Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Massive Stock Market Price Reversion May Be Days or Weeks Away - 22nd Sep 19
How Russia Seized Control of the Uranium Market - 22nd Sep 19
Dow Stock Market Trend Forecast Update - 21st Sep 19
Is Stock Market Price Revaluation Event About To Happen? - 21st Sep 19
Gold Leads, Will the Rest Follow? - 21st Sep 19
Are Cowboys Really Dreaming of... Electric Trucks? - 21st Sep 19
Gold among Negative-Yielding Bonds - 20th Sep 19
Panicky Fed Flooding Overnight Markets with Cash - 20th Sep 19
Uber Stock Price Will Crash on November 6 - 20th Sep 19
Semiconductor Stocks Sector Market & Economic Leader - 20th Sep 19
Learning Artificial Intelligence - What is a Neural Network? - 20th Sep 19
Precious Metals Setting Up Another Momentum Base/Bottom - 20th Sep 19
Small Marketing Budget? No Problem! - 20th Sep 19
The Many Forex Trading Opportunities the Fed Day Has Dealt Us - 19th Sep 19
Fed Cuts Interest Rates and Gold Drops. Again - 19th Sep 19
Silver Still Cheap Relative to Gold, Trend Forecast Update Video - 19th Sep 19
Baby Boomers Are the Worst Investors in the World - 19th Sep 19
Your $1,229 FREE Tticket to Elliott Market Analysis & Trading Set-ups - 19th Sep 19
Is The Stock Market Other Shoe About To Drop With Fed News? - 19th Sep 19
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Goldman Sachs Blankfein - Regulation is Like Background Noise

Stock-Markets / Market Regulation Jan 24, 2015 - 02:26 AM GMT

By: Bloomberg

Stock-Markets

Lloyd Blankfein, CEO and Chairman of Goldman Sachs, spoke with Bloomberg TV's Erik Schatzker and Stephanie Ruhle today at the World Economic Forum's annual meeting in Davos, Switzerland. Blankfein discussed the performance of Goldman Sachs, the impact of regulation on the financial industry and the outlook for the industry.

On regulation, Blankfein said: "If you ask me how much time do I spend thinking about regulation, and rules and that kind of compliance, all the time. But it doesn't push out other things. It's like background noise. It's like music."


Blankfein said the world is "still highly affected by" the financial crisis. "China is an economy that is almost the size of the U.S. economy, soon will be bigger. And that's going through a slump. Europe is, which is a bigger population than the United States is coming out of a slump and still grinding."


STEPHANIE RUHLE: Lloyd, in 2009 Goldman Sachs set the record for trading revenue. Last week we looked at the numbers and they are worse than they have been in a decade. What is happening in trading? Have you lost your groove?

LLOYD BLANKFEIN: Oh my goodness. It's -- it was a -- it was a real -- you know it's very funny because so much has changed in the month since the end -- since the half of month since last year ended. We did fine in trading. Our ROE was pretty good in an -- in a market which was otherwise marked by low volatility and low volumes.

And if you recall the headlines from just a month ago were the markets, you know people withdrawing from the trading businesses, the markets would never move again. They had an intellectual underpinning (INAUDIBLE) because the central banks had put so much liquidity it acted like a blanket on markets. And you roll the clock forward to today and it's a massive amount of volatility, a massive amount of volumes going through, people needing to adjust the portfolio.

And all of a sudden there we are again acting as an intermediary in difficult markets, helping our clients do things. So the fact of the matter is, is we did very well in trading each of the last several years. Obviously '09 was a record, but by the way, just to remind you, in '08, which was a horrible year, I was being asked are we getting out of investment banking, are we getting out of trading because there was no more need for intermediation or investment banking services.

Five minutes later '09 was the record year. So here we were writing off the sales and trading businesses in '13 and here we are in '14 where we were able to help our clients navigate very difficult, complex and quite active markets.

ERIK SCHATZKER: Lloyd, what does it say about the environment in which Goldman Sachs is operating and your industry that 11 percent ROE is, I think in your words, pretty good?

BLANKFEIN: I think you meant 11.2 percent ROE.

SCHATZKER: We should be precise.

BLANKFEIN: Well I'm telling you I'm in a precision business and those last 0.2 were very hard, well took a lot of work.

RUHLE: Hard to earn.

SCHATZKER: I'm sure they were.

BLANKFEIN: Thank you.

SCHATZKER: So what does it say?

BLANKFEIN: I'd say that we're still in a period, apropos the last question, we're still reeling. And I think we, I mean the world, from the effects of the very big trauma growth is still slow around the world, accelerating in the United States, hardly, you know hardly robust in Europe, in other words very calm, very low growth in Europe, very ambiguous where China is coming out now.

And all the -- everything that we do, our role, our social role, our economic role and in fact the ability to earn money comes from with us confidence and correlation with growth. And so a low growth or a slow growth environment is not going to be the optimal set for us. As markets growth people do engage in activity. We advise them. We manage their risky assets and we finance them.

RUHLE: What does your social role actually mean, because I hear social role from you, the CEO of Goldman. When I speak to traders, salespeople, bankers I never hear about the social role. And when I'm on analyst calls no one talks about it.

BLANKFEIN: Well you don't talk -- the nature of an economic system is everybody pursues their interests, and the collective pursues the interests of the whole. We finance growth. We -- people come to us, need, ask us how to invest their money. Other people come to us with ideas who want to finance their activities.

We are -- we're early investors in Uber and Alibaba, clean tech companies, all sorts of companies that today provide a lot of important services and employ a lot of people. And -- and we by putting our money to work we also bring in other people's money who look to us to manage their money. And so we are that nexus between those who need capital and those who provide capital.

RUHLE: Do you still believe in Uber even though it's in such a beat down right now?

BLANKFEIN: Do I believe in Uber, like I mean when I take out the -- when I take out my phone, press it and a cab shows up in a few minutes, do I believe that cab is real and do I get in? Yes.

RUHLE: But do you….

SCHATZKER: Do you believe in -- do you believe in tech valuations at these levels?

BLANKFEIN: Uber is a private company. It does financings at (INAUDIBLE).

SCHATZKER: Not just Uber, everywhere.

BLANKFEIN: I think they do financing. I'm not sure it's a (INAUDIBLE). We'll see about these things. And things don't have a value because I designate it. There's a market for these things.

SCHATZKER: Sure. But you've seen price go up and down.

BLANKFEIN: The answer is I think it is a very big disruptive force. It does a great job. Do I (INAUDIBLE)?

SCHATZKER: No, no. I'm not just talking about Uber in general, technology valuations.

BLANKFEIN: It's….

SCHATZKER: Particularly in the startups.

BLANKFEIN: I will have a very clear answer in hindsight.

(LAUGHTER)

RUHLE: Good answer. Listen, when we talk Uber it makes me think regulation. And regulation makes me think banking. When we talk to -- when we hear from guys like Jamie Dimon it makes it sound like the supervisory pressure….

BLANKFEIN: And I'm not Jamie Dimon, I mean Jamie Dimon.

RUHLE: Correct. The pressure banks are under from the regulators just seems oppressive at this point. Would you agree?

BLANKFEIN: Well I don't know. I feel pretty -- you know I feel pretty sunny.

RUHLE: You do?

BLANKFEIN: Yes. I mean it's a fact of life. We're dealing with the regulation, regulatory….

RUHLE: When you think regulation you feel sunny?

BLANKFEIN: No. I'm saying you don't say oppressed. I mean I'm not -- I'm not bowled over by it. It's part of the background we're dealing with now. It's the background noise. It affects almost everything we do. I can't think about our technology spend without thinking of the number of heads I have to hire to build the systems to comply with the new regulatory reporting functions. So it is a fact of life, but no choice, no problem. It's something that we have to deal with.

If you ask me how much time do I spend thinking about regulation, and rules and that kind of compliance, all the time. But it doesn't push out other things. It's like background noise. It's like music. You ask me how much time do I spend with music, a lot of time, but I'm doing other things at the same time. So I'm thinking about regulation and I'm also thinking about how to finance our clients.

SCHATZKER: What about bond market liquidity? Is that an unintended consequence of regulation, the lack of liquidity that some people perceive in the bond market?

BLANKFEIN: No. I personally think that as the markets get active liquidity will follow the demand and people paying for liquidity, but all other things being equal in an environment where more capital is charged for holding inventories, and there are more expenses and burdens, burdens attached to trading I think it will be more expensive, and therefore for the same price there will be less liquidity. But as the demand for liquidity comes up and as people pay for more liquidity you'll see people unfortunately, because we're a big liquidity provider and I'd like it to be a seller's market, you'll see liquidity providers will again come out of the woodwork.

Take for example you referred at the beginning of the conversation to 2009. 2008 everybody was frustrated. Nobody could -- nobody wanted to trade. Nobody wanted to take risk. We did very well in 2009 because we were one of the only people left providing a lot of liquidity to clients who really needed it.

RUHLE: But you were allowed to back then.

BLANKFEIN: We were allowed to then, but we had, it was a seller's market. And guess what? We did very well in 2009. Competition came. A tsunami of competition came back into the market. And it will come back in again.

RUHLE: And do you think if we continue to see this kind of volatility Goldman is going to have a huge year?

BLANKFEIN: I think that our -- our success will correlate with growth. Growth will turn into confidence. As people do more transacting they'll have to rearrange their portfolios, buy things, hedge things. And that's generally positive for our P&L.

SCHATZKER: Liquidity will be more expensive. Who pays for that?

BLANKFEIN: (INAUDIBLE). Well the consumers in the market. And at the end of the day, look….

RUHLE: What does that mean, the buy side?

BLANKFEIN: Of course. You can -- you could buy safety, but safety comes at a price, and incrementally a higher price the more you want it. Now we've just come off a big trauma and one would say I want to make sure this or that bad thing never, ever happens again, even in a 10,000-year storm. Well the price for that is going to be much less leverage, so much less leverage, and so much cost and so much accumulated capital to back every transaction that it will make transacting more expensive.

That won't change because the intermediaries like ourselves complain about it. It might change if the users of the market aren't able to access the market of what they think is in a reasonable rate. And at the end of the day nobody wants to go out to excessive risk, but nobody else -- but nobody wants excessive caution that results in too high a price and too expensive to accomplish people's growth objectives.

SCHATZKER: If we go back to the point that you made about the world still reeling from the financial crisis, --

BLANKFEIN: Yes.

SCHATZKER: -- even though we see pockets of improvement….

BLANKFEIN: And reeling I mean I think it's improving. So reeling may have been -- it may be diminishing, but we're still highly affected by it.

SCHATZKER: So once we get back to normal, and I don't even know what normal looks like, what does that mean for your firm? What's -- what's Goldman's ROE in a normal environment?

BLANKFEIN: There's never, and to say everyone is saying don't you know everything has changed radically. And I say this. Things never stay the same and they never change that much. And so everybody who is saying get -- and so in our plan we said we're still in -- we're still a liquidity provider to the market and we're still in investment banking. We haven't gone out of a lot of things.

We've gone out of some things that are very capital intensive, but we haven't gone out of our basic businesses, nor have we added really new basic businesses. We think that we're an institutional -- and I think the returns of that business have always been very good. And I mean so by always I mean forever because we're in the intermediation business. There are people….

SCHATZKER: Well once upon a time they were 40.

BLANKFEIN: I don't remember that time.

SCHATZKER: Or 20 plus. I mean certainly it's got to be better than 11, right?

BLANKFEIN: (INAUDIBLE). I remember that, 11.2.

SCHATZKER: And so? 11.2, it's got to better than 11.2.

BLANKFEIN: I think it can be. They -- there's no reason to think they wouldn't be better again. What do you think about the environment? Are we -- are we living the golden age of investment banking opportunity right now?

RUHLE: Are we?

BLANKFEIN: I don't think so.

RUHLE: I don't think so.

BLANKFEIN: I don't think so either. You have -- China is an economy that is almost the size of the U.S. economy, soon will be bigger. And that's going through a slump. Europe is, which is a bigger population than the United States is coming out of a slump and still grinding. Could those opportunity sets be better than they are now? Absolutely. I don't know whether this is a third quartile opportunity set or a lower second quartile, but it's not the top decile opportunity for our business.

RUHLE: All right. We have to leave it then, but are you more positive in 2015 than you were in 2014?

BLANKFEIN: Yes, I am.

RUHLE: Yes. Lloyd Blankfein, thank you so much --

BLANKFEIN: Thank you very much, Stephanie.

SCHATZKER: Thank you, Lloyd.

RUHLE: -- for joining us, Chairman and CEO of Goldman Sachs, Lloyd Blankfein.

Courtesy of Bloomberg Television

bloomberg.com

Copyright © 2015 Bloomberg - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Bloomberg Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules