- 2 months ago
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00:00Very good conditions. We're in an equity bull market, MAG7 and everything else. We've had
00:04this historic meeting last week between the two presidents, U.S. and China. What do you make of
00:09the state of play right now? Are we in a much better position than we were at the start of the
00:13year? Well, it seems like the meeting was constructive. I'm watching the news the same
00:18way you're all watching the news. I think at the moment, you know, a de-escalation is a good thing,
00:24but there's obviously a lot of work to do to really arrive at a real stable deal that can endure
00:31over a period of time. I'm encouraged by the prospect of a potential visit from the U.S.
00:36president that was telegraphed in the fall, but for the moment, you know, I did not think the
00:40escalation on either side was constructive, and so, you know, I much prefer a de-escalation. I think
00:45both sides really had a purpose in that meeting to talk constructively to have a more de-escalated
00:52environment, and that allows now for constructive conversations as they move forward.
00:57One-year truce, though. Is there pros and cons to that? I'm sorry, I couldn't hear you.
01:01One-year truce, though, between the two. Is that a good or bad thing? I mean,
01:05what does it do in terms of business sentiment when there's a 12-month time frame now we're talking
01:09about? It's better than an escalation at unreasonable levels, which is kind of where we
01:14were, you know, over the most recent time. Trade negotiations are complicated, and there are a lot
01:21of issues on the table. They need thoughtful responses and responses that can be durable,
01:25that both sides embrace and get to the right place. Yes, there's some uncertainty because it's
01:31a one-year, you know, it's a one-year delay in all of this, but it's also a realistic period of time
01:36to try to get the right kind of deal done so both economies can move forward in a constructive way.
01:41And look, these are the two most important economies in the world. I think it's very important
01:44that, you know, we arrive in a better place where we can both participate constructively with each
01:50other in the global growth of the world. I mean, speaking of, let me borrow your phrase,
01:55participate, there's been a resurgence in equity capital market raising here in Hong Kong.
02:00A lot of the Chinese companies, tech or otherwise, are raising capital for the future. I want to get
02:05your sense, as someone who sits in New York, who travel, of course, all around the world,
02:08is there a lot of appetite now from U.S.-based investors to participate by giving that capital
02:14to Chinese companies right now in order to do, you know, realize their ambition?
02:20Sure. There's more appetite for it than there was 12 months ago. I remember actually last November
02:27sitting in a dinner in the United States with a group of U.S. investors. And this topic came up,
02:34and there were a couple of investors that basically said, we all should be looking to China. And the
02:40reason that had evolved that way is, if you look last fall, the prices had gotten so cheap,
02:46the capital flows had moved so in the other direction that you just knew that things would
02:52come more into balance and there'd be a recycling. And we've seen that recycling. You've seen a big
02:55move in prices year over year. You've seen more foreign capital come in and start to participate.
03:01That's a fundamentally different question about the big capital allocators really fundamentally shifting
03:07their allocations up to be higher again. So foreign direct investment in China has come down.
03:12And I think one of the big questions is, until we understand kind of the trade and the geopolitical
03:18landscape, it's harder to see significant shifts back to higher levels of foreign direct investment
03:23and more capital allocation. But for the moment, those flows are making for a better IPO market here
03:29and more opportunities here.
03:31How do you look at that? I mean, the whole competition has kind of changed into the dynamics,
03:36right? You have so many of these Chinese banks now that are doing some of these deals with Chinese
03:40companies when it comes to going public. How does Goldman Sachs compete?
03:45Well, you know, Goldman Sachs competes just fine. Thank you very much. When it comes to taking
03:48companies public on a global stage, Goldman Sachs is a leading position. We've had a leading position
03:53for 50 years. And there's always competition in the business. And, you know, we'll continue to compete.
03:59So we welcome competition. But we have a pretty active footprint out here, as you all know.
04:04We have a pretty active footprint around the world. And look, one of the big advantages,
04:07I just had breakfast this morning with a company here that it's actually a Chinese company, but the
04:15CEO, the founder was here. And why does he value Goldman Sachs? He values Goldman Sachs because we
04:20have access to people, information, capital markets all over the world, you know, not just in a narrow
04:25portion of the world. And so it's a competitive business. It always will be. But I'm comfortable that
04:30we have the resources and the position to compete effectively.
04:33Right. And, you know, I've been reading up, of course, and I understand your history. You guys
04:38have been doing business in China a very long time. You guys took the big banks public back 20-plus
04:42years ago. So, I mean, you're headed there, my understanding, after here. You're going to China,
04:47of course, to speak with regulators, what have you. What's your long-term vision for the franchise
04:52in greater China? What do you want? What do you want your franchise to become longer?
04:57I think you have to look at Goldman Sachs and just think strategically that as a global firm,
05:03that when you think about our businesses, what are our two big businesses? Global banking and markets,
05:07the investment banking and trading business, and asset and wealth management. And so if you think
05:12about how we think strategically about the firm, what advantages does the firm have? Besides the fact
05:17that we have at-scale businesses, we're very good at those activities, we're leaders in those
05:22activities, and we have a right to compete and win, you know, in those activities. Another big advantage
05:26for the firm is we're truly global. And in fact, we're more global and have a capacity to communicate
05:32and interact globally for our clients in a way that not many firms can. And so if you think about
05:40where GDP is in the world, where big economies are in the world, you know, China is always going to fit
05:45that bill. And barring a much more significant shift in geopolitics and the relationship between the
05:52U.S. and China. There are definitely issues. There are definitely things that need to be sorted.
05:57But China is going to continue to be one of the most important economies in the world.
06:00The U.S. is going to continue to be the most important economy in the world. And we're linked.
06:06And so as a big global firm that does what we do, we have to be long-term committed to serving our
06:11clients that need access to advice, capital and resources, you know, in China and around the world.
06:17And of course, we've got to do that in whatever environment the regulatory structure or the
06:23geopolitics play up. But we're long-term committed. We've been long-term committed. And we'll remain
06:27long-term committed unless there was something that significantly changed that.
06:31I'm glad you mentioned that because we've seen governments being, I guess, more involved in some
06:36of these business deals. I take a look at Intel, for example. I look at Nippon Steel, even C.K. Hutch,
06:41which Goldman Sachs was a sole advisor to. What's the advice now to clients?
06:45Now, in terms of that intervention risk.
06:47Well, you just mentioned three different deals, and they're completely different.
06:50Right. I mean, they're completely different. Governments are always going to opine and weigh
06:55in on different transactions. There are regulatory approvals in the United States of CFIUS.
06:59I mean, there are all sorts of issues where governments weigh in. That is a very different
07:04thing, very different thing than a government taking an investment, you know, in a specific company.
07:10Wouldn't surprise you. I'm not a big fan of that as a general practice. That doesn't mean
07:14there aren't exceptions, because I believe that the markets should allow capital formation
07:20and competition, you know, around companies. And, you know, this administration is in one
07:26or two situations. They're taking actions like that. You know, as I said, I'm not black and
07:30white and dogmatic. There can be exceptional circumstances. But I don't think, as a general
07:34practice, having governments take stakes in companies is the direction of travel we want
07:40our free market system to go. Right. You mentioned, how would you describe the current
07:45environment for deals going into next year? Because I remember just sitting here this time
07:50last year, and we were going into 2025. It was a U.S. election. We weren't sure where the
07:56guardrails were going to be. Looking at next year, I was just speaking with Yvonne. I can't
07:59seem to think about, think of a major risk, apart from, I guess, frothy valuation. We can talk
08:05about that later. But what's your sense of the environment right now and what risks we have to
08:09consider? What's not obvious? Well, you know, in the U.S., and the U.S. is a huge part of the
08:14global M&A market, either for target or acquirer. Right. You know, I would say it's extremely
08:19constructive. And we see it, you know, in our advisory business. You can take a look at our,
08:24you know, M&A revenues last quarter, which are a reflection of deals closing. But if you also go
08:29through our earnings call, you know, we made a comment about the level of our M&A backlog,
08:33a very high level of our M&A backlog. And that's just an indication of the fact that there's a lot
08:37of activity inside the firm. I'd say this is really rooted from the fact that we went through
08:43a period for four years during the Biden administration where if you wanted to do
08:47something strategically, if you wanted to do something significant from an M&A perspective,
08:52whatever the question was, the answer was no. We're now in an environment where whatever the
08:56question is, the answer is maybe. And I think CEOs are unleashed in believing that they have a chance
09:02of doing strategic things to advance their position, to advance their scale, to advance,
09:07you know, how they sit competitively. And so we see a tremendous backlog of significant
09:12consolidating situations, what I'll call large cap M&A. Large cap M&A in the United States is up very,
09:17very meaningfully. Deals over $10 billion, very, very meaningfully year over year. And so I think
09:22we're in a pretty constructive environment. And my expectation is, is 26 and 27 will be quite
09:28constructive in terms of large cap M&A, particularly in the United States.
09:33Obviously, we've been talking about AI. That's a big thing in terms of how does it work for
09:37Goldman Sachs in terms of operational efficiencies? How does the onslaught of AI really going to impact
09:42how you hire or even just headcount in this part of the world now, David?
09:45Well, it's, you know, it's, it's, it's interesting to me that you go right to headcount. And,
09:49and I actually think that, you know, that, that that's a different lens than the lens that we
09:57would look at. And I don't know if you saw, but when we reported earnings two weeks ago,
10:00we put out a memo that we called Goldman Sachs, one Goldman Sachs 3.0, where we highlighted the
10:07approach that we were taking to integrating AI. And we talked about a handful of things that were
10:13goals, including, you know, operating efficiency, automation, better sales management. And then
10:19we identified six processes that we were going to look at from a very fresh perspective to see if
10:24we could automate them and build better efficiency so that we would have more capacity to invest in
10:31areas in the business where we see growth opportunities. And so, you know, I think for
10:35a firm like Goldman Sachs, there are two avenues here. One, we have very smart people, right? And we can
10:40put these tools in their hands and that makes them more productive. And by the way, that's no
10:44different than 40 years ago when I was starting and somebody gave me a desktop computer and Lotus
10:50123 software. And I had the ability to do a spreadsheet and a fraction of the time that it took me before
10:56that tool was put into my hand. That just continues. That's been going on for 40 years. It doesn't mean
11:02we have less smart people inside Goldman Sachs. You look at Goldman Sachs productivity per person.
11:09Yeah. It's much higher today than it was 25 years ago. And my guess is 25 years from now,
11:15it will be much higher than it is today. But our goal is to figure out ways that we can invest in
11:21growth because we see lots of growth in our franchise. By using AI technology to reimagine
11:27processes, we can create operating efficiencies and it gives us more of a scaled opportunity to
11:32reinvest in growth in the business. And look, of course, over the way, there are going to be shifts
11:37in jobs and job functions as there always have been. I think one of the things you've got to
11:42wrestle with today is the pace of this is quicker. And so since the pace is quicker, there's a chance
11:48that it might be a little bit more disruptive, you know, in the short term. But at the end of the day,
11:53technology changes jobs, changes the way people work. This has been going on for a long,
11:58long time is continuing. I don't think it's different this time.
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