Goldman Sachs CEO Lloyd Blankfein sat down with Bloomberg TV anchor Erik Schatzker at the company's annual meeting in Salt Lake City. Blankfein said that the firm is committed to growing in China even after it ended a seven-year investment in ICBC: "ICBC is not the key to our interest in China, or the big reflection of it. We're investing in China because China -- I was going to say it's the future, but it's a big part of the present as well."
Blankfein said he is surprised by the lack of mergers and acquisitions this year: "In the big transaction and M&A set, it's still a very quiet, surprisingly quiet market...For a market in which interest rates are fairly low, rising equity prices, and as much liquidity as we know exists, deal flow is unusually low for the part of the cycle that we're in."
Blankfein on China and why Goldman ended its investment in ICBC:
"Well, first of all, catch the wave when it comes-- I don't know if you've been watching but there has been a wave and it's been going on for quite some time. It may be interrupted. ICBC, again, is not the key to our interest in China or the big reflection of it. ICBC was an investment we made at a time when China was taking its banking system public and was looking for partners-- really, kind of quasi-strategic partner-- to help-- not only provide investment capital but also expertise. And so they wanted firms like ourselves. And there were other financial institutions that partnered with other banks. And so we ended up holding that investment for a while. But through that investment we became very close with important people in the banking system. And we maintain that relationship today. We're investing in China because China-- I was going to say it's the future-- but it's a big part of the present as well."
On whether Goldman would ever make an investment of that size again:
"Oh, sure, we would. You know, again, we're an investment bank, so we help businesses grow. We provide capital. We provide debt capital, but we also provide equity capital and partner with companies-- and which-- by the way, serves as a validation for other investing clients of ours to want to put money into certain places. So, if we get to invest along with clients and key businesses, and we feel that's a business worth supporting and valuable-- we'll invest in it and we'll invite other clients to invest along with us."
On where we are in the cycle of ups and downs in the financial industry:
"That's an interesting question. And that's always the big question. And everybody debates that. I think in the opportunity set for our business, on the financing side, because of the liquidity and low levels of interest rate and the start of, certainly in this country, the world is becoming growthier. I think the financing business is going very well. And that might be a first-tier opportunity set. And I'd say in the big transaction, the MNA set, it's still a very, very quiet, surprisingly quiet market. For a market in which interest rates are fairly low, a rising equity price-- prices around, and as much as liquidity as we know exists, the deal flow is unusually low for the part of the cycle that we're in."
On how to turn GSAM into a business that ranks among the firms with trillions of dollars under management, like PIMCO, BlackRock and others:
"Well, you may have named them all. There aren't that many firms of trillions of dollars. In fact, I can only think of one with trillions of dollars of assets. We are a very substantial asset management firm already, one of the biggest in the world. But it's not lost on us that there are companies that are multiples of our size in asset management. So, that's actually an attractive thing for us. There aren't a lot of businesses that we're in that we're not either the biggest or one of a couple of biggest in. So, for example, in investment banking, we're not going double the size of our investment banking franchise. We'll grow it a bit in terms of market share, but we're largely a function of how big the market is or what stage of the growth cycle we are. Asset management is one business we can actually grow market share, and so that's why we're committed to it."
On what Goldman's approach is to working around regulation:
You know-- again, regulation-- we've also been in a regulated business. Regulation has always been important. And like anything else, you learn and you learn from the context and from situations. The world just went through a big trauma of credit crisis kind where not everything functioned well. And so immediately, you go back to the drawing board and we try to-- you know, you try to fix things and you try to make them better. And not all the fixes work. And sometimes the fixes need fixes. Our job here is to cooperate with regulators, use our expertise and contribute to the process of crafting sustainable regulation and then cooperating with regulators and executing.
On why low-cost centers like Salt Lake City weren't a big part of Goldman's strategy before the crisis:
"Well, actually, we've been in Salt Lake City since 2000. So, we've been here about 13 years. There are aspects of our business that are low-cost, but the real and frankly, we use the label 'high-value' because we really value the people here. This is really a center for talent. There are a couple of very big universities-- BYU, University of Utah-- that graduate a lot of terrific people. And for reasons that must be obvious to you since you've been here for a while, they like staying in Salt Lake City."
On how much of the firm will be employed in high-value locations like Salt Lake City in five years:
"You know, the world has flattened. So, there are opportunities to do a lot of activities from a lot of different places. Not everything we do is client-facing. And even those who have client-facing activities fly around the country and fly around the world. And so, a little bit, we've been able to accommodate people's lifestyles. People want to live in different places. We've needed to diversify our activities just so-- you know, just for risk management. Another thing we have to do is we're a global business, and so our activities have to follow the sun. So, when people are asleep in New York, it suits us to have people who are working on closing those activities, operating them and fixing our technology-- during the daytime while people in New York are sleeping at night. And so it just suited us to have a lot of different places around the world. So, right now, these places collectively have about a quarter of our people in-- you know, something-- it might get a little bit higher, 30% or more, but it's hard to tell."
On how much the locations have saved the firm:
"Well, again, it started out where we talked about what the savings were. And the concept-- remember, there was-- you know, the theme was offshoring for a while, where people were talking and--Salt Lake City is hardly offshore with respect to the United States--but people were talking about the savings advantage. This really morphed into-- part of-- you know, really, "Where can you get talent?" If you look at, though, we have almost every division of the firm represented here. We have lawyers who are here doing contracts. We have research people who are covering companies in Salt Lake City. We have several of our global businesses are operated globally from Salt Lake City. Same thing is true in India and Dallas."
On whether there would ever be a trading floor in the Utah desert:
"Could I see a trading floor? I'd say it's possible. But you'd have to-- you know, again, a trading floor is something-- you don't want many trading floors in the same time zone, just because with a trading floor comes legal and comes compliance and operations and technology, so you tend to aggregate your trading businesses in a single place in a time zone. So, it could be here. But guess what? We have a very big commitment to the New York area and we're already invested there and we already own the space."
