Gary Cohn, COO, Goldman Sachs Inc: Europe Needs a Lehman Moment

Gary Cohn, COO, Goldman Sachs Inc: Europe Needs a Lehman Moment
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Gary Cohn, COO, Goldman Sachs Inc: Europe Needs a Lehman Moment


Gary Cohn, president and COO of Goldman Sachs Group, Inc. (NYSE:GS) , appeared on Bloomberg TV’s “Market Makers” today with Erik Schatzker and said, “of course I would like to be CEO of Goldman Sachs.”  He also said, “I can tell you for sure it is not good for us to have JPMorgan going through what they’re going though.”

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On Europe, Cohn told Bloomberg that “my personal view is we’re going to need a [Lehman-like] moment…Politicians sometimes need the moment in order to do what they need to do.”

Cohn on whether he wants to be CEO of Goldman Sachs:


“Of course I would like to be CEO of Goldman Sachs, but I am very happy in the role and job I’m in now and I’ve a great job and a great opportunity in front of me. I am very happy doing what I am doing.”


On the JPMorgan hearings before Congress:


“I watched a little bit…I don’t know if I would call it enjoyment, but I was interested…I was more interested in the conversation on regulation—on Dodd-Frank and Volcker—than I was on the specific incident that Jamie was there for. To me, the specific incident has come and gone and I think JPMorgan has done a good job of trying to disclose everything they can possibly disclose about the incident. The more relevant questions to me were to get a view from the different questions on where people’s mind set is towards Dodd-Frank and towards Volcker and where they are thinking.”


On whether Goldman Sachs Group, Inc. (NYSE:GS) is benefitting from the negative attention on JPMorgan:


“I don’t think it is good for anyone to be in the public light for negative reasons. I’m not sure JPMorgan Chase & Co. (NYSE:JPM) would have said it was good for them when Goldman Sachs was going through it and I can tell you for sure is not good for us to have JPMorgan going through what they’re going though.”


“At the end of the day, there’s a finite group of major financial players in the United States and in the world. We are in the same business. We have many of the same clients. We are all servicing our clients. Overall, the best thing for all of us is to be in an industry that is well-respected, well-regarded and well thought of. If one of us has a problem reputationally, the other may have the problem and they will end up getting similar questions and their clients will question them. The best thing for all of us is to do our job, provide to our clients what they need to be provided and stay out of the limelight.”


On Dimon’s testimony and accusation that JPMorgan Chase & Co. (NYSE:JPM) made a proprietary trade.


“It was a hedge…A hedge is an opposite trade that you put on to manage the risk of something that already exists. So if you’re making money on your hedge, you’re probably losing money on the preexisting condition…A well-designed hedge will somewhat negate the other side of the transaction. If you’ve got a hedge that is making enormous amounts of profit, you should go back and look at the correlation or the relationship between your hedge and the underlying event that you are trying to hedge, or you should look at the size and magnitude of that. This gets down to another one of these points that we’ve made numerous times. Size does matter in the financial industry.”


On what businesses Goldman Sachs can no longer afford to be in because of Basel III:


“We are reevaluating our business mix according to what we think Basel III will be. None of us have the iron clad Basel III rules.  It seems clear to us that a bunch of the credit correlation businesses and a bunch of the securitization businesses will be very high risk weighted business, high capital businesses. Too expensive where the returns on risk weighted assets, equity is just not going to make sense for a firm like ourselves. I pointed this out recently at a conference that we have $88 billion of balance sheet in those businesses that naturally rolls off over the next three years.”


On the reasons behind recent staff reductions at Goldman Sachs:


“The environment. We are a function of our client business and our client franchise. The environment is a tough environment for our clients and it does not matter what client population you look at. CEOs today and corporate boards are stymied by what is going on in the macro world. If you look at our They’ve got inflows or inflows that are different than we’ve historically had. We just need less able to service our clients with the same effectiveness we serviced them before. We hoping we’re wrong and we need to grow again but we have a responsibility to manage the firm for our shareholders in the most prudent fashion we can. We make the best assessment of where we think we are today and where we think the environment will be in the next five quarters.”


On where Goldman Sachs is allocating it’s resources:


“We think the biggest opportunities for us right now are in Europe. We think Europe will be an interesting place as your unfolds over the next year or two years or however long it takes. There will be opportunity there…It is not capital. Capital is just one resource. The most important resource we need in Europe right now is human capital. We need to be covering more institutions. We need to be covering more clients. We think there will be real equity issuance coming out of Europe. We think the bank loan market is not working as well as to used to and there will be much more capital markets activity in Europe, therefore we need to cover a wider swath of client.”


On Mike Novogratz of Fortress saying that it would have been better for Europe to be forced into having a “Lehman” moment:


“My personal view is that we are going to need a moment. The reason you will need a moment is because this is a political issue. Politicians sometimes need the moment to be able to do what they ultimately need to do. Besides the moment, the real issue in Europe that no one is really talking about is how do you allow weaker economies to grow with fixed exchange rates. That is the big issue. Not fixing the banks, not putting capital in the system. That’s fixing prior problems. The real issue is how do you allow real economic growth to go forward.”

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