Lloyd Blankfein of Goldman Speaks to Bloomberg: Full Transcript

Bloomberg TV anchor Erik Schatzker spoke with Goldman Sachs Group, Inc. (NYSE:GS) CEO Lloyd Blankfein today.  Blankfein said “shame on us in a way for not anticipating how important” public sentiment would be for maintaining Goldman’s reputation.

 Blankfein also said, “I tend to be a little more positive [on the markets] than what I’m hearing from other people…one of the big risks that people have to contemplate is that things go right.”

 Blankfein on public opinion of Goldman Sachs:

 “I think the average American probably had no contact and had never heard of Goldman Sachs before three years ago.  Shame on us in a way for not anticipating how important that would be. We’re an institutional business with no consumers.  It turns out, another name for consumers are citizens and taxpayers.  They became important for reasons that are obvious.  They always should have been important, but it wasn’t part of our audience as we thought about it.  Now we will have to develop those muscles a little better than we have. Shame on us.”

On whether Goldman is still, in the public’s eyes, the “vampire squid”:

 “That is hyperbole…it possibly is, but we’ll have to do a better job, getting out there and telling people how important this industry is, what it does when we advise companies on their growth plans and finance their growth plans and manage their assets for them and how important this is for the economy, the markets and obviously society at large.”

On whether Blankfein had to change his priorities since becoming CEO six years ago:

 “The last few years in particular have been a lot about having to deal with this risk management complexity of the time leading up to the burst of the financial bubble and of course, there has been some absorption in the aftermath. In the larger strategy, the thing we’re dealing with, which is a very big positive for the world, is the wealth creation that is going on all around the world and that we are engaged in, benefit from, and help to support.  And that might be encapsulated in the expression, the rise of the BRICs.”

On conflicts of interest:

 “I think no one who is going to be effective in this business can avoid conflicts of interest coming up. You can do that if you only represent one client in every industry, in which case you won’t really be able to be that effective, knowledgeable, or influential.  You won’t be able to get anything done.”

“If you advise a client today, you have to lend to that client.  If you lend to that client, they have to pay back.  Now you have a stake in the outcome of their business decisions.  You give them advice, but since you are a lender to them, like every bank has to be today, you have conflicts of interest.  They always have to be managed.”

 “[Conflicts on interest] have to be managed.  I think there’s a sensitivity to it and you are going to have more prophylactics, more safeguards built, you get more scrutiny, more second-guessing of the decisions you make, which make you more conservative, all to the good.  But if you want to rule out conflicts of interest, you’ll just give advice to one client in one industry and never do any lending or support for the capital structure of the firm.  It’s just not feasible.”

On Arthur Levitt’s statement saying Goldman should stop saying it puts clients first:

 “I spoke to Arthur. We have different aspects of our business.  For example, in the market making business, we give prices to our client and a client decides whether to trade or not.  We hope as a result of that exchange, we will make money and not lose money.  If over time we lose money, we will be out of business.  We have other businesses or we are an adviser and other businesses where we are a pure fiduciary.  One of the things we set up to do when we wrote our business standards report is go out and carefully delineate for our audience what our roles and responsibilities are in each segment of our business.  As an adviser, we work for the best interests of our clients.  As a fiduciary, our clients to come first.  As a market maker, we have to protect Goldman Sachs.”

On why Goldman says clients come first when conflicts of interest are inevitable:

 “In the context, they mean different things.  In a market making business, the ‘client comes first’ element in our culture is in tough markets, when things are hard and it is risky for us to be the other side of what our client wants to do, we will hold ourselves out as standing out there and doing more than other people would be doing.  When the markets were opening in early 2009, Goldman Sachs was one of the bravest market makers in a very dislocated market.  It didn’t mean we wanted to lose money or we would bid as high as our clients wanted to because we wanted to protect our firm, but we were there for our clients and provided a market.  After 9/11, we were the first firm to make a market for someone who wanted to get out of a position to flatten out their books and reduce their risks.  These things mean different things.  I think Arthur’s comments were reserved for a narrower part of the business.”

On illiquidity in times of dislocation and whether Goldman will be as brave in the future:

 “I think that is how market makers like ourselves get prioritized in the minds of their clients, by their willingness to provide the other side of what our clients want to accomplish. Our first duty is to not risk our capital and hurt our shareholders too much or excessively and manage our risks, which I think no one will debate we do pretty well. That expertise is also used to benefit our clients to provide liquidity for the things they want to accomplish.”

On whether being a pure investment bank/securities firm is still the best model for Goldman:

 “It suits us just fine, yes. We have a tremendous amount of room ahead of us to expand.  To refer back to the rise of the emerging markets and wealth creation around the world, my predecessors didn’t go to China.  They called it Red China. They didn’t go to Russia or India because there were people in poverty, not people growing their businesses and trading with the rest of the world to the extent they are…In Europe specifically, we are probably a bit of a recession and slower trajectory than people would like.  We are dealing on a near-term basis with a probably what is at best a lower third court-quartile opportunity set.  I wouldn’t make any judgments about the long-term of what this business will be extrapolating

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