Goldman Sachs is betting big on small business. The bank is investing $100 million in small businesses in rural communities across the U.S., starting in Arkansas and North Dakota. Goldman Sachs Chairman and CEO David Solomon says the goal is to help small business owners who may not have the same access to resources that their counterparts in large cities due.
When it comes to Goldman Sachs' (GS) business, Solomon admits it has been a "tough year for capital markets activity." There is some reason for optimism, with Arm and Instacart readying to make thier market debuts. If those go well, Solomon tells Yahoo Finance, it could create a "virtuous cycle of bringing some of the other IPOs that are in the wings waiting to market." "I do see a pickup in capital markets activity during the course of the fall," Solomon says, though it may not get back to normalized levels. Solomon says that right now, the bank is focusing on its investment banking and markets business and its asset wealth management business.
Key video moments
00:00:05 Goldman Sachs small business investment
00:03:50 Solomon on investment banking, upcoming IPOs
00:05:25 Solomon discuss U.S.-China relations
00:06:37 Solomon on the consumer business
00:08:30 Solomon on some of the speculation surrounding Goldman Sachs and his leadership
DAVID SOLOMON: I think that the firm, for over 15 years, has been incredibly committed to our 10,000 small business program. We've brought the program to over 14,000 small businesses across the country. And the history of the program and the way we rolled the program out over the last 15 years is we went into cities around the country to really increase business education for small businesses.
And as we're looking to expand further, one of the things we think is desperately needed is help for businesses in rural parts of the country where they don't have the same access to resources that they might have in some of the cities.
And so back in 19-- back in 2021, Senator Cramer invited me out to North Carolina-- out to North Dakota. I'm sorry, North Dakota. And we had a good meeting out here where we spent some time talking about small businesses here. We were thinking a lot about what we could do more broadly to expand our 10,000 small business program.
And we really saw that there was a real need. When you look broadly across the country, and you look at a state like North Dakota and also Arkansas, which is the second State we're rolling this additional program out to that we announced today, 99% of all the businesses in these states are small businesses.
You know, it's pretty consistent across the country that small businesses drive a lot of the jobs in the United States. 42% of all employment in the United States comes from companies that employ less than 50 people. And so as we wanted to expand 10,000 small businesses, we thought we should develop a program that could really support it in rural communities.
We decided to start with North Dakota and Arkansas. But we certainly have plans to roll it out to other states shortly, including South Dakota and other states in the midwest that we're targeting. We've done a bunch of research. We've had about 75 meetings to look at where we think there's need.
And we're excited that this $100 million commitment today, which $75 million goes to fund CDFIs, $15 million to fund the community colleges that support the educational effort, and $10 million to make capital more accessible. We think this is a good start to expand the program rurally.
And that $75 million of grants to CDFIs brings our total commitment to CDFIs through this program up to $1.6 billion. So we think this can continue to have a broader impact on small businesses across the country that generates obviously economic growth. And we think it's very important for the economic ecosystem of the United States.
- I talked to your chief economist Jan Hatzius at the tech conference. Now, he lowered, this week, his recession odds from, I think, I believe it was from 20% to 15%. So a little bit better there. But when you talk to small businesses, are they still worried about a recession and what's the economic vibe from that small business customer?
DAVID SOLOMON: Sure, so Jan did lower his economic prediction for recession. There's no question, the US economy has been a lot more resilient over the last 12 months than we would have expected. And I think the chance for a softer landing right now is much higher than we would have anticipated a year ago.
That said, small businesses feel the brunt of inflation, higher interest rates much more directly than large organizations. They don't have the flexibility or the nimbleness or the resources to necessarily brave those headwinds so quickly. I think we all know that the pandemic was devastating to small businesses across the United States.
A lot of them are service businesses that definitely lost their ability to serve customers during the pandemic. They had to save more aggressively to keep their businesses growing. And so small businesses have definitely had a bumpy ride over the course of the last few years.
There's no question as the economy has done better, they are experiencing this softer landing environment. But they definitely have more headwinds than the larger enterprises across the country.
- If the economy has hit that soft landing position, David, what is your outlook for that bread and butter investment banking business over the next six months? Of course, a lot of excitement around the Arm deal, Instacart, you name it. So we're starting to see some big names in that private market come to public market or at least very soon. Do you see that IPO market and the investment banking business starting to turn around?
DAVID SOLOMON: Well, we've been through a really tough year for capital markets activity. We went from a very robust environment in 2021 to obviously a much different environment after the war in Ukraine started and obviously very, very high rampant inflation, a very significant change in posture from the Federal Reserve.
If you go back and look at Powell's comments a year ago at Jackson Hole, that decreased confidence significantly. And of course, that closed down M&A activity and capital markets activity. And that activity really in the first half of this year was pretty anemic.
We are starting to see a pickup in activity. As you mentioned, there are some very significant IPOs that are in the market this week. The Arm IPO is progressing nicely. And I do believe that if these IPOs go well, that kind of creates a virtuous cycle of bringing some of the other IPOs that are in the wings waiting to market.
And so I do see a pickup in capital markets activity during the course of the fall. I can't say that we'll get back to what normalized levels are, but we're really coming off of zero activity. And so we're encouraged by what we see. And obviously, an environment with more capital markets activity is a good environment for Goldman Sachs given our position in those businesses.
- Yeah, this pickup in investment banking, good to see. I mean, it's long overdue. But it comes at a time with increased tensions between the US and China. And I hope I got this right. I think Goldman opened its first office in China in 1994. I think-- I hope I did the Yahoo Search right. Apologies if I did not.
Nonetheless, you do do business in China. How concerned are you about these increasingly frayed tensions between these two big economic superpowers?
DAVID SOLOMON: Well, there's no question that the bilateral relationship between the US and China is something that's getting an awful lot of focus I thought Secretary Raimondo did a terrific job in her visit delivering some very, very important messages.
We're significantly intertwined with China economically. Yet from a strategic perspective and a security perspective, we have some very, very important things that we need to move forward to rebalance some of the relationship that we have with China.
That-- obviously, that tension and some of those issues as we work through them, those are headwinds to growth. China's economy at the moment, definitely seems softer. That's something that we're attached to. If China catches a cold economically, we're probably going to feel some headwinds to economic activity because of that.
So this is something that we all have to watch very closely. But I'm pleased with what I see in the dialogue. But this is going to take some time to sort out.
- One year ago-- I think it was about one year ago-- we were talking about your latest 10,000 small businesses. I think it was a DC event. Now, fast forward to today, Goldman is a different business. You've pulled back in the consumer area that more mass market is. Are you totally done in mass market? Do you ever see yourself maybe making a return there at some point once you've made some of these exits more recently?
DAVID SOLOMON: Well, we've built a very significant deposit platform in Marcus. And we continue to be in that business. We'll continue to take deposits from the mass market. Our Marcus platform as of our $130 billion of government-guaranteed digital deposits. We pay a very, very attractive rate, I think, to depositors in that platform.
We still operate our credit card platforms. But we have scaled back some of our ambitions to be a larger direct-to-consumer platform. And we're really focused on our two principal businesses, our leading investment banking and markets business, which is about 70% of the firm, and our broad global asset and wealth management business where we supervise $2.7 trillion of assets under the fifth largest active asset manager in the world.
We see an enormous growth opportunity for the firm in that area. And we're very focused on it. So that's where the lion's share of the firm's focus is at this point in time.
- Would there be any interest in acquiring a smaller-- getting into the community banking? If those acquisitions came up-- certainly, a lot of opportunities presented themselves earlier in the year. Is that something that would interest you as a way to more quickly get back into that space?
DAVID SOLOMON: Our focus, our strategy is clear. We articulated in our investor day in early February. We are focused on our investment banking and markets business, our primary muscle group. We have a leading franchise and the growth of our asset wealth management business.
There'll be other things that we touch on. But those are our primary focus at the moment. We have no plans to make an acquisition of a community bank or a banking institution at this point.
- Fair enough. And, David, there's been a lot of just-- I mean, you saw this coming. There's been a lot of just strange stories about Goldman Sachs. And I think Yahoo Finance that our community doesn't really care about any of this stuff. They want to know how your stock is going to do, how your financials are going to perform.
But you as a leader, as you look back over the next past few months, how have you changed? Do you see a better path to just sentiment on your leadership and the culture inside of Goldman Sachs?
DAVID SOLOMON: Well, I wake up every day focused on Goldman Sachs. And I wake up every day thinking about with my management team, my broad management team. And I'm very fortunate to work with an extraordinary management team across our management committee.
I'm very focused on how we serve our clients, serve them with excellence, serve them with distinction, and how also we deliver for shareholders. We're coming up on five years this month. And if you look at this leadership team and the work we've done over the last five years, we've performed for our clients, we've grown our business, we've performed for shareholders. That's what our focus is on and we tend to stay focused on those things. That's the discussion inside Goldman Sachs.
- When you sit with investors and you sit with clients and you look them in the eye, do they still have confidence in a Goldman Sachs?
DAVID SOLOMON: I think our clients have enormous confidence in Goldman Sachs. The feedback from our clients around Goldman Sachs and the work we do for them continues to be very, very strong. We wake up every day dedicated to serving our clients. I think we do it with excellence, we do it with distinction because the extraordinary people that Goldman Sachs has all over the world.
And so we feel very, very good about our client franchise. But we don't take it for granted. We invest in it every day. And I'm very confident that if we continue to serve our clients with distinction, Goldman Sachs will continue to grow and will continue to thrive just as it has for the last 150 years.