Goldman Sachs CEO on US-China Relations, M&A Activity, AI Integration

Very good conditions. We're in an equity bull market, mag seven and everything else. We've had this historic meeting last week between the two presidents, US and China. What do you make of the state of play right now? Are we in a much better position than we were at the start of the year? Well, it seems like the meeting was constructive. I'm watching the news the same way you're all watching the news. I think at the moment, you know, a de-escalation is a good thing, but there's obviously a lot of work to do to really arrive at a real stable deal that can endure, you know, over a period of time. I'm encouraged by the prospect of a potential visit from the US president that was telegraphed in the fall. But for the moment, you know, I did not think the escalation on either side was constructive. And so, you know, I much prefer a de-escalation. I think both sides really had a purpose in that meeting to talk constructively, to have a more de-escalated environment. And that allows now for constructive conversations as they move forward. One year truce, though. Is there pros and cons to that? I'm sorry, I couldn't hear what you said. One year truce, though, between the two. Is that a good or bad thing? I mean, what does it do in terms of business sentiment when there's a 12-month time frame now? It's better than it's better than an escalation at unreasonable levels, which is kind of where we were, you know, over the most recent time. Trade negotiations are complicated and there are a lot of issues on the table. They need thoughtful responses and responses that can be durable, that both sides embrace and get to the right place. Yes, there is some uncertainty because it's a one-year, you know, it's a one-year delay and all of this. But it's also a realistic period of time to try to get the right kind of deal done so both economies can move forward in a constructive way. And look, these are the two most important economies in the world. I think it's very important that, you know, we arrive at a better place where we can both participate constructively with each other in the global growth of the world. I mean, speaking of, let me borrow your phrase, participate, there's been a resurgence in equity capital market raising here in Hong Kong. A lot of the Chinese companies, tech or otherwise, are raising capital for the future. I want to get your sense as someone who sits in New York, you travel, of course, all around the world. Is there a lot of appetite now from U.S.-based investors to participate by giving that capital to Chinese companies right now in order to do? You know, realize their ambition. Sure. There's more appetite for it than there was 12 months ago. I remember actually last November sitting in a dinner in the United States with a group of U.S. investors. And this topic came up and there were a couple of investors that basically said, we all should be looking to China. And the reason, the reason that had evolved that way is if you look last fall, the prices had gotten so cheap. The capital flows had moved so in the other direction that you just knew that things would come more into balance than there'd be a recycling. And we've seen that recycling. We've seen a big move in prices year over year. We've seen more foreign capital come in and start to participate. That's a fundamentally different question about the big capital allocators really fundamentally shifting their allocations up to be higher again. So foreign direct investment in China has come down. And I think one of the big questions is until we understand kind of the trade and the geopolitical landscape, it's harder to see significant shifts back to higher levels of foreign direct investment and more capital allocation. But for the moment, those flows are making for a better IPO market here and more opportunities here. How do you look at that? I mean, the whole competition has kind of changed into the dynamics, right? You have so many of these Chinese banks now that are doing some of these deals with Chinese companies when it comes to going public. How does Goldman Sachs compete? Well, you know, Goldman Sachs competes just fine. Thank you very much. When it comes to taking public companies public on a global stage, Goldman Sachs is a leading position. We've had a leading position for 50 years. And there's always competition in the business. And, you know, we'll continue to compete. So we welcome competition. But we have a pretty active footprint out here, as you well know. We have a pretty active footprint around the world. And look, one of the big advantages, I just had breakfast this morning with a company here that it's actually a Chinese company, but, you know, the CEO, the founder was here. And why does he value Goldman Sachs? He values Goldman Sachs because we have access to people, information, capital markets all over the world, you know, not just in a narrow portion of the world. And so it's a competitive business. It always will be. But I'm comfortable that we have the resources and the position to compete effectively. Right. And, you know, I've been reading up, of course, and I understand your history. You guys have been doing business in China a very long time. You guys took the big banks public back 20 plus years ago. So I mean, you're headed there, my understanding, after here, you're going to China, of course, to speak with regulators, what have you. What's your long term vision for the franchise in greater China? What do you want? What do you want your franchise to become? I think you have to look at Goldman Sachs and just think strategically that as a global firm that when you think about our businesses, what are our two big businesses? Global banking and markets, the investment banking and trading business, and asset and wealth management. And so if you think about how we think strategically about the firm, what advantages does the firm have? Besides the fact that we have at scale businesses where we're very good at those activities, we're leaders in those activities, and we have a right to compete and win, you know, in those activities. Another big advantage for the firm is we're truly global. And in fact, we're more global and have a capacity to communicate and interact globally for our clients in a way that not many firms can. And so if you think about where GDP is in the world, where big economies are in the world, you know, China is always going to fit that bill. And barring a much more significant shift in geopolitics and the relationship between the US and China, there are definitely issues. There are definitely things that need to be sorted. But China is going to continue to be one of the most important economies in the world. The US is going to continue to be the most important economy in the world. And we're linked. And so as a big global firm that does what we do, we have to be long term committed to serving our clients that need access to advice, capital and resources, you know, in China and around the world. And of course, we've got to do that in whatever environment the regulatory structure or the geopolitics play up. But we're long term committed. We've been long term committed and will remain long term committed unless there was something that significantly changed that. I'm glad you mentioned that, because we've seen governments being, I guess, more involved in some of these business deals. I take a look at Intel, for example, I look at Nippon Steel, even CK Hutch, which Goldman Sachs was a sole advisor to. What's the advice now to clients now in terms of that intervention risk? Well, you just mentioned three different deals and they're completely different. Right. I mean, they're completely different. Governments are always going to opine and weigh in on different transactions or regulatory approvals in the United States or CFIUS. I mean, there are all sorts of issues where governments weigh in. That is a very different thing. Very different thing than a government taking an investment, you know, in a specific company. Wouldn't surprise you. I'm not a big fan of that as a general practice. That doesn't mean there aren't exceptions, because I believe that the markets should allow capital formation and competition, you know, around companies. And, you know, this administration is in one or two situations, they're taking actions like that. You know, as I said, I'm not black and white and dogmatic. There can be exceptional circumstances. But I don't think as a general practice, having governments take stakes in companies is the direction of travel we want our free market system to go. Right. You mentioned, how would you describe the current environment for deals going into next year? Because I remember just sitting here this time last year and we were going into 2025 when there was a U.S. election. We weren't sure where the guardrails were going to be. Looking at next year, I was speaking with Yvonne, I can't seem to think of a major risk apart from, I guess, froth evaluation. We can talk about that later. But what's your sense of the environment right now and what risks we have to consider? What's not obvious? Well, you know, in the U.S. and the U.S. is a huge part of the global M&A market, either for target or acquire. You know, I would say it's extremely constructive and we see it, you know, in our advisory business. You can take a look at our M&A revenues last quarter, which are a reflection of deals closing. But if you also go through our earnings call, you know, we made a comment about the level of our M&A backlog, a very high level of our M&A backlog. And that's just an indication of the fact that there's a lot of activity inside the firm. I say this is really rooted from the fact that we went through a period for four years during the Biden administration, where if you wanted to do something strategically, you wanted to do something significant from an M&A perspective. Whatever the question was, the answer was no. We're now in an environment where whatever the question is, the answer is maybe. And I think CEOs are unleashed in believing that they have a chance of doing strategic things to advance their position, to advance their scale, to advance, you know, how they sit competitively. And so we see a tremendous backlog of significant consolidating situations, what I'll call large cap M&A. Large cap M&A in the United States is up very, very meaningfully. Deals over $10 billion. Very, very meaningful year over year. And so I think we're in a pretty constructive environment. And my expectation is 26 and 27 will be quite constructive in terms of large cap M&A, particularly in the United States. Obviously, we've been talking about AI, that's a big thing in terms of how does it work for Goldman Sachs in terms of operational efficiencies? How does the onslaught of AI really going to impact how you hire or even just headcount in this part of the world now, David? Well, you know, it's interesting to me that you go right to headcount. And I actually think that, you know, that that's a different lens than the lens that we would look at. And I don't know if you saw, but when we reported earnings two weeks ago, we put out a memo that we called Goldman Sachs, One Goldman Sachs 3.0, where we highlighted the approach that we were taking to integrating AI. And we talked about a handful of things that were goals, including, you know, operating efficiency, automation, better sales management. And then we identified six processes that we were going to look at from a very fresh perspective to see if we could automate them and build better efficiency so that we would have more capacity to invest in areas of the business where we see growth opportunities. And so, you know, I think for a firm like Goldman Sachs, there are two avenues here. One, we have very smart people. Right. And we can put these tools in their hands and that makes them more productive. And by the way, that's no different than 40 years ago when I was starting and somebody gave me a desktop computer and Lotus 1, 2, 3 software, and I had the ability to do a spreadsheet and a fraction of the time that it took me before that tool was put into my hand. That just continues. That's been going on for 40 years. It doesn't mean we have less smart people inside Goldman Sachs. You look at Goldman Sachs productivity per person. It's much higher today than it was 25 years ago. And my guess is 25 years from now, it will be much higher than it is today. But our goal is to figure out ways that we can invest in growth because we see lots of growth in our franchise by using AI technology to reimagine processes. We can create operating efficiencies and it gives us more of a scaled opportunity to reinvest in growth in the business. And look, of course, over the way, there are going to be shifts in jobs and job functions as there always have been. I think one of the things you've got to wrestle with today is the pace of this is quicker. And so since the pace is quicker, there's a chance that it might be a little bit more disruptive in the short term. But at the end of the day, technology changes jobs, changes the way people work. This has been going on for a long, long time. It is continuing. I don't think it's different this time.