Gary Cohn: I Feel Bad For JPM and What They're Going Through
Goldman Sachs president and COO Gary Cohn told Bloomberg TV's Stephanie Ruhle on "Market Makers" today that he doesn't know what drove the firm's underperformance in fixed-income trading in the third quarter: "We don't know precisely why we had a tough quarter, but the results are in, and I can tell you we had a tough quarter in fixed-income...We're very committed, we're going to redouble or triple our efforts in fixed-income. We believe ourselves to be a very powerful, very dominant, top-tier fixed-income shop."
Cohn said that Fed stimulus still makes sense for the economy: "If you look at where we are economically, versus where we were a year ago, we're virtually in the exact same place...So if quantitative easing made sense a year ago, it probably still makes sense now.
Cohn on how the Fed's decision to not taper has affected Goldman Sachs:
"For Goldman it meant sort of business as usual. There's not tapering is the world that we've been in for the last year. So what it meant is people continued to migrate to riskier assets. People continued to migrate or migrated back to the equity markets. Some people that had gotten out of the fixed-income markets because they believed that the Fed was going to taper had to rethink about their fixed-income portfolio, and we have seen some more migration into the fixed-income space. So in many respects, it's similar to what we've been doing for the last year."
On Larry Fink saying that investors should be 100% in equities and who is now investing in fixed income as a part of the migration into the space:
"Well I agree with Larry. Larry and I have been saying for a couple years equities, equities, equities because we believe that the return on equities is going to outstrip the return of the fixed-income asset class. But for those investors that need a long term, long duration, diversified portfolio, they need to have a fixed-income position. Many of them migrated out or rotated out of fixed income when they thought the Fed was going to change monetary policy and go into a more tapering environment. Now that that's up in the air - and I think that's up in the air for a
longer period of time...The tapering is up in the air, whether the Fed is going to taper or not or when they're going to taper."
On whether the Fed should taper:
"If you look at where we are economically versus where we were a year ago, we're virtually in the exact same place. So if quantitative easing made sense a year ago, it probably still makes sense today. The only thing that you might point to that's different is the actual headline unemployment rate has dropped down 7.2 percent, but we could get into why it's dropped. And the participation rate is at basically 35-year lows, so we really haven't created real jobs. So if you look at the economy of the United States and you look at the world economy today and you look at 1.3 percent inflation in the United States and you look at GDP, we basically have the same ingredients that we had a year ago. So if you were a proponent or advocate of quantitative easing a year ago, you probably still are today. So that's why I tend to think that the Fed is in a tough position. They're in a position where they know they can't quantitatively ease forever. They know they're building a bigger and bigger balance sheet, but their number-one objective is to try and grow the US economy. And they're stuck in a dilemma of what to do here. They know the economy's not growing."
"So look, I do believe eventually they will taper. Eventually can be a very long time. I don't believe it's soon. And I - and I do believe that when Janet Yellen gets in there she understands that the dilemma that she's in and she's faced with a very tough position."
"On your second question, you asked me a question about does it matter. And you said Wall Street's doing well. I think it's hard to differentiate between Wall Street and Main Street. Wall Street and Main Street at the same street. They are the same street...Our ultimate client, or the client of our client, is Main Street. You referred to our aims conference in here. We've got 500 CIOs. Many of them run public pensions. Many of them run private pensions. They run union pensions. They run pensions for teachers and firemen and policemen and that's their ultimate client. They're managing stock, they're managing bonds for Main Street to make sure that their pension and their retirement money is intact."
On Main Street being the largest shareholders of financial institutions and whether they realize that when banks are punished--like JPM's fine of $13 billion--it will impact them:
"I don't know. I don't know. But ultimately - and look, I'm sympathetic to Main Street. I'm very sympathetic to Main Street. One of our big initiatives, as you know, has been 10,000 small businesses. We're trying to help entrepreneurs grow their companies and hire people and grow the economy. So we're very sympathetic to what's going on on Main Street. I don't know if Main Street understands that ultimately their retirement savings and their savings that's being outsourced to be professionally managed is in the financial markets."
On whether he's concerned that interest rates are going to rise:
"We're not concerned. Our business thrives in growing economies. If interest
rates are rising because we've got a growing economy and world GDP increasing,
you have to get very excited about our business because the - the thing that's
missing the most from our business right now is a lack of economic growth in
On emerging markets:
"Again, they're called emerging markets. Why are they called emerging markets? Emerging/growing, more volatile, stops and starts. They are called emerging markets because they're more volatile than G-7 markets, than developed markets that are more predicable. We're seeing a natural cycle in the emerging markets. Overall, we still are very bullish on the emerging markets. The emerging markets overall are still outgrowing the G-7 markets. We talk about China and slowing down. A slowdown in China is 7 or 8 percent. We would thrive for that slowdown in the United States of 7 or 8 percent. So it's still an interesting place where we need to be for the long term. We are investing for a long-term cycle. Our clients need to be there for a long-term cycle, and we are excited about the opportunities in emerging markets. If the industry's made a mistake or we at Goldman have made a mistake in emerging markets, it is we've tended to contract our business at the bottom of the cycle when in essence you should be expanding your business because the bottom of the cycle only leads to the top of the cycle and you need to invest at the bottom of the cycle to be ready for the top of the cycle."
On Goldman's fixed income business and its tough last quarter:
"We're very confident in our fixed-income business. We did have a tough quarter. We acknowledged that we had a tough quarter....We don't know precisely why we had a tough
quarter, but the results are in. And I can tell you we had a tough quarter in fixed income. We're very committed. We're going to redouble or triple our efforts in fixed income. We believe ourselves to be a very powerful, a very dominant top-tier fixed-income shop. And we're doing what we need to continue to grow that business."
On what doubling or tripling efforts means:
"To the extent we can hire good people, we're always hiring people. So yes, we're hiring people...We're looking for seasoned traders. We're replenishing our trading supply. We're looked for seasoned salespeople, salespeople that have real client relationships and can come in and help us manage our client relationships. Those people are vital to our franchise and you can never have too many great people in any of our businesses."
On how much of a growth opportunity is if the back can't take real risk and what the difference is between a Goldman trading effort and a Jeffries trading effort:
"I think we can take the risk that's necessary to facilitate our clients. We haven't stopped taking risk clients. We've got balance sheet capital to commit to our business, to facilitate our client business. And we believe by having a bigger footprint, having more salespeople, more distribution and better traders, we'll be able to facilitate...It is more overhead, but it's more revenue. We believe with hiring the additional people we will increase the revenue pool and we'll increase the profitability."
On what bonuses will look like at Goldman this year:
"Well our comp ratio is not down. Our comp ratio, if you look at what we've ended up paying end of last year, we're in line to a little bit higher year-over-year. And bonuses at Wall Street are going to depend on where the fourth quarter comes out. To the extent that firms have decent fourth quarters, I think bonuses will be somewhat in line with last year. And I know at Goldman Sachs if we don't have a fourth quarter bonuses will be down. Because the one thing we have done and we've committed to our shareholders is that our bonus payments will be directly correlated to our revenue."
On what kind of fourth quarter Goldman will have:
"I'm cautiously optimistic."
On whether he likes his job and wants to stay in it:
On what Mike Evans' departure means for him and how long will it take for him to get the CEO job:
"Mike Evans has been a great partner of mine for 20 years. Mike and I have
run businesses together. We've co-headed businesses. We've worked together.
And for me personally it's a loss to see Mike Evans leave the firm. That said,
we still have one of the deepest management teams around. Lloyd and I have
been here, as you said, for eight years. We're one of the very few firms that's
had stability at the top of a firm through the financial crisis, and we continue
to have a really deep bench."
On whether someone will get promoted and take Mike's seat:
"I don't know if we'll see someone get promoted, but Mike's growth market seat, as we talked about before, is very important to us. Someone coordinating what we're doing in the various growth markets around the world is important, and we will ultimately fill that seat with somebody."
On whether he's exhausted by the regulatory environment:
"No. Look, the regulatory environment is just part of what we need to deal with and it's part of our business. In a business like ours where we're in so many countries and we've got so many moving parts, you're always dealing with the regulatory community. You're always dealing with legislative community. You're dealing with different people. But the other side of our business is we've got a huge client base and I'm able to interact with our client base on a regular fashion. I see 400 CEOs a year. It's an interesting seat to be able to see 400 CEOs a year."
On JPMorgan's $13 billion settlement:
"Look, I feel bad for JPMorgan and what they're going through. We've been there. We've been there ourselves. We know what it feels like. I know that Jamie and his team are doing everything they possibly can to put this behind them. They've got a great franchise. They've got a great business. They've got a great management team. They'll get through this and they'll be a very, very strong competitor."
On whether he's going to exit the commodities business if there's a massive capital charge:
"I'd have to see what the capital charge is. We believe that being in the commodity business is essential for our client base. Our clients hedge interest rates, they hedge currencies, they can hedge credit spreads, and they hedge commodities. If you go through the S&P 500 and see how many of those companies have direct commodity risk, it's a substantial number of companies. They need to hedge that in the same way they need to hedge the other risks in their business. And we believe we need to be here for them to allow them to hedge with a credit-worthy counterparty based in the United States."
On whether Goldman will buy JPMorgan's portfolio:
"We're not looking at their portfolio. Some of our clients are looking at their portfolio and some of our clients can potentially ask us for help on looking at some of the long-dated derivatives. We're more than happy to help facilitate our clients, but we're not going to buy the business directly from JPMorgan."