Closing Bell - Closing Bell Overtime: Goldman Sachs CEO David Solomon In An Extended, Exclusive Interview 9/7/23

Episode Date: September 7, 2023

Four straight down session for the Nasdaq and Apple extended its slide. G Squared Private Wealth’s Victoria Greene and Profit Investments’ Eugene Profit break down the market action. Earnings from Docusign and RH. David Faber brings an exclusive interview with Goldman Sachs CEO David Solomon from the bank’s TMT conference. Solomon talked on the recent negative press, the Fed, the market environment and M&A. CFRA analyst Ken Leon joins our Michael Santoli and Leslie Picker to react to the extended interview. Plus, tonight’s NFL kickoff could signal the start of a record sports betting season.

Well, like Scott said, the Dow's higher, you got your scorecard on Wall Street, winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. We've got a major interview coming your way in just a few moments. Goldman Sachs CEO David Solomon will join our David Faber exclusively from the sidelines of the Communicopia Conference in San Francisco for a wide-ranging conversation. You don't want to miss it. Let's begin with the market action. The Nasdaq posting its fourth negative day in a row, and Apple is a big part of that weakness, falling more than 2% on the back of negative China headlines. Meantime, Goldman Sachs finishing in the green, even as financials lag. Joining us now are Victoria Green from G-Squared

Private Wealth and Eugene Profit from Profit Investments. Guys, welcome. I want to set the table on Goldman, then get on to the broader markets. Eugene, you say Goldman could benefit as we go through the year, the rest of the year, from investment banking activity rebounding. What do you want to hear from David Solomon that would give you confidence in whether they're well positioned for that in this market? Well, you've already seen it in their earnings that they have more dividend than any other investment bank on the street, even though they're second largest. They're not really much of a commercial bank, which is actually works to their benefit in this environment.

So I'd just like to hear him talk a little bit about refocusing on their core business, which is part of their strategic initiative. I'd like to know that the deals are going forward. Now, this is not a complete turnaround. I mean, their equity and private banking trading has done very well in the second quarter. And I think that this is very just the financial sector. At a 13P, Goldman's a very good name to hold under the circumstances. So I look forward to his interview,

but I think that the second quarter earnings actually set them up pretty well. And that's coming up in just a few minutes. Victoria, you say Goldman needs to get back to being Goldman, reaffirm culture and vision. Does David Solomon need to convince investors at this point that he's still the man to make that happen, or is that a given? Yeah, I think there were just some missteps kind of wandering into the retail area with Marcus and some other things. And it's good to see Goldman kind of take a step back, divest, focus on their core businesses. But he does have to satisfy investors that he has a vision for growth for the future. You know, their platform solutions has been a little bit of a sore spot. How do you get that turned around? How do you integrate fintech and technology? We know their trading is going to be great. I know

fixed income and commodities were a little lower. Their commodity call on oil has been phenomenal this year. We hope to see that trading pick up. They obviously own the dealmaking market. That'll probably tick back up. It looks like good indications of that. But they need to convince investors that core Goldman can still grow, be relevant and have pathways forward without kind of meandering like they did the last few years where they kind of went down a few too many partnerships that detracted from their core business. Yeah. Eugene, I mean, just looking at the financials more broadly, rates, treasury yields, the climb back up we've seen there. I mean, historically, that's something that's been good for financials.

But you take that, you measure it against a Fed tightening cycle that, yes, may be over or close to over right now. We've seen it roil through the banking sector with a couple of regional bank failures earlier this year. Net positive or negative for the banks right now, especially on a day where the FDIC basically came out and said with its quarterly report that it might be a little bit mixed, but in general, it's a stable picture right now for the banks. Yeah, I think that the street doesn't necessarily believe that it is a stable picture for the banks, especially regional banks. I mean, if we're going to go, say, higher for longer, there's absolute concern over what's on bank balance sheets, kind of what their investment

loan portfolios look like. We do know that that was a big issue with some of the banks in Silicon Valley and the like earlier in the year. And I don't think that we're out of the woods there. So I think investors, it's better to just take a wait and see um at it with the um large cap banks here i mean you can get a five percent yield and a two-year treasury i'd rather sit and wait um there then and it kind of the economy work itself out um you are right that usually with increasing interest rates just margins work better for banks but i just think that the unknown of what these refinances are going to be like at higher rates is weighing on investors' perceptions of the actual valuations. Yeah. Victoria, I want to get your thoughts on what we've seen. Magnificent 7 has been under

pressure. Yes, higher yields have been playing a role in that. But also all of these headlines and reports around Apple specifically and a crackdown that's playing out in China. How key is that name? And I guess some of these mega cap tech names in general to the market being able to sustain its legs here, keep its legs here. Sure. And if you look at it, Apple contributed about 20 percent of the total S&P 500 return, almost 16 percent on the Nasdaq. So it's very cap weighted. It's a huge position in the S&P 500. So you can't ignore it when it starts to roll over. And Apple may or may not have a China problem. It might be a little bit knee jerky. There's a lot of thought that potentially all these sensitive government phones, they weren't using Apple products anyway.

It's still a large market for them. And they also have a lot of production in china and so i think it's a little bit how far how much further does this go is this china cracking down the beginning of it or was this something in the works and this is a one and done but if apple and the mega caps aren't working they're what led us and let this rally up if they don't work it's going to be extremely hard for the s p specifically to rally as much now equal weight or dow or some other parts of the markets may start to work better. But, you know, if you've gotten a video rolling over a little bit, Apple rolling over, I'm not saying this is the beginning of the end, you know, fire, sell everything. You just have to be cautioned. Weak September seasonals and just some bad news out of China. And I think that's one thing investors can't miss. If the China growth engine isn't working

and they've had lower imports the last 11 months and lower exports the last four months, can the world continue to grow? And I think that's a really valid question we should be asking ourselves right now. Indeed. Victoria, Eugene, thank you for getting us started. Thanks, John. Just mentioning Apple, let's get a little deeper into that as we await this interview with David Solomon. Apple dragging on the rest of tech and a bit on the Dow, though it still ended up positive, dragging on tech for a second straight day over fears about business in China. Steve Kovach has a closer look at what's

going on. Steve? Yeah, John. So look, another report today, this one from Bloomberg, saying that ban on government employees using iPhones will extend to other agencies and state-backed companies. Now, we haven't been able to confirm those reports, but it's still rattling investors. Apple was down just nearly 3 percent today, and it was down 3.5 percent yesterday. No comment from Apple, by the way. Reports causing confusion about what's really going on in China. China Mobile, by the way, that's the largest carrier in the country. It had to knock down some rumors it would not sell the new iPhones that are coming out next week. Now, the investor fears are valid, of course. Greater China made up

over 18 percent of Apple's total sales in 2022. And on top of that, Apple has benefited from the demise of China's Huawei over the last few years. Huawei couldn't make 5G phones due to U.S. restrictions on supplies, so many of those customers switched over to Apple. But now Huawei has a new 5G phone, adding to fears that customers will go back to that homegrown brand. And all of this is happening before we hear about the next iPhone lineup in just five days. And we get all this analyst chatter to John speculating Apple will raise prices on the pro line of iPhones this year, despite weak demand for iPhones, John. Yeah. And what they tend to do if they're going to

raise prices, either raise them just in markets. That's another, you know, outside of domestic or raise prices for higher levels of storage and kind of kind of play with that. So not necessarily at the entry level. I wonder, though, if this China situation gives Apple cover for what might be a weaker China consumer anyway. Right. Like if the numbers from this cycle in China aren't that strong, people won't necessarily say, oh, well, China's just weak. It might just be, oh, well, the government's kneecapping Apple on this launch. At the same time, though, John, it might look a little better because think back to a year ago in that holiday quarter when most of the new iPhone lines go on sale. That's when we saw those shutdowns in China. China was still locked down a year ago. So the

comps might actually look a little bit better in China, even with some weakness in the consumer and all that data we're getting. At the same time, maybe they choose to go with this new Huawei phone. It just remains to be seen. And we just don't know if this China ban on the government side is happening for those government employees. How big is that market? We've seen estimates all over the place, but there's really no way to get a solid read on that if that is, in fact, the case. Yeah, I saw one trader note today saying that 178 per share was a tried and true battle ground for the stock, that this is kind of a key technical level. It looks like we closed just

below that by a couple of cents. This, of course, comes just days ahead of the iPhone unveil next week. You touched on it, the speculation that prices are going to be raised as well. Is that being overdone here, too, or is there an expectation that they can raise prices? And indeed, in fact, there will be some sort of demand, China or U.S. or otherwise, that there will be demands regardless. Yeah, I'll back up John's point here. They've done this before. Apple has done this before, raising prices in certain markets, but keeping it solid here in the United States. So maybe they're thinking about doing that. Remember, Morgan, the dollar is still really strong. They had to raise prices over the last couple of years in some markets where that's the impact is bigger there.

So it's possible it's it's maybe even likely, but I wouldn't call it a done deal. We'll have to hear what they have to say. All right. Steve Kovach, we're going to find out soon enough. Thank you. And speaking of finding out, Goldman Sachs shares down about 5% since the last quarterly report. The investment bank currently hosting its Communicopia conference in San Francisco. We've heard from plenty of prominent CEOs speaking there this week. Now it's Goldman's turn. Turn it over to our David Faber, along with Goldman Sachs CEO David Solomon.

David. John, thank you. Appreciate it. And David, thank you for both having us here at the conference and joining me for an interview. Well, I'm delighted to be with you, David. And I have to start by thanking you for being here. I mean, this is a super conference. We've got over 2,500 investors here for a couple of days, 200 companies, a lot of

good dialogue. There's a lot going on in the technology space, and it's great to be out here, and it's great to have you out here. I really appreciate that. Great to have both of us fly across the country so we can talk to each other when our offices are full. Well, I flew across the country to be at the conference and talk to a bunch of clients, but I'm delighted to talk to you, too. I'm so glad you're with me as well, David. All right, now that we're laughing a little bit, I do want to start off on kind of what I've rarely seen in my career, sort of this highly unusual avalanche of stories focused really, David, on your personality defects. I mean, it's been bizarre.

New York Times, Wall Street Journal, Bloomberg, New York Magazine. Why has this happened? You know, I can't give you a good reason why it's happened. What I can say to you, David, is it's not fun, you know, obviously watching some of the personal attacks in the press. Obviously, we're a big organization. We're doing a lot of things in the world. And, you know, we should be scrutinized. And we are scrutinized. And, you know, we should be scrutinized. And we are scrutinized. And, you know, we watch that scrutiny very, very carefully. I don't recognize the caricature that's been painted of me.

I have a lot of colleagues and clients I talk to. They don't recognize that caricature either. And I tell you, a lot of them, particularly my colleagues, are not shy about expressing their personal views. But, look, I always reflect on it. You always look at it. And we're focused on doing what we're doing. I think we've made a lot of progress in the last five years, growing the firm, serving our clients, executing on the strategy, and we're going to stay focused on that. Yeah, and I want to, obviously, we're going to talk about that. But I mean, do you feel, you know, to your point, it's a rare thing to see these personal attacks. You know, you run a company, like a lot of guys run a company and ladies run

companies. Do you think it's an orchestrated campaign of some kind? Is it based simply on the frustration of your partners because they didn't get paid as much in 2022 as they did in 21? Goldman Sachs is a very visible organization. If you go back and you look historically, there have been lots of times where the person sitting in this job has been scrutinized by the press. I'm going through a period where there's been a bunch of scrutiny. As I said to you, I reflect on it. I try to understand it, always try to think about ways

that we as an organization, and I personally, can do better. But we're focused on running the firm. This actually isn't what we're focused on. I know, but does it affect your ability to lead? I mean, you know, David's not likable. He's a tough guy with a short fuse. He dehumanizes you when he talks to you. He doesn't have a personality.

I mean, on and on. Like, does that impact your ability to lead? I think that I wake up every day thinking about Goldman Sachs, thinking about our clients, trying to move forward. You've known me for a long time. In fact, David, you know, you were asked about this on TV a few weeks ago, and you said you thought I was doing a good job. You thought I was leading the firm effectively. Well, I've dealt with you, David.

And, in fact, you've actually called me and sometimes even taken issue with some things I've said. And I don't get upset about it. In fact, there's one instance I won't share where you were absolutely right. You may remember during the pandemic. Does everybody just have a really thin skin now? They don't like to be talked to in some way that you talk to them, you know, perhaps that you're just too tough or what? David, I wake up every day. I'm focused on our clients. I'm focused on our people. I talk to our colleagues, you know, constantly. The character that's been painted is not one that I recognize. We're focused on running the firm.

We're focused on serving our clients. We're focused on growing our business. We're focused on delivering for shareholders. And at the end of the day, that's what we're spending our time on. You know, I know, I understand why this is interesting and attractive. Well, this is the only time you're going to have to talk about it with me. I understand why it's interesting and attractive to the media, but it's not what the people at Goldman Sachs are focused on. Does it come, though, from perhaps pushing too much change too quickly? Did you try to evolve things too quickly? Is that sort of part of this backlash? Well, I do think on the substance, we are evolving the firm.

And I think it's important. I think companies have to evolve. If they don't evolve, you know, they wind up losing their edge or their competitive position. And so, of course, you know, Goldman Sachs has evolved a lot over the last 154 years, and it will continue to evolve. There's no question, I think some of the noise comes from the fact that we did extraordinarily well in 2021 and everybody benefited from that. 2022 was the first time in over a decade that we had a meaningful down move in compensation. Now it was off of a point 5 billion less. It was off of a very, very, you know, significant high the first year. I think that contributed to it. And then I, you know, I'd also say we've made some significant strategic decisions.

I think one I'd highlight is we took five or six asset management businesses that were separate businesses and we put them together in a much larger, more powerful platform. We think this is super important for the firm going forward, but that's not an easy thing. And if you're a student of the history of Goldman Sachs in the early 1990s, when FIC and Jay Aaron were put together, there was a bunch of tension and a bunch of disruption, and people got aggravated during that period. When Hank Paulson asked Lloyd Blankfein to put FIC and equities together in the early 2000s, there were complications around that and getting those two big businesses closer together. So putting these five or six asset management businesses together,

of course that creates a lot of disruption. So I think there are things that we're doing that are changing the firm that are important strategically. But I think candidly with investors and with our partners, the strategy is very aligned. And they think we're doing the right things. But those things can create some noise. But I think it's been amplified in an extraordinary way. We're focused on our clients, getting really, really good feedback from our clients on how we're serving them. I did a dinner on Tuesday night. But you've got to keep morale up. You've got to obviously also cater to your partners and all your employees.

I mean, I just wonder, does this constant criticism pose a risk to your ability to lead the firm? I'm leading the firm. I'm working with an incredible team on our management committee that's leading the firm. I'm working with an incredible team on our management committee that's leading the firm. We have 400 partners. By the way, that's something that's unique about Goldman Sachs

and actually makes running an organization like this more complicated, that partnership culture. But it differentiates us. I wouldn't have it any other way. Do you ever remind them they don't actually own

that much equity in the company? The community of the partners is super, super important, both the partners and the former partners. I wouldn't have it any other way. And it's my responsibility to lead the organization forward. And at the end of the day, what matters is performance. And when I look at the body of work over the last five years, we've accomplished a lot. We have more to accomplish. The performance is good. And I think the performance will continue to be good. And I think at the end of the day, if we can serve our clients well, and our clients believe we serve them with excellence, with distinction, with commitment, you know, with effort every day, and we can deliver for

our shareholders, we're going to do just fine. And that's what the people of Goldman Sachs are focused on. That's what I'm focused on. Right. 200 partners have left the firm since you took over. Is that typical? That is absolutely typical. In fact, if you looked at, you know, any five-year period, that's roughly in the range. And here's the math, and you and I have talked about this, you know, I think one other time. We made in the fall of 2022, the last time we made partners, 80 partners. We target now post-election kind of 425 to 435 partners post-election. If we want to make another 80 partners two years from now and keep the partnership the same size, that means 80 partners have to leave over the next two years.

So if you do the math just simply, 80 partners times two and a half is 200 partners, and it's not inconsistent with what you would see in any other it's it's a function of we always make room for new talent and so if the partnerships a certain size and we want to make a certain number of partners we have to create that amount of movement over the course of every two-year period yeah you talk about evolution of course something else that has gotten outsized attention in the media given its size and the firm is your consumer efforts which you have scaled back. What have you learned from sort of the decision-making there and trying to build that

consumer franchise? Well, we accomplished a bunch of things that I think have been very positive for the firm over the course of the last seven or eight years in building a consumer franchise, the most significant of which is we built a very, very big deposit platform. We now have over $130 billion of digital deposits. We're no longer the largest wholesale funder in the world. We fund a significant portion of our business with deposits, and that's been a huge strategic, you know, advantage for the firm. We made a decision, you know, six, seven, eight years ago when we started this, seven, eight years ago, to also get into credit, you know, for consumers. And there are a variety of things that have changed where we think that we shouldn't, you know, enter that space as aggressively.

And so I think the regulatory environment has changed. I think that scaling those businesses, you know, in this environment is a little bit harder than it might have been in a different environment. And so we made the decision to pare it back. What I hear from most of our investors and shareholders is they admire that we tried something. And they also admire that we quickly made the decision that we didn't think it was working the way we wanted to pare it back and make a change. And so we made a change. We're very, very focused on our core business of banking and markets, which we've grown really nicely. We're very focused on the asset and wealth management platform. We put a bunch of things together, and we're growing them nicely.

And so, you know, the firm is really focused on those two big platforms. We're making progress in paring back the consumer activities. Right. There's real alignment. You're going to stay in the credit card business, though, to some extent, right? At this point, we're in the credit card business. And Marcus stays. I mean, I'm not going to lose my Marcus savings account.

No, you have your savings account. And my 4.3% or whatever I'm getting. You have your savings account, and that continues. But no checking. No, no checking. No checking. So although you can, you know, if you're a private wealth client at Goldman Sachs, you can have checking. And so, you know, we'll continue to narrow that, make it profitable.

But as you highlight, it's a very small piece of the firm. Yeah. that, make it profitable. But as you highlight, it's a very small piece of the firm. And the core of the firm is what we do in our big muscle group, our core business of global banking and markets, where I think we have the leading franchise. We've strengthened it. We've strengthened it. We've grown it. And we're very excited about the opportunity that we have in asset and wealth management. Let's talk about that. And then we'll get to global markets. And we'll talk about the things that we typically do talk about as well. But, you know, I think there's always been, I've, I've seen some frustration that you have this growing fee base in alternative assets as well. Um, you are talking about, uh, getting the alternative business or at least the fees over 10 billion in overall

management fees for 24, I believe with about 2 billion from alternatives. Is that being, in your opinion, adequately, uh, recognized by investors? Well, I think investors that have been supporting us see the movement that we've made with respect to management fees and also other durable revenue streams across the firm. But with respect to that fee target, we will hit that fee target. That's a fee target that we set when we did our first investor day. We will hit that fee target, my guess is sometime next year, both in terms of the overall management fees and also the alternatives fees. And we can continue to grow from there. At the investor day that we did in February, just a few months ago, six months ago, Mark Nachman stood up and said that he thought we

could grow this asset and wealth management platform now that we've really got it together and we've got the right focus on it. we can grow at high single digits. We can improve the margin to 25%. You also said that 25% for a business like this from a margin perspective wasn't aspirational. So I think over time, as we continue to grow the business, we've got real upside. Is there a point at which, David, you think that you get to a fee number given the recurring nature of those fees in particular, that your multiples go up? Well, I think if we continue to grow that business and that business continues to be larger and the margin structure improves and we continue our strategic decision to get out of the very heavy balance sheet concentration that we had, which is very, very capital intensive,

over time, I think the market will recognize and appreciate that growth and that earnings. And the firm makes a lot of money. It generates a lot of capital. And that should strengthen our position. But I think one of the reasons why the firm has performed well, when you look at our performance over the last three years and five years, is we are reducing the capital density of that business. We are growing that business.

We've also grown our core business of banking and markets, materially, and have taken material wallet share and market share over the course of the last five years. And so I think we're in a good position to continue to grow the value of the firm. We've grown it meaningfully over the last five years, and we're going to continue to focus on it. As I said earlier, we've accomplished a lot, but we've got a lot more to do. Yeah. Well, you know, you mentioned regulatory scrutiny, for example, as well, David, in particular in the consumer business, but it extends well beyond that. I wonder, does private credit and the private markets have more or lower result or perhaps lower regulatory barriers? Well, there's no question that over the course of a long period

of time, there's been a significant growth in activity, banking activity, including lending, outside of the regulated banking system. If you look at the mortgage market today, a very significant portion of all mortgage activity is outside of the regulated banking industry. There's no question there's significant growth in private credit activity. And that goes on, by the way, in the regulated market, you know, in the regulated industry, too. Goldman Sachs has over $100 billion of private credit on our asset and wealth management platform, and it's a big growth area for that part of the business. I think there's going to be good secular growth

in private credit activity. I think given the shift in the interest rate environment and the change in the capital markets that we've kind of gone through and the shift that we're experiencing right now, that's obviously making those markets very, very attractive. So I think that's an area where, one, there's real opportunity for players that are private credit players, but there's also real opportunity for an institution like ours that finances all of their positions, that helps put deals together in that space. And so, you know, there's a tailwind there for us, too. Right. So those who would say you're disintermediated by the areas of the Blue House, I mean, I go on the Blackstones of the world who are providing so much private credit. It's not the case. Well, we were never, Goldman Sachs,

as you know, is never a huge lending bank. No, you haven't. Okay. But you actually, occasionally, you're. We actually are a huge financer. Yes. Of those clients. And by financing them, you know, that makes, you know, our value to them, you know of those clients. And by financing them, that makes our value to them more important. And so that's a business that we've also grown very significantly over the course of the last three to five years. Let's talk about M&A and the capital markets. We've got a big IPO coming next week. We do have a big IPO coming next week. You guys are lead arm.

We have a few IPOs coming over the course. Are you feeling better about things? I definitely do feel better about the capital markets. And if you ask me to kind of look ahead over the course of the next few months, especially if Arm and some of these other IPOs go well, I think you're going to see a meaningful increase in activity. Now, David, it's often an anemic amount of activity. I mean, nothing happened last week. Nothing. No. I mean, it's often an anemic amount of activity. I mean, nothing happened last year. Nothing. No, I mean, it's really investment banking activity.

If you go back to the second quarter, investment banking activity in the second quarter was a 10-year low. And so it's not hard to improve off of that. But I think we could very quickly get back to what I'd call a more normalized level of activity in the capital markets. And that's obviously very, very good for Goldman Sachs. And I see a real improvement. I'm quite optimistic about what I'm seeing. Is ARM important next week? Well, of course it's important. It's super important to the client. Yes. It's a soft bank. It matters a lot.

We're very, very focused on executing for the client. But yes, if a few of these IPOs go well, it will create a virtuous kind of system of pulling more stuff forward. There's a lot of stuff in the backlog. And I think we're going to see an improvement in activity levels over the next four months and into 2024. All right. Now M&A, of course, again, which you and I have discussed through the years. I mean, the regulatory that M&A is under certainly seems to have had a mitigating effect on the willingness of people to announce deals is that changing in particular because let's for example the FTC has either lost or settled a couple of high-profile cases well I make a couple of comments on this David and and you're right there's no question the regulatory

environment has had if has had an effect but I've always said that M&A is really derived from the confidence that CEOs feel in the environment. And, you know, it's not surprising. The M&A market was ripping as we came out of 2021 into early 2022. But in February of 2022, there was an event, the war, that kind of changed the sentiment going forward. And also, you know, if you go back to last summer and you think about where inflation

was and what the rhetoric was out of the Fed, you know, confidence levels last summer were very, very low. It's not surprising, given that combination of factors, that M&A activity ground to a halt. It really ground to a halt. Now, of course, the regulatory environment wasn't accommodating, but I think the environment itself was more important in really stopping that M&A activity. So here we are a year later, and you and I were talking about this a little bit. The economy has been more resilient than people expected. Including perhaps you. Absolutely, including me.

I mean, I, if I was sitting here a year ago, would have been much more cautious about the chances of recession than I am at this point now. And so CEOs feel better. Their confidence is higher. They're looking forward. And by the way, there have been a bunch of cases, you know, where the FTC has lost. And I think the sentiment that I'm hearing from CEOs broadly is, you know,

it's time to get back at it. And so this takes time. You can't turn it on right away. People don't decide they want to focus on doing big strategic things on Tuesday and do them on Thursday. But, you know, we were turned off last summer. When I look at the dialogues that are inside our shop, when I look at our backlog, there's definitely a pickup. But that pickup will be slower than the pickup in capital markets activity. Pickups in capital

markets activity will lead that. The other thing I'd point to that's important, David, is that the financial sponsor community is a huge part, private equity financial sponsor community is a huge part of the ecosystem of capital markets and M&A activity. It turned off for the last year. And one thing- Well, rates going from, you know, zero to five. Nobody's sold anything. And nobody's bought anything. One thing I know for sure, that community makes money when they sell things or they buy things. And so that's going to start up again. And, you know, that also, I think, is a tailwind for more activity.

And we're starting to see, you know, we're starting to see more activity there. Do you think we'll start to see more announcements even in the fourth quarter? Yeah, I do think we'll see more in the fourth quarter. We'll get back to what I'll call normalized in the fourth quarter, but heading in that direction. So I'm quite optimistic about the direction of travel in this fourth quarter. Won't get back to what I'll call normalized in the fourth quarter, but heading in that direction. So I'm quite optimistic about the direction of travel in this activity pickup, you know, barring some further disruption, which just doesn't seem likely based on the trajectory. I think one of the reasons why the economy's been so resilient through here is the amount of government spending has kept this economy, you know,

going on a more resilient basis than we might have expected. Right. Finally, just a couple of quick other things. Capital rules are coming from the Basel III endgame. You know, I know you guys had a relatively muted, at least the way the analysts talked about it, for example, return of capital in terms of buyback. Does that impact how you allocate capital? Well, you know, it's interesting. And I think there's a broad issue here that I just want to highlight and give you a couple of thoughts on.

You know, first, the amount of regulatory scrutiny or burden that our industry has faced over the course of the last, you know, 10 to 15 years has grown materially. I'm a big believer that we need safety and soundness in the banking system. That's very important. But we also need the banking system to allocate capital in a way that spurs economic activity and growth. When you look at the large banks, I think they've done that

very, very well through a variety of different environments over the course of the last decade. And I think the U.S. economy has benefited from that. The large banks have been a real source of strength and resilience when there's been some volatile times recently. If you step back and you go back to the financial crisis and the Dodd-Frank reforms that came after the financial crisis, the largest banks have materially increased their capital, significantly increased their liquidity, and significantly decreased their leverage. They go through a very significant stress test every single year. And in addition, we've had some real-life stress tests in the context of the pandemic, treasury market disruption and other things. And even the banking crisis we had in the spring.

Done very, very well. In the context of that, we think these new capital rules have gone too far. They'll hurt economic growth without materially enhancing safety and soundness. And so we, and I know a number of the other bank CEOs are, and bank organizations are expressing that view to the regulators and also to members of Congress. There's going to be a debate around this and we'll see. Can you carry the day there, though? I don't have the answer, but we're expressing a view because we feel strongly about it. And that'll get debated out. There's a comment period on all these things, as you know. And so we're commenting.

All right, I'm hearing it right here. This is going to take years, right? This is going to take a period of time to sort out for sure. David, finally, are you ever going to DJ again? I'm focused on Goldman Sachs, David. And so I'm focused on Goldman Sachs, David. I'm focused on Goldman Sachs. You know, I wake up every day. I'm very lucky to have the privilege of stewarding this incredible company, working with an extraordinary team of leaders through the firm, you know, to move Goldman Sachs forward, to serve our clients. We're very proud of what we do. We're very, very proud of what we've accomplished. And I know we're going to accomplish

a lot more. And so that's what we're focused on. And we're going to continue to focus on it. Finally, though, David, you know, you talk about focus, but when you wake up in the morning, you read some of these stories, not that they're going to be anymore. Do you focus on yourself as well? Do you say, maybe I could do or relate to people a little differently? Or does that, that's just, you know, you're 61 years old, it's too late. You know, I said to you at the beginning when we started, David, that I don't recognize the caricature that is painted of me. And when I talk to colleagues and I talk to clients, they don't recognize it either. But that doesn't stop me from reflecting on anything that's said and always trying to think about how I talk to clients, they don't recognize it either. But that doesn't stop me

from reflecting on anything that's said and always try to think about how I can do better, how I can lead this company better, how I can do better in serving our clients. So of course I do. But that's my job. And by the way, that would be my job, whether there's criticism or not, is to wake up every day and look in the mirror and say, what can I do better for Goldman Sachs? What can I do better for our clients? What can I do better for our people? And even before there was a bunch of noise in the press, that's what I did every day. And so I just keep doing it. Our people will keep doing that. And, you know, I'm just hugely optimistic about the forward for Goldman Sachs. And I look forward to sitting down with you in future and talking about that. David,

thanks for taking the time. Absolutely. It's good to see you, David. Thanks for having me. Appreciate it. Very welcome. Thanks for having us at the conference. David Solomon, CEO of Goldman Sachs. Send it back to you, Morgan. All right. David, great stuff. David Faber and our thanks to David Solomon of Goldman. Let's bring in our panel to react to that interview. Joining us now is CFRA's Director of Equity Research, Ken Leon, along with CNBC's Leslie Picker and Mike Santoli. Leslie, I'm going to go to you because that was a wide-ranging interview. He talked about the deluge of negative press, basically said he doesn't recognize the caricature painted of himself,

talked about consumer banking, we'll call it realignment, core business of banking and markets, talked about regulation of the banks, IPO market, M&A. What stood out to you? So I thought one of David's best questions in this interview was the question of does this criticism come from pushing change too quickly? This is a really important lesson, I think, for just succession in general, especially on Wall Street, which has, you know, very type A personalities, very smart individuals, but one that doesn't always adopt to change as easily.

And Solomon said, there's no question. I think some of the noise comes from the fact that we did extraordinarily well in 2021, 2022, first time in the decade, they saw meaningful decline in compensation. That's because largely the deal environment was so muted at that time. And so they made some strategic decisions that may have upset certain people. And as a result, you're kind of seeing that come out in a very public way. But I think just kind of broadly speaking, as we take a step back and think about, you know, all of the noise that this company has, you know, endured over the last few months or so, a lot of it comes down to just the overarching change. And I think that's an

important lesson just as we kind of think about succession on Wall Street and think about just succession in general. Yeah, that was an interesting part of the interview. Ken, I want to get your thoughts. You got a hold rating on Goldman Sachs. $347 is your price target there. Does this do anything to change your investment thesis, especially some of the commentary he did make about the capital markets, for example, and the fact that maybe there's some, I'll use the word, green shoots reemerging there, and behind that, the possibility of more M&A activity poised to pick up here, since we know that is key to Goldman from a bread and butter profitability standpoint?

Well, sure. So I think David Solomon wants to get through 2023 and sees a better picture for 2024 and 2025. And certainly, you know, we're at the trough of the investment banking cycle in the second quarter. But he left some opportunities. So he missed. He didn't hit that at the park. David Farber was great in pointing out where is this firm going and where can it command higher profitability, more durable assets, and also find the areas that makes Goldman Sachs so special. In that case, it's clearly in the private equity and private credit and just being an intermediary of financing. Goldman is becoming an increasing principal investor. That's what investors want to know. Where is the firm going? And at the same

time, he could have been much more aggressive in talking about the lack of regulation for the firms like Blackstone, Apollo, and KKR and others, where the burden on the G-SID banks, Goldman Sachs is one of them, is significant and the capital requirements are going to go higher, not lower. So I think Goldman needs to really defend, but also excel at what they do. And I think that messaging was really not coming out in the interview. Huh. Yeah. Mike Santoli, let's talk takeaways for investors as well. Solomon said, I definitely do feel better about the capital markets. Went on to say, especially if ARM and some of these others IPOs go well, I think we could very quickly get back to a normalized level of activity. Is that pretty standard, the expectation

on how things could trend from here and how much is at stake with these IPOs? Yeah, I think, John, based on the fact that we are at pretty rock bottom levels of activity, as David Solomon said in the second quarter, so it certainly couldn't get worse. And it seems as if some areas of the capital markets are coming back to life. You don't know that it's going to be a stampede of IPOs, but anything, especially along the M&A front, that does tick up from here is going to disproportionately fall to Goldman's bottom line. So my read on a lot of the discontent within Goldman that's been evidenced in some of the critical coverage of him is not just that the core business of Goldman, where they do have most of their people and resources allocated, has struggled.

But the stock has struggled relative to Morgan Stanley over the last five years since David Solomon's been CEO. And whatever they say, whatever the companies they compete with, Morgan Stanley is the number one direct rival. Now, that's mostly because Morgan Stanley's valuation has gotten a higher premium because the market prefers their emphasis on fee based wealth advisory. It really is about business mix, in my view, because earnings growth, book value growth has not been inferior at Goldman. It's been about the valuation that's been placed on it. So I think Solomon can lean back on the idea that in the areas that they still focus on, on their core strengths, they've been maintaining or gaining market share. It's just

that the overall level of activity in those areas has been weak. So every single Goldman CEO will start every interview by saying, all I care about is the clients. It's been happening since before it was a public company in 1999. But it's also something you can show in the numbers that, in fact, they do have good leading market share positions in these capital markets and advisory areas. Leslie, I wonder what you thought about what Solomon said about M&A specifically, that it's based on confidence, that CEOs he's talking to are feeling better, their confidence is higher, but that activity doesn't start as soon as they start feeling better. And that is somewhat dependent, it sounded like he was saying, on what happens with the IPO market. Yeah, it was interesting that the IPO market appears to be kind of a leader here,

at least a couple of deals that are in the pipeline. He also noted the sponsor community as a big hinge here. This idea that sponsors need to be buying things, they need to be sponsor community as a big hinge here. This idea that sponsors need to be buying things, they need to be selling things in order to make money, and they haven't really been doing that for the last 18 months or so. So a lot of that has to do with just the settling of interest rates at a certain level. A lot of it has to do with CEO confidence. And then to your point, John, some of it just takes time to really allow this community to kind of feel comfortable with what's going on in the environment in order to ink deals, to agree on evaluation, agree on terms for a deal, and then ultimately consummate that.

We haven't seen much activity, but there's clearly a pipeline and their business model suggests there's a desire to do it as well. Ken, I want to get your thoughts on the commentary from Solomon on the consumer efforts, what I'll call the realignment of this consumer business. It came up in this interview, the fact that it's still small, just a small piece of the broader Goldman portfolio. It's gotten a lot of attention, though, based on what he had to say and some of the efforts that have been messaged even coming into this interview. Is Goldman right-sized where this specific business is concerned? It's not. So to the point Michael made before on just getting like Morgan Stanley,

they're never going to have the scale in wealth management. They're probably going to retrench to just ultra-high net worth private banking. So consumer is really in the rear mirror. It has nothing to do for the forward looking investors for Goldman Sachs in terms of where they excel and where they're going to grow the business, which is, again, going to be in some of these principal equity credit investments, along with being a financial sponsor. So the consumer area is almost a discontinued or a legacy businesses that are being wind down. It's not important in the investment process.

What is important and whether an analyst has a buy or hold is from here in the capital markets, whether we see some upward growth or a U-shape to the third and fourth quarter. That's what we're trying to figure out is how much momentum there is in equity underwriting, particularly IPOs. Mike Santoli, finally, it seemed to me that David Solomon was trying to make the case that the shakiness and confidence of his leadership was transitory, to borrow a term that we remember from last year. He didn't seem to admit a lot of fault, of big mistakes, and deflect some of that and say we're doing the right thing. Does that historically tend to work at a stage like this? How much depends, do you think, on what the stock does over the course of the rest of 2023 and whether the core business picks up? Yeah, does it tend to work? I don't know that there's a real rule on that.

I mean, whether you still have the confidence of the board, whether you can go to the board and say, look, here are the actual business results under our control. And this is how it's it's working through. And if you can make the case of the board that it is really just about feathers getting ruffled in a strategic reorientation of the overall firm and people losing perhaps their their perch, people maybe losing out on the potential to run a business because it's been combined with another one. He went to some ancient history 30 years ago when the old J. Aaron commodities business was combined with fixed income. Not many remember that, but I'm sure it's probably true that you have had similar kinds of, you know, disgruntled expressions, but not so much to this degree. It absolutely did seem like people had their sights on him and potentially not thinking he should continue in the role. I don't think the board

feels that way. Clearly, he's making the correct noises about making a priority his role as CEO of Goldman as opposed to other ancillary things. All about the clients. Mike, Ken, Leslie, thank you. All right. It was quite a day in the markets. Only the Dow ended higher. After the break, we're going to check in on all of that and the after hours movers in a busy overtime session. We'll be right back. Welcome back to Overtime. Let's get a CNBC News update with Bertha Coombs. Bertha. Hey, John. Just minutes ago, former Trump advisor Peter Navarro was found guilty of two counts of criminal contempt of Congress. The former aide was charged with one count for failing to provide documents and another for failing to appear for a deposition.

Charges are punishable by up to one year in jail. The trial lasted just about a day. Deliberation started this afternoon, the jury reaching a verdict in about four hours. French billionaire and luxury tycoon Francois-Henri Pinault is buying a majority stake in the Hollywood talent agency CAA. Pinault's family company says it agreed to buy the stake from private equity firm TPG. CAA is one of the biggest players in Hollywood, repping such stars as Tom Hanks, Reese Witherspoon, and Steven Spielberg. Five manatees were rescued from a southwest Florida creek after they were trapped by Hurricane Nadalia. The storm surge left a mother, calf, and three juveniles stuck in a canal. Multiple agencies teamed up to pull the animals out of the Whiskey Creek and relocate them in Cape Coral.

Good to see that they're safe. Morgan? I love seeing a good animal rescue story. Bertha Coombs, thank you. Still ahead, why this NFL season could set records for sports betting and what it means for stocks like DraftKings and Penn Entertainment. Plus, we will check on earnings from DocuSign, RH, and Planet Labs when Overtime comes right back.

Welcome back to Overtime. DocuSign and RH moving in opposite directions after reporting earnings this hour. Pippa Stevens has the numbers on both. Hi, Pippa. Hey, Morgan. Well, DocuSign shares are higher after the company beat Q2 estimates, earning 72 cents per share on an adjusted basis, which was six cents ahead of expectations.

Revenue also beating up 11 percent year over year. Full gear and Q3 revenue guidance slightly ahead of expectations as well. Now, in a statement, DocuSign pointed to, quote, strong progress on its business transformation while also increasing its share repurchase program by $300 million. Meantime, shares of RH are sinking. The company did beat estimates, earning $3.93 per share, excluding items ahead of the $2.56 expected, with revenue also ahead of expectations. But it seems to be the guidance that's weighing on the stock here, specifically the operating margin for Q3.

The retailer sees it between 8 and 10 percent, well short of Wall Street's 16.1 percent forecast. The company said it continues to expect the luxury housing market and broader economy to remain challenging throughout this year and into next year as mortgage rates trend at 20-year highs. That stock down 9 percent. Guys, back to you. All right. Pippa Stevens, thank you. We've got one more earnings report to point out, and that's shares of Earth imaging company Planet Labs. Those are moving lower after the satellite operator reported a loss of 14 cents per share. That was wider than the expected loss of 8 cents.

Revenue also light at $53.8 million. Additionally, fiscal third quarter full-year revenue guidance a bit soft on both of those fronts. The company highlighting restructuring efforts, operational efficiency in the release. But as you can see, shares of Planet Labs are down another four percent right now. Indeed, the NFL season kicks off tonight. Many are expecting it to be a bonanza for sports betting. The eye popping numbers at stake when overtime returns. Chiefs-Lions kicks off the NFL season tonight. Companies like DraftKings and Penn National could end up being the biggest winners this year. Contessa Brewer has the details of what's expected to be a record-setting betting season.

Contessa. Say that three times fast, John. You know, look, Kentucky just launched sports betting today. That makes five states that have launched sports gambling legally since the start of football season last year. And a record number of Americans, 78 million, say they plan to bet on the NFL this season. That's up from 58% from last year,

according to the just-released survey by the NFL this season. That's up from 58 percent from last year, according to the just released survey by the American Gaming Association. Now, the AGA says some of that growth is players moving from the unregulated market into the legal market, not just that more states are coming online. But the shares for these big names in sports gambling have been under pressure over the last month. For instance, Penn down more than 10 percent, DraftKings down 5 percent, MGM, BetMGM, that's the co-parent of it with Entain. Entain is off 20 percent. FanDuel parent Flutter is down Caesars. And then data provider SportRadar down 22 percent. Still, all of these sportsbooks have had at least one quarter of positive EBITDA. That's the key earnings metric in gaming. They are aiming for significant profitability. So, you know, look, you can bet

on the gaming stocks or like a lot of Americans, you could just bet on the game tonight. Contessa, are these comps perhaps going to be really tough in a year after launch? Or is there a strategy with some of these companies to either layer more sports or somehow vertically integrate to improve profitability or something over the course of years? Well, DraftKings proved in their earnings report for the second quarter, John, they are still increasing average monthly users and the amount of revenue that these users are spending on their site. So the growth trajectory is still there. So will there be tough comps next year? Maybe not, because what we're seeing so far is that the longer the states have been in business. So, for instance, outside of Nevada, New Jersey was first.

New Jersey has hit profitability and has kept growing. Maybe not at the same pace, but it's still adding players and adding the amount of money that gets wagered. All right. Contessa Brewer, thank you. Sure. And don't forget, you can watch the Lions and Chiefs kick off the season tonight at 7 p.m. Eastern on NBC and Peacock. Breaking news on Disney. Meantime, Julia Borson has those details. Hi, Julia. Hi, Mark. Well, that's right.

Disney has amended its federal lawsuit against Florida Governor Ron DeSantis to focus solely on its first amendment claim that the governor retaliated against Disney for its comments about the so-called Don't Say Gay bill. Now, this revision eliminates previous claims that Disney had presented in the case, including that Florida had violated its contract with Disney, as well as a takings clause, which says that private property should not be taken for public use without just compensation. Now, this new focus simply on the First Amendment case comes after in August, Governor DeSantis told CNBC, quote, they're going to lose the lawsuit and they should drop the lawsuit. They are not dropping the lawsuit, but they are amending it. Back over to you. All right, Julia, thanks. Before we go,

let's just do this now. Cue the QR code. You can sign up at the link. It's the On the Other Hand newsletter, cnbc.com slash O-T-O-H. There you'll get the latest installment of that newsletter. This week's debate was, as unions make a comeback in the U.S., are they a force for good in the economy or not? Made that argument on Squawk Box. Again, you can sign up using that QR code, point your phone at it, or go to cnbc.com slash OTOH. Morgan, busy hour with David Solomon. Question,

did he make the case for himself? He certainly had a lot to say about what's happening in markets. Make the case for himself, make the case for investors or prospective investors in Goldman Sachs, especially at a time where there's a lot of question marks around banks. I thought some of the comments in particular around private credit, for example, banks being much more regulated than the non-bank lenders, certainly one that we've dug into and will continue to do. That's going to do it for us here at Overtime.