Goldman CEO Sounds Warning on Pay, Job Cuts

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube and now also on Bloomberg Quick Take. We just talked about the big bank CEOs, Tim in a big way. We are getting a good feel of the outlook from them thanks to that Goldman sax conference. If there's a one sort of theme that drives them together, it's sort of a downbeat note about the economic outlook, Goldman sax Group CEO David Solomon saying that smaller bonuses and even

potential job cuts could come as no surprise. He didn't make those comments Carol at the Goldman sax Us Financial Services Conference here in New York City, speaking exclusively to our Bloomberg Shanali bassk alright, so covering the event as well, bloom Big News finance reporter Shree not or John he is inter Bloomberg Interactive Broker Studio. Sure, so, first of all,

we're all talking about it, and a good reason. These great exclusive interviews by Bloomberg Sinnelli bask It does feel like they're kind of Debbie downers most of these guys. There's certainly no ifs and buds out here. We've had a parade of CEOs with talking to Bloomberg today and it's clear from their tone and what their messaging has

been that there are a lot more cautious. In fact, David Solomon, the CEO of Goldman Sex, made a point to say that while his firm Zone economists believe that we will be able to avoid a recession in the US narrowly next year, he says he himself is a little more pessimistic, and that was clear in the messaging he put out there, that the talk of possible additional job cuts, the need to pay people down, it's not

what you were hoping to hear. And one and saying listen, guys were worried, we can't pay peop a lot this year, my first such a cynic that's a factor, right, because we do know that, especially bloombergree doesn't know that Goldman has begun compensation conversations, and it is clear that even those who performed really well this year will be paid down because the entire firm as a whole has not done as well as twenty one was an exceptional year.

But I am going to run a little bit further away from the cynical lane only because what he said has been echoed by almost everyone else who spoken with Bloomberg today. And look at the reports out of Morgan Stanley. They're cutting about two thousand jobs to percent of their work force, not a whole lot, but again, job cuts

in the news cannot be very fun to hear. Let's go to his words, because Goldman Sachs CEO David Solomon spoken speaking exclusively to Bloombergstionnelly Bastik on the sidelines of the Goldman sax Us Financial Services conference in the city earlier today. I'll check out what he told her. We're at a very uncertain time, and uncertain time given we're changing monetary and economic conditions, very very quickly, and that's

certainly having an impact of slowing down economic activity. And so if you're running a big financial services firm, I think you have to assume that we have some bumpy times ahead. We could see her session in also, and so I think you've got to be cautious and prepare. That was Goldman sax CYO David Solomon from the firm's US Financial Services conference here in New York City. Check out more from that interview on the Bloomberg Terminal and

at Bloomberg dot com. Carol, you're got a smile on your face, thinking of bet Davis, fasten your seatbelts, it's going to be a bumpy night or bumpy ride like that kind of ominous tone. But I do think about this is something we have said Tree. What these big banks CEOs have to say is we get ready for the next round of earnings, as we get ready for the next and last FED meeting of the year. I mean, you've been covering this sector when they are so negative.

Does it usually pan out to some extent? Yes, because I do think that they use these occasions, these public appearances to try and signal and flag what is ahead. So they are preparing us for what's ahead. But I'll tell tell you, and you guys tell me whether this reader is right aroun we're actually to your readers. To me, the most fascinating thing in that interview was David Solomon talking about this idea that it should come as no surprise to anyone that they have to pay people down

this year. That is going to happen definitively, while also repeatedly saying in that interpret in the remarks, not not necessarily record, but this idea that there is this massive competition for talent. What's the point of saying that. Is that him signaling that there is still room for tinkering and he could still potentially tweak the compensation pool to make it look better. Or is he telling people who are complaining and whining, if you really want to complain,

I'm telling you the pay pool is going down. The market out there is great. You're free to go ahead and find a job out there. I don't know what do you guys make of it. That's why I like that sort of cynical view of it. But I do wonder how you explain the distance between what the firm's own economists say versus what the CEO says. That's it's interesting that now I'm the cynic in house. I thought

that was Carol, so that's unfortunate. But I know, well, you know it's I will say this time, though, I think David Solomon's always had this posture of being more cautious even when things are going great through the run up. We've seen in the post pandemic times. Every quarter David Solomon would come out and say, it has been great. We're not certain that that pace can be maintained next quarter.

And yet quarter of the quarter off the quarter these big banks performed really well, and Goldman Sax in particular. So I personally, having observed him closely for four years, and not that surprised that he would strike a more cautious note than his economists. A little surprised that he is going away from the script because he tends to stick to what the economists say and often says, I don't have a crystal ball. But the fact that he was willing to be a little more downbeat was easily

explained and everything else he said in the interview. With the idea of the pressure on cost the cost cuts the commentary had on the paper. That kind of shows you why he would be more cautious. All right. Well, having said that and speaking of cautious tones, ar Sinali Bossak also caught up at the conference with the CEO Bank of America Brian Morninghan. Great clue in terms of how consumers are feeling as well. So here's what he

had to say about inflation and higher rates. The evidence shows that, yes, the economy is being slowed by the higher interest rates, by the fact that the inflation is eating up more of a person savings. They need to get that under control. That means higher interest rates. But on the other hand, you've seen them slow down which I had to put less price pressure. That means they could slow down. So that's going to be the debate. I think we need a few more months to see

whether it's just a trend or not. All right. Of course that's the Bank of America CEO Brian Mornahan, who also said that they had to slow down hiring with fewer workers leaving their managing headcount moving investment bankers. Uh, they're hiring in private banking. So yeah, like I know, I'm just wondering what this means. I don't know, you added up. You cover this space, we will get earnings

come January. Um, how do we take this forward? This tells you all of these executives, all of these senior manages are deep in daily weekly meetings planning for the year ahead and what they're seeing. They're not quite thrilled with what's been put in front of them, and that is reflected in their messaging right now. I don't mean to ask you why the markets are moving, but I'll go the same question that I said to Jas. I mean, it seemed like these comments have a real effect on

the way that traders are thinking about sentiment today. They should because look at where the comments are coming from. The CEO of Bank America, one of the largest consumer banking operations in the country. The CEO of Goldman Sachs, the most important Wall street firm out there. These people have a real pulse for what consumers are doing, what the average American out there is doing, and also what

the big institutions and the big companies are doing. If they don't have a view into what the year ahead looks like, or at least the weeks and months ahead, that no one does, and the fact that they are willing to summarize all their conversations and rapid in this uh a ball of negativity. I have to assume that

place some rule in the market price action. And then you do have morning and saying, you know, consumers still spending more than a year ago rate of growth and spending those starting too slow, and then you do wonder ultimately how they're paying for it, so whether they'll add up um Street. Thank you so much. I really appreciate it. We knew and this event was going on. We wanted to check in with you and see what David Solomon's comments and the others had to say and what it

all meant. Tree not a rag and he's financial reporter at Bloomberg News. Here in our interactive broker studio KBW Bank Index. By the way, it is down for one, two, three or four days in a row, and it's down almost nine percent in that time. This is Bloomberg. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Most read story in the Bloomberg Today it is about the Yale professor who became an enemy of the Russian state over a list.

He's a guest that we've had on this individual on our air in past, and the story is in the newest shoe of Bloomberg business Week with more. We're joined by Bloomberg Business Week contributor Rob Mandelbaum. He joins us on the phone from Brooklyn. Joining us along with him is Bloomberg Business Week Senior editor demetric Casseds. She joins his via zoom from New York City. This is incredible. I know we we've Caroline, I've spoken several times to

Jeffrey Snenfeld. You know, anyone who listens to our program or watches Bloomberg Television certainly knows his face, knows his voice. How did he find himself, Demitra just a few months ago? Uh? The enemy, an enemy of the Russian state. Sure, um, well, you know he You know him and many people know him.

Given so much work than he does with respective CEOs and leadership in the round tables, he has the ear of many CEOs around the world and have been contacted if I'm not mistaken by some folks saying, you know, this is something we need to look at, is which what what companies are pulling out of Russia and what companies are staying behind and how do we how will

we make these distinctions? Right after Russia invaded Ukraine. UM So he got a little bit of play about this, But as as we expanded our look at business school stories, he became somebody that I was focused on, and I thought, well, I'm curious to know what what Jeff Sonnenfeld was up to. And I saw little snippets about some of this work, but nothing really that dealt deeply into how this all

became such a big list and became such a powerful list. Um. And that is how he got onto my radar with this. And then UM I contacted Rob, who has been a regular contributor to Business Week UM and asked him that

he would be interested in taking a closer look. And I think that from the first minute, we'll let Rob answer this, but I think he was intrigued given that there were certain aspects of the story that had not been covered at all out there and that really were very meaningful to again, like what is it that this list do? Right? What kind of power does the whale? So I will let Rob talk about that, all right? Hi? Hi,

Oh you would like me to talk about it? Yeah, Well, tell us about you get this assignment and you start looking into this story on Jeff Snenfeld, tell us what you found out. Well, I mean the first thing I found out was that, um, this was that that the list itself was this UM what was actually something that came from his sort of correspondence with other with c e O s. It wasn't something that he started to do.

It was something that they asked him to do, because these were CEOs who had pulled out of Russia and they felt like, um, the business media, um, but not Bloomberg business Week were was conflating what they were doing actually pulling out with you know, other companies that were sort of, you know, sending thoughts and prayers to the Ukrainian people, but you know, counting the Russian roubles and

that sort of thing. And and so that's where the list started for him, was just sort of trying to figure out who was actually leaving Russia and and who was sort of making noise like they were leading leaving

Russia but but not really. It's pretty incredible because you know, sani Felt is certainly Professor son Felt was certainly associated with the list, as you right, But at the same time he's got a research assistant and then all of the volunteers who ended up helping with this list, so so who actually worked on it and work is working on it. Rob There were at one point up to forty two I think other people working on it, and many of them were undergrads at Yale and other schools.

They were people like a guy I talked to named Frank Sokovowski, and he is a was a freshman at the time. He was studying economics. He had actually heard about some of Sonofeld's earlier work sort of organizing c e O s after election to sort of protest, you know, the overturning of the election, and he had heard about that even before he got to New Haven and resolved to work with Salenfeld and it find it happened that this was the project, and you know he's from Poland,

uh and so very close to Ukraine. He ended up getting so involved with it that he reschedules his classes, you know, for the spring, some of them for the summer, so he could work on the list in the spring, and he recruited a bunch of other students at Yale and at other schools to work on the list for him, and a lot of those people were Poles who spoke

not just Polish, but Russian. And you know that gave this team and you know, an inside edge, you know, able to analyze Russian material that doesn't normally get translated. I want to bring to meet her back in in a second, but before you do, Rob, So, how did he ultimately then become um an enemy of the Russian state as a result. It's just where they so ticked

off that he was accumulating this list. Why he Well, he had started with the list and and and then it became yeah, it was mostly the list, but then he started doing some research and he had published research I think in late May, uh indicating you know that if you were a company pulling out of Russia, Uh, you saw a benefit to your stock price or you paid less for debt, Like there was a market reward for pulling out of Russia that you could sort of

tie to the announcement that you were leaving Russia. And he ended up on a stop list. Uh. This was in June of people who weren't allowed to go to Russia. I don't think that bothered him too much, you know, I don't think he was planning to go to Russia any type of suit. They're about a thousand people on that list. Now at the time there were far fewer. Hey he I mean he wears it as a badge

of honor, rob Oh, he does. But at the same time, there's a little bit of nuance to it because he won't be the first lady above Mitch McConnell exactly, And he won't. But he won't come out and say that. He thinks it's a necessarily a good thing. Like he's not gonna come on say that companies should leave, right he kind of he stops almost at almost almost saying that it's a very semantic Yes, it's it's a very

semantic distinction. But he, uh, he won't. You know, you can you can press him and press him, and he won't say, you know, uh, companies should leave Russia. Uh, at least not officially, you know. But he'll call, you know, as you talked to him about it, he'll call those companies that did courageous, you know. And I mean the whole idea that that um, you know, companies that leave Russia get an A grade and companies that stay get

an F grade have implications. It seems to me right, Hey, Dmitra really quick, just got about twenty seconds left here. What I love is I feel like there's going to be a second story for you guys in the Business Week team, and Rob, because he's got Sanenfeld has another target, Saudi Arabia. Just quickly twenty seconds you guys thinking about this. Perhaps we are thinking about it. We're looking at it.

I mean, as I said, you know, with um this is interesting because it started as a remit to kind of expand how we're covering the school and its perfectly highlights, just like the very interesting work that happens at many of these institutions. So we're thinking about it. I'm not quite sure what it's gonna lead to you, but what you know, stay tuned. Well it's gonna lead to I think us to reach out to Jeffson and Feld again and getting him back on. Guys, thank you so much

to meet yours. And She is senior editor at Bloomberg News, joining us from New York City. Rob Mandelbaum, he's freelance contributor to Bloomberg Business Week on the phone from Brooklyn. This is among our most read stories, and it's in the upcoming new issue of Bloomberg Business Week. This is Bloomberg Radio. I'm bro journal now, but you let me drive? No, no, please, I'll do. I want to drive. It's a good question. Good drive. This is the Drive to the close on

Bluebird Radio. All right, just under eight minutes left in today's trading session. Shortly we'll check in with our TV colleagues talk about pict trade. Oh, I'm we got like eighteen minutes. Yeah, we got like eighteen minutes left, Carol. Yeah, sorry, it's been that kind of day. It feels like it's moving fast and furious. Having said that, as Charlie mentioned, we're just surrounding around the worst levels of our session when it comes to the equity chair. But pretty broad

based only utilities. When you look at the major industry groups in the spire, actually showing some green today, and it's not much. It's broad based selling. A real risk off day today, it's time for drive to the clothes. We're doing doing that today with Tony Roth What Wilmington's Trust and Investment Advisors, the investment advisory arm of Wilmington's Trust and M and T Bank joining us via zoom in Philadelphia. Good to have you with us, Tony how

are you. I'm good, Jim, and Carol, thanks for having me well, thanks so much for joining us. I'm thinking about the program that Carol and I did last Wednesday after we heard from FED Chair J Powell, and the mood that we saw inequities after investors pretty much solidified the idea that December, you know, that rate heck that's coming next week is going to be fifty basis points instead of se uh. Look at the shift in tone since last Friday and the way that we've seen the

sp down now for four days in a row. How do you explain it, Tony? I think it's actually surprising that it's taken so long to get to these levels of draw downs in the market when you can when you consider the labor market report that we had on Friday, so we did. We were down on Friday, but not by a lot, right, And when you consider how bad the labor report was, and then we had the I s M Services Report, which is really a very loser bad in meaning it was a strong report and wage

and wage pressure, wage pressure, significantly lower participation, right. And then on the I s M Services Report, which is basically another view into wages, we saw a very strong services report, and the market is dealing with the reality that we are going to have a persistent inflation problems, specifically within the wage arena, and that is going to have an impact on where equities trade over the next probably two to four months. And equities are probably priced

too high right now. Um, we need to move not just a little bit lower, but probably a lot lower. And and is that how you feel about across all of the equity landscape or there's certain names in particular that you think maybe provide some opportunity in this environment. Well on relative basis, there are things that we like. We like some healthcare areas, we actually like some some financials. Um we could tee to like energy in this environment,

we like materials. But in an environment where we have higher rates and where profitability UH and price and power are going to matter, selectivity is much more important than what we've seen in many, many years. To take healthcare for example, healthcare is a very variegated space. So you have pharmaceutical companies which are almost like staples, but there's

staples that are growing at a nice pace. And then you have medical device companies which are like big growth technology names which are not going to do well in this environment, and so it really requires very careful selection as you go through the this environment. But that's not to say that anything in the equity space is going to hold up particularly well over the next two months or so as we deal with the reality of a

likely recession. And that also doesn't mean that we like bonds either, because we don't think bonds are particularly well positioned at the moment. And I could get into that

if you like, talk a little bit about that. Well, when you look at the bond market right now, we're relatively three fifty on the tenure, and you think about where inflation is and have persistent inflation is going to be, which we think it's gonna come down, but it's gonna get stuck probably around three and a half percent or so due to wage pressures and a few other factors. That means that the ten year is still is low relative to where it needs to be in this part

of the cycle. So we're probably going to get back up to the four range or selling the tenure. We're going to see credit spreads expand um and we have quantitative tightening, which is throwing more supply into the marketplace. So for all those reasons. Even though a lot of people like to think that bonds are now very attractive because of the increased kerry, they're not attractive in the short term. Um so are they better evil versus equities

right now? I think I'd probably actually rather put my money into equities than bonds right now given those factors. Yeah, it's an interesting predicament. And I do feel like at this point, despite the risk off trade that we've seen certainly so far this week, Um, we did see a rally. Just a couple of weeks ago, we saw FED rally thanks to j Powell. I do feel like we're in a universe where Tony, you know, volative volatility, you know, an uncertainty is one thing that we can kind of

count on. Right we just don't quite know if we're going to be in a recession in the US, what kind of recession it might be. What's the FED ultimately going to do because the now data continues to be mixed. We just heard from big banks CEOs are exclusive interviews thanks to r Shonali Bossik, you know, with the likes of Goldman Sack CEO and others, where the tone does

feel kind of negative in terms of the outlook. But you know, you talk to another CEO and we've had a lot in our air, Tim and myself, and they seem to still be upbeat despite some of the undercurrents and the narrative that's out there. So is it safe to say that we could kind of go either in a better direction or worst direction at this point? Is it kind of like a bet here? Well? I think that it's the question question is will we have a

recession or not? But we are going to have weakening regardless. I think that everybody pretty much there's a consensus out there that we're going to experience economic weakening. We're seeing core goods rollover. We're seeing significant weakness and shelter housing which is going to find us way into the CPI data, which is a good thing. We are seeing um some capitulation in certain areas of the service sector. Um notwithstanding ten dollars tailor slip tickets, which maybe you can reset

on for twenty that's right. We can all agree that that's a unique case. But you know, across services you are starting to see um some breakdown and if you look at the consumer, the consumer is now at a point where they are approaching exhaustion, so the consumer is

blowing through their savings, they're getting deeper into consumer credit. Um, they're getting deeper into consumer credit in an environment where rates are higher than they've seen in a long time, and that means that the consumer is gonna have to slow down on the service to side as well. So all of that is happening, All of that is going to lead to economic weakening. The only question is how bad will it get and will it actually be a

real recession? Will go ahead? Please thirty seconds, it's gonna say, we do think we'll have a recession, but we don't think it's going to be one accompanied by millions of job losses, probably maybe up to a million job losses scattered across the economy. Uh. And then at the end of the day, we think this FED is very concerned

around the third rail GDP. So as long as the inflation rate comes down to, you know, call somewhere around three and a half or below by the middle of last year, that's going to be very active to back down rates in order to not cause to deeper recession. I thought it was interesting what you said about how many job losses, especially when we've had conversations where people say, yeah, we can have a recession, but the labor market can

still be kind of taken along here. Tony Roth, thank you, Chief Investment Officer at Wilmington's Trust, Investment Advisors, the investment advisory arm of Wilmington's Trust, and M ANDT Bank. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us live on YouTube and now also on Bloomberg Quick Take