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00:00Let's get back now to the world of finance.
00:02Not that we ever left it.
00:03I'm pleased to say I'm joined by David Solomon, the Group CEO of Goldman Sachs.
00:06David, it's really good to see you here in Saudi Arabia.
00:09We spoke here exactly a year ago.
00:11I don't know where the year has gone.
00:13The time goes quickly as you get older.
00:16That's true.
00:17I'm certainly finding that.
00:19Look, let's just talk through this series of initiatives that you've done in the region over the past 12 months.
00:25Because from what I can see, you're really doubling down on your asset management business.
00:29You know, earlier this year, you announced a partnership with PIF in asset management.
00:33Last week, you announced that you were expanding wealth management in Saudi Arabia as well.
00:37So, you know, what's the vision here?
00:39What's the kind of growth that you're looking to achieve?
00:41Well, we're certainly excited about what's going on in Saudi Arabia, what's going on in the GCC more broadly.
00:46I think it's a big opportunity for our business.
00:49We've been here for a while, but we've certainly been invested in expanding.
00:53You know, here in Saudi Arabia, we opened a new office this year.
00:55We've got about 20 people on the ground here, but we're probably headed to about 60.
01:00And the big reason for that expansion is we've recently launched the initiative of our high-end private wealth business here in the region.
01:07And so that will bring more resources, more attention, and more focus.
01:11We've been in the region for quite some time.
01:13We've been active as a member of the Tadwa.
01:15I think we were one of the early participants in the equity markets here.
01:18And so we've been very, very involved in the equity markets as an international firm.
01:22We've led some of the largest IPOs in the region.
01:24And I think you're going to continue to see an influx of capital markets transactions.
01:29And I think that's something that certainly we want to sit in the middle of those flows.
01:32Financing has always been core to Goldman Sachs' strategy in any part of the world.
01:37Yeah.
01:37You mentioned our partnership with the private investment fund around private credit.
01:42That's something we're certainly excited about, too.
01:44So when you step back and you think about the progress here in the kingdom, the need for foreign direct investment to come in to continue to allow the population here to participate more economically,
01:58the changes that are coming from the investment that the kingdom's making in infrastructure and the local economy here,
02:05we think it's a great opportunity for Goldman Sachs to continue to partner with the kingdom.
02:09Do you see that investment coming in?
02:11I think there's great opportunity.
02:13I think it's one of the things that the Crown Prince is very focused on is how do you look at when you think about the exports, particularly of energy here,
02:21how do you create a more localized economy?
02:23And so I do see signs of an increase in that activity, particularly around things like tourism and investment in infrastructure that can support tourism,
02:30but also in certain manufacturing areas.
02:32And I do think one of the things that's interesting is AI and the ability for there to be AI infrastructure here that can be used and can be exported to different places in the region and around the world.
02:41Yeah, and certainly many people are eyeing out the opportunities there.
02:44You also opened up an office in Kuwait as well.
02:47So talk us through the plans there.
02:48We have a partnership with Kuwait and we've actually been in Kuwait and have done business in Kuwait going back to the 1970s.
02:57So it's a long-term partnership.
02:58What I think is interesting about what's going on in Kuwait at the moment is there's a real effort after a period of time following the war in the 1990s
03:07where they really did not put the capital into the infrastructure and growth locally and they had a legislative branch that was stopping progress.
03:15The Amir now is taking action to really spur significant investment, significant growth,
03:20and we're very proud to partner with the leadership there in helping them think through strategically how to expand that growth.
03:26So Goldman has offices now in pretty much all of the financial hubs of the region.
03:31And I just wonder whether you think it is necessary or it helps to get access to these types of pools of capital,
03:39you know, to these long-term commitments, actually having a physical presence in the country as well.
03:44I think it helps enormously.
03:45And, you know, the world changes and there's lots of technology and there's lots of flexibility, but showing up matters.
03:51You don't have to look much farther than outside of us here today.
03:54There are an awful lot of people from all over the world that have shown up here because they want to build relationships, partnerships, they want to participate.
04:01And so whether it's here in this region or you can go back to the United States, you know,
04:05why do we have localized offices all across the country in the United States?
04:08Because in those communities, people want presence, they want direct connectivity, they want to show up.
04:13While technology in the world evolves, human-to-human contact is not going away.
04:17Yeah, no, that's true.
04:18That's a fair point.
04:18But do you think it's also fair to say that, you know, in the old days and typically, you know,
04:24funds would come here to get capital and then offer investment returns.
04:28And nowadays, sovereign wealth funds are saying it's not just enough to offer us investment returns.
04:34So they've evolved in their thinking.
04:35I think the whole economic, the whole scope of economic activity has really changed enormously.
04:40There's no question if you go back, you know, my old days are a lot older than your old days.
04:45But if you go back a while, these nations were exporters of capital around the world.
04:52And they had not built the infrastructure of professional investment capabilities here locally.
04:58And so they were outsourcing those capabilities to institutions like ours and others.
05:03Now, they're really making long-term investments to build their economies,
05:07to allow their populations to participate, to attract investment here.
05:12And so what they need, and they've got incredible investment infrastructures here localized on the ground.
05:17What they need are ideas.
05:19What they need are liquidity and capital.
05:21What they need are strategic initiatives.
05:22And so we're just at a moment in time where they have the capacity to do many more interesting things to build their economies.
05:28Think about Saudi Arabia here in the kingdom.
05:3035 million people.
05:31You know, there's an enormous opportunity, given that population,
05:35to continue to expand the economic activity on a localized basis here.
05:39And they're looking for partners that can help drive that.
05:41Do you think alternative assets are going to pick up here?
05:43This part of the world has always allocated a significant portion of their surpluses to investing in privates.
05:54If what you're asking is, will there be interesting investment opportunities on the ground here in these local economies?
06:00Yes, absolutely.
06:01As these economies grow, there will be more interesting investment opportunities here on the ground that attract international capital from around the world.
06:08And we've obviously been seeing that in a more significant way over the course of the last five years.
06:13Yeah.
06:13Okay, let's broaden this out a little bit.
06:15You know, your earnings came through again.
06:17You know, it seems as though the bank is really firing on all cylinders, whether it's, you know, it's trading, markets activity, deal making, advisory, wealth management.
06:26You know, so everything seems to be going quite well at the moment.
06:29You know, how long do you expect these favorable market conditions to last for?
06:34Well, I appreciate that.
06:37We certainly had a strong quarter in our client franchises and terrific shape.
06:41But I really think that the firm is benefiting from a bunch of strategic decisions that we made five, six, seven years ago to reposition the firm for growth,
06:50to really grow our core business of investment banking and markets, put more financial resources into the business so that we could take more wallet share with our clients
06:59and be in a position to better serve our clients as they were increasingly active, and also to pull a group of businesses together
07:06to create our asset and wealth management platform, which now supervises $3.5 trillion.
07:11We've said publicly we think it can grow in terms of its durable revenue, high single digits.
07:15It's growing better than that.
07:16And the combination of those activities has materially uplifted the returns of the firm.
07:20So the environment is conducive at the moment.
07:23There will be times when the environment, you know, is a little less conducive.
07:26We live in a cyclical world, but we think we have the firm position that over the next five, ten years, we can continue to grow our earnings,
07:34grow our client footprint, and continue to compete at the highest levels of the businesses that we're in.
07:40So one thing I was thinking about this morning, you know, if you just took a snapshot of where everything is trading,
07:45you have equities at all-time highs, you have, you know, U.S. economy tracking north of 3%.
07:51If you look at the real-time indicators, you've got inflation at 3% as well.
07:55And yet somehow the Fed are going to be cutting interest rates by 25 basis points tomorrow.
08:00Do you see this as the beginning of a sequential easing cycle or just more of an insurance cut?
08:06What I would say with respect to the Fed is the Fed, you know, will cut rates tomorrow and then we'll see.
08:12I know the consensus is you'll get another cut before the end of the year.
08:17But the policy rate has been higher.
08:19I think they're looking to move more toward neutral, and so we'll take a step in that direction.
08:24But I think the Fed always is an observer of what's going on in the real-time economy.
08:29The real-time economy can shift very quickly.
08:31At the moment, I would say the U.S. economy is in quite good shape.
08:35But I wouldn't jump forward.
08:37There are lots of forward prognostications about the path of interest rates.
08:41I would just highlight mostly, you know, I'd look at the moment.
08:45You can project forward, but just because there's a forward projection, it doesn't mean that's where we'll wind up.
08:49There's still a lot of uncertainty out there.
08:50There's a lot of uncertainty.
08:51Do you believe that this is a K-shaped economy?
08:54Lots of academic circles have been talking about that in the sense that, you know, upper-income earners seem to be thriving,
09:00whereas lower-income earners are struggling to keep up with inflation, and they're worried about potential job cuts to come.
09:06I wouldn't use that term, but what I would say is businesses that are particularly sensitive to lower-income or paycheck-to-paycheck consumers have been a little softer.
09:19And I would say, you know, consumers that are paycheck-to-paycheck feel more pressure in an environment with 3% inflation.
09:27And so there's no question inflation is very, very difficult for people who live paycheck-to-paycheck.
09:33And so it's something I think we have to watch very carefully.
09:36You know, I know there's been progress from where we were a few years ago on inflation,
09:40but it's important that we get inflation back to target, because in any environment where it runs hotter,
09:47certainly people in that income strata feel it more acutely.
09:50But I'd still say, overall, the U.S. consumer is in good shape.
09:55Most of the data that I see around the U.S. consumer is still quite constructive.
09:59But I think you're highlighting something that needs to be watched carefully.
10:02Yeah.
10:02Another thing that needs to be watched carefully is perhaps, you know, the credit situation.
10:06A couple of weeks ago, we were talking about tricolor first brands.
10:09You know, one of your peers in the industry described there being cockroaches, potentially cockroaches around.
10:15I don't know if, you know, there's a certain insect reference that you want to pick up on.
10:18But ultimately, you know, how worried are you about some of these individual idiosyncratic credit incidents actually becoming systemic?
10:25I would put the three situations that you mentioned in the category at the moment of idiosyncratic events.
10:35But what I would highlight is I think this is a great opportunity for people that are in credit businesses
10:41and are deploying significant capital as lenders in credit businesses to look at their procedures, their practices,
10:47their underwriting standards, look through their portfolio, and really take a strong evaluation of where they are.
10:53You can't separate the fact that we've been in a very, very long, easy credit cycle,
10:59one of the longest I've seen in my career, without a real credit pullback,
11:03without, you know, an economic environment that's really put an enormous amount of pressure on credit.
11:11And in that context, credit spreads are historically tight.
11:15And I know at some point there will be a credit cycle.
11:17It will probably come at a period of time when the economy slows more acutely
11:21or there's some sort of a macro event that changes confidence we have in growth in the trajectory of the economy.
11:27And when that happens, given the velocity of lending activity, there will be losses in credit.
11:32And those losses will be felt across the system.
11:35But that's different than a systemic, you know, a systemic crisis.
11:39And I don't see anything in the context of a handful of bad credit situations.
11:44It's leading me to say that we have a systemic issue around the corner.
11:48Unfortunately, you know, lenders make mistakes.
11:52There is fraud in markets.
11:54And, you know, that's something that as lenders we all have to try to protect against.
11:58But we should not be fooled by the fact that this is a very robust credit environment.
12:02Credit spreads are tight.
12:03And when we do have a cycle, which probably will come when there's an economic slowdown,
12:06there will be losses.
12:07And we'll feel that across the economy.
12:09Yeah.
12:09And that's trickling down to private credit as well.
12:11We spoke about that a year ago, I remember.
12:13And I just wonder whether you think the easy money, so to speak, in private credit,
12:18those days are behind us now just because of, you know, how much interest there's been
12:21and how much spreads have compressed there.
12:23I don't think about, when I think about lending, I don't think about, you know, easy money.
12:30You know, lending is an activity, whether it's private credit or it's banks lending activity.
12:34Lending is a through-the-cycle activity.
12:37There's no question when spreads are tight, you actually earn lower relative returns.
12:42But the real alpha for credit market participants comes in the tough cycles,
12:47when you have to restructure credits, you have to have more conviction to enter credits
12:52because you can earn higher returns.
12:54And so the real alpha in long-cycle credit investing comes from being able to manage
12:58not just the times when credit spreads are tight, but also when there's a difficult cycle.
13:04And so, you know, I don't think about it as easy money.
13:07If you're a lender, you're a lender, you participate, and you hopefully have good underwriting standards,
13:12you take good reserves.
13:14And so when there is economic pressure and there are losses,
13:17you can smooth through the cycle your returns to a reasonable place.
13:20And that's what good lenders do.
13:21Okay, so we've talked about equities, Fed, the credit.
13:24Let me ask you about the dollar.
13:25The dollar, you know, is down almost 10% year-to-date.
13:28It has been a challenging year for the USD.
13:31People are questioning this theme of U.S. exceptionalism.
13:34Do you worry that the U.S. is perhaps somehow losing its relative status?
13:39I don't.
13:41I think U.S. preeminence, especially from an investment perspective,
13:45is a theme that's still firmly in place.
13:47You can walk around here and talk to capital allocators that are here from all over the world,
13:51and they're not fundamentally changing their allocation, you know, across the globe.
13:56And if you think about what are the more interesting places in the world to invest at this point in time,
14:01the U.S. is still at the top of the list and is the largest, most important economy,
14:05the largest, most important tech innovation center in the world, you know, I think that's firmly in place.
14:10The dollar has been softer this year.
14:11There are a variety of reasons for it, but a perspective would be it's certainly much stronger than it was 10, 15 years ago
14:16when we saw, for example, you know, $1.40 euro, you know, euro dollars.
14:20So everything's got to be put through a longer-term lens when you think about the dollar.
14:26But I don't worry about the U.S. and its preeminence as an attractive place to invest.
14:32The growth in that economy, the tech innovation ecosystem, you know, I think the U.S. is in a pretty good place.
14:37Okay, David, I've got to round up asking about AI and sort of how you're incorporating it into your bank operations.
14:46You know, are you seeing efficiency gains there?
14:47Sure. This is an enormous opportunity for every enterprise in the world.
14:52And I think it's one of the reasons why I'm very excited about growth in the world over the course of the next few years
14:58because I think the productivity opportunity for enterprises, large, even to very, very small businesses, is enormous.
15:06We made an announcement last week or 10 days ago around our earnings about Goldman Sachs, one Goldman Sachs 3.0,
15:12where we laid out, you know, six things that we wanted to accomplish around better client service,
15:19more efficiency, and ability to really improve our risk management across the firm.
15:25And we are looking at a handful of processes where we can really re-underwrite these processes,
15:31create automation and efficiency, but not just to take cost out, to allow us to invest in growth in the business.
15:37And so this is a theme that I think most CEOs of large enterprises are looking closely at,
15:43and the productivity benefit to the economy broadly as people execute on this is very meaningful.
15:49It's starting.
15:50We're still early.
15:51But I think over the next 24 to 36 months, you're going to see real benefits from these efforts.
15:56Is AI going to replace entry-level jobs, analyst jobs?
15:59I mean, it will replace, it will change certain jobs the same way technology has changed certain jobs
16:07for my entire 42 years in the business.
16:10So you think back when I started, if, as an analyst, I was required to do something,
16:15I had to go to the library, I had to go to the microfiche, I had to get data.
16:18It took hours.
16:19Things that take five seconds now, like doing a common stock comparison, took six hours.
16:24Yet, we still have lots of very productive people doing more to serve our clients.
16:30I think the lens that you have to look at is technology is always changing work, changing
16:36jobs, adjusting the mix of different kinds of jobs.
16:39But it doesn't mean that businesses don't grow, economies don't grow, and opportunities
16:44for very productive people don't grow.
16:46And I don't think it's going to be different this time, although I do think there are jobs
16:51that will be different.
16:52And there are jobs that will go away.
16:53But that doesn't mean new jobs won't be created.
16:56Take me back to my banking days.
16:58The MD would send me an email at 6 p.m. on a Friday to fix a pitch book by Monday morning,
17:03and you know that your weekend was going to be completely consumed by that.
17:06But that's long gone.
17:07People are still working very hard on the kind of work they do changes.
17:10And here's the thing that I think is really, really important.
17:12You can teach investment banking.
17:16You know this.
17:16You were an investment banker at Goldman Sachs.
17:17You can teach investment banking skills.
17:20But you can't teach relationship building, trust, advice giving.
17:27That's an apprenticeship skill-based business.
17:31And that's something that I think is very sustainable.
17:33But technology tools make the people that do that much, much more productive.
17:38David, we thank you for your time.
17:39Thank you so much.
17:39Well, thank you.
17:40It's a delight to see you.
17:40David Solomon, Group CEO of Goldman Sachs.
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