Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

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