, look, full disclosure, I worked at Goldman and it’s a huge position in my travel trust. You announced a stunningly big dividend hike last summer. Can you tell me whether that’s now under reevaluation or can you reaffirm your commitment to the dividend?
DAVID SOLOMON: Sure. Sure, Jim. When we announced our dividend hike last summer, you know this and you’ll recognize this, we were in a place where our dividend, as a portion of our return of capital, was out of sync with where the rest of the industry was. We were much lower. And we had always relied very, very heavily, almost entirely, on share repurchases, our form of capital return. And we thought there needed to be more of a balance.
So, we brought our dividend up so it was closer to, but not quite where the rest of our peer group would be. You know, I think the discussion about dividend right now is a discussion about capital return, and one of the things I know you saw because as an industry, the banking industry wants to be in a position to lend, to provide liquidity, to support our clients.
The group of large banks made a collective decision to stop our capital return through buybacks right now, which is a significant portion of our capital return. I know dividends are getting a lot of attention because over in Europe there’s been quite a bit of attention, and European banks are in a different place than U.S. banks. And European banks also have dividend, which is paid once a year, as a vast majority of their capital return, and a very, very significant part of their earnings. You know, here in the United States, it’s a much smaller part of capital return. We’ve already, as an industry, stopped the significant part of capital return so we’re in a position to lend to our clients. But it’s my expectation we’ll continue to pay our dividend.
JIM CRAMER: Okay. And the Goldman I know, it’s still the same Goldman I believe. There was only 900 people when I was there—know everyone’s name. But the commitment to the employees was always extraordinary. Can you take a pledge that you won’t lay anybody off in the next three months?
GOLDMAN SACHS CEO DAVID SOLOMON: I have been very, very clear to our people that during our crisis, people’s jobs are safe. We’re incredibly focused, Jim, on our employees and our community. We’re trying to find ways to add support that we’re giving. We made an announcement earlier this week that we’re increasing the amount of emergency home leave to two weeks that people can take. People have parents or family members, they need emergency home leave. So, we have increased that. You know, I have been personally focused on the fact there are all sorts of people in our Goldman community that might need support.
We have people that are security guards that work for us that work in the cafeteria and food service, that work in cleaning, these are people that are Goldman employees but they’re part of the Goldman family and community, and we’re working with the vendors and the unions to make sure that because of what’s going on, their incomes have been affected, we’re making up the difference. So, we care deeply about our employees, and we’re very, very focused on their safety, their security, and their wellbeing during this crisis.
CARL QUINTANILLA: Hey, David, it’s Carl.
DAVID SOLOMON: Hi, Carl.
CARL QUINTANILLA: You rolled out this morning a plan–good to see you—a plan to give aid to small business. $300 million, act as a complement to the federal program. There’s a report out of Reuters that some banks are nervous in participating in the program for fear of legal risk, financial risk. What are you telling small businesses about the opportunity to get loans and how to navigate what is going to be an enormous amount of red tape?
DAVID SOLOMON: Sure. First, we have been very focused on small businesses at Goldman Sachs for quite some time because we think small businesses are such an important part of the overall economy. I think you’re all aware of our 10,000 small business program, which has given us great insight into small businesses for a number of years, over the course of the last decade. I participated earlier this week in what I call a town hall session where we had 1500 of those small businesses on a conference call with myself and Senators Cardin and Rubio, who as I think you know, lead the small business subcommittee that was very, very involved in the small business provisions that are in this bill.
This bill obviously provides $350 billion, which I know we all want to get quickly into small businesses that need help, that need support. And we’re committed to do that. A lot of small businesses will access that through their existing banks. They’ll go to their existing banks where they have checking or they have got a relationship. We have always been focused on community development financial institutions, which are kind of a layer below banks, that in particular serve small businesses that might not have the same access to the banking system in more vulnerable communities, we have supported these CDFIS for a long, long time.
And so as a part of our effort to participate in this and get capital to these smaller businesses quickly, especially in these more vulnerable areas where they might not be as connected to the banking system, we pledged in that pledge $25 million that will go to supporting the infrastructure around CDFIS, to give CDFIS the opportunity to ramp up quickly and get more money deployed. And in addition, we pledged $250 million of our balance sheet that can be deployed through these CDFIS to small businesses.
So, from our perspective, we’re excited to play our role in helping get our capital and our balance sheet deployed out to these small businesses that are in such need right now. And so that’s a focus, and we have been working hard at that.
DAVID FABER: David, you also have insight into the consumer now that I think you might not have had as an institution not that long ago, given your efforts in retail. Of Marcus is a name we know at this point that is a part of that. What are you seeing on that front in terms of balances, in terms of need on the credit side, and what are your expectations there for that business given this economic turmoil?
DAVID SOLOMON: Sure. We obviously are focused on our Marcus platform and our consumer business. You know, I would start by saying, and I know you all recognize this, it’s still a relatively small business when you think about the big consumer businesses that are out there. But I think for one, on the deposit side, we offer a very, very attractive offering. Right now, an overnight government guaranteed deposit on Marcus is 1.7%. A twelve-month CD is higher than that – I think 1.8 or 1.85.
What we’re seeing, because people are raising cash and they have cash, we’ve actually seen during the course of the last few weeks, people coming to Marcus at an increased pace. And so we’ve seen our deposit flows have increased in Marcus, because we think we have a compelling offering.
On the lending side of Marcus and our credit card business, we’re certainly seeing change in behavior very quickly. Through the credit card, we have insight. And as you would expect, spending particularly around travel and leisure and restaurants and you know, being out and entertainment has plummeted. But you’ve seen some pick up in spending on staples, food services, those kinds of things. Obviously given the pressure that’s on everyday individuals, because of this crisis, you know, there will be pressure on those businesses. And one of the things we’re very focused on is helping consumers.
We have a program where people can opt in to defer their interest payments on their Marcus loans or their credit card loans and it’s simple. You just text to Marcus or just text into Apple Card and you can defer your interest at this point in time, your interest in payments. And so, we’re very small in that space, but we’re trying to do our part. And we’re watching it quickly. It’s very early to see big, big patterns with our small data set.
DAVID FABER: You know, speaking of numbers and data, David, you mentioned the top of the interview, 98% of your employees are not working from your headquarters or are working remotely or from home. Once we get through this, is that going to become more the norm? Are you expecting significant changes in sort of work behavior? And how would you approach it at Goldman Sachs?
GOLDMAN SACHS CEO DAVID SOLOMON: So, the first thing I have to say is I’m so proud of our people at Goldman Sachs. If you had told me, David, you know, even a couple months ago that we would have 98% of our employees working remotely and we’d be able to serve our clients, take care of our people, participate in the economic system, play our role as smoothly as it’s going, and I won’t say it’s perfect, there’s certainly bumps in the road.
But their commitment, their flexibility, it’s really been awesome. And I’m so, so proud of our team and what they’re doing. Now, obviously when you go through something like this, you know, it forces you to ask questions and think about things differently. We’ve certainly had certain parts of our business where people travel and they work remotely regularly. But I think what’s interesting is it creates a new lens to think about things that can continue to make this a very attractive place for people to work. It can change the way we have our real estate footprint over time. But I think those are longer-term things. I’m not at this point a big believer that the shakeup or the change once we get to the other side will be swift and dramatic.
But it will be gradual. And, you know, it will, I assume, increase the amount of video conferencing. It will make us more comfortable with tools like that. It will make us more comfortable in providing more flexibility to employees which, by the way, makes this a more attractive place for people to work. We’re trying to act on those things. But I think those, David, are more down the road things to think about. Right now, again, focused on our people, their safety, their health. How do we help in communities? And how do we help people in need? How do we serve our clients? There will be lots of time when we get through this to the other side to think about those other things.
DAVID FABER: Yeah. And we hope there’s going to be time between for you to join us again, David, as we continue to obviously watch an unfolding — well, very difficult time here in the United States and around the world. But thank you for taking some time. David, the CEO of Goldman Sachs joining us.
DAVID SOLOMON: Thank you so much. Thank you for having me guys. Please stay safe, stay healthy. And I appreciate you having me today.
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