Interview With Makan Delrahim And David Solomon [Full CNBC Transcript]

First On CNBC: CNBC Transcripts: CNBC’s David Faber Speaks with U.S. Assistant Attorney General Makan Delrahim and Goldman Sachs Chairman & CEO David Solomon Today

Makan Delrahim

Image source: CNBC Video Screenshot

WHEN: Today, Monday, April 29, 2019

WHERE: CNBC’s “Squawk on the Street” – Live from the 2019 Milken Institute Global Conference in Los Angeles, CA

The following are the unofficial transcripts of FIRST ON CNBC interviews with CNBC’s David Faber, and U.S. Assistant Attorney General Makan Delrahim and Goldman Sachs Chairman & CEO David Solomon, from the 2019 Milken Institute Global Conference in Los Angeles, CA. Both interviews aired live on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today, Monday, April 29th. Video of both interviews are linked below.

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U.S. Assistant Attorney General Makan Delrahim

DAVID FABER: Okay. Sue, thank you very much. Well, we’re here at the Milken Institute, of course, a big meeting here in Los Angeles. Makan Delrahim is the U.S. Assistant Attorney General for the Antitrust Division, and he joins me here at the global conference in your hometown.

MAKAN DELRAHIM: This is. It’s nice to be back in L.A.

DAVID FABER: Right? Nice to always come home. I want to start off with what is arguably the largest single, certainly from our vantage point, case before you, if you can call it that, which is Sprint and T-Mobile. A couple of weeks ago, “The Wall Street Journal” reported that your staff is, at least has some resistance, that was the word they used, to the deal, at least without structural remedies. Is that true?

MAKAN DELRAHIM: Well, I can’t comment on a pending merger. But, you know, suffice it to say our regular process allows for the staff to communicate to the parties if there are particular issues, if there’s additional data or economic support we need and I think that was probably what was being reflected in some of the reporting that went on. But we will see. The investigation is ongoing and we have had meetings with the parties and it will continue.

DAVID FABER: Yeah, how long -- how many more meetings? I know they have been quite active. And obviously your role here is a very important one, in addition to the staff’s. Have you made up your mind yet?

MAKAN DELRAHIM: I have not made up my mind. The investigation continues. We have requested some data from the companies that will be forthcoming. We don’t have a set number of you know, meetings or necessarily a timeline. We have a timing agreement with the parties, which they can’t close the transaction sooner than a certain period of time. But, you know, as I’ve said, I’ve been very open and transparent with merging parties that we would be open to meeting as long as there is a need to meet and we will continue to do so.

DAVID FABER: It’s an interesting transaction in terms of some of the ways that they are portraying it, Maken, in that obviously the idea of a market of 4 going to 3, some say that’s a red flag for antitrust. They’re also making strong argument on the national security grounds for the deal. The advent of 5G, that, in fact, their combination separately capital starved, together have the ability to really bring 5G in a way that Verizon and AT&T don’t. Does that resonate at all with you and the staff? Is that an important argument to be made from the antitrust point of view or does that not really – actually part of the argument you’ll be considering?

MAKAN DELRAHIM: Well, sometimes those factors do figure into our consideration. So, where it is important is when they raise efficiency arguments. When a merger creates efficiencies, which is actually good for the consumer, we factor those in, but there are strict guidelines about those. You know, the efficiencies that a merger provides needs to be merger specific. Meaning that you couldn’t otherwise get these benefits from it. They also need to be verifiable. They are not -- they can’t be pies in the sky. And it has to be an important element. As far as the number of 4 to 3, obviously the more competitors you have in any market, you know, you might have more competition. But there is no magical number in any particular market. Where you don’t have barriers to entry for new competitors to come in, and restrain prices, there could just be one competitor. That could be fine. Obviously, you know, in these types of industries that are regulated, you can’t just go out and put up sell sites all around so there is a barrier to entry, there’s a regulatory barrier to entry and those are factors we consider. But there is no magical number, there’s no 3, 4, 5, 2, it is what the facts and the economic evidence show us.

DAVID FABER: And so, what is your sense in terms of that, in terms of what will happen to pricing? This is arguably the most important bill that every American pays each month. And there are those who argue that price competition will come to an end as a result of the -- of three large competitors as opposed to sort of an insurgent in the form of T-Mobile and of course, Sprint.

MAKAN DELRAHIM: So those are exactly types of issues that we’re investigating. Will there be a price effect? Will there be an increase in the ultimately the price of the consumers for their cell phone bills, as well as their broadband. You know, with the advent of the innovations that is happening with 5G and other technologies, you know, you’re going to be able to use that phone for more than just communicating with your best friend or texting. You’re getting your media, you’re getting video. And we want to be sure to encourage that. But the – ultimately, is there going to be a price effect when those two combine? There is the other theory, you have the combination and there’s few competitors, will there be what is called coordinated effects between them? Meaning you won’t have the same incentive to compete with the other players because it is in their best interest to not compete, to not compete on prices. And so those are the factors and there’s you know, strict guidelines that we follow, based on case law handed to us. And we are continuing to investigate that.

DAVID FABER: So, if the staff comes to you and says, ‘Well, we think that is in fact going to be the case, that consumers conceivably will suffer as a result of this.’ Do you just go along with it?

MAKAN DELRAHIM: Well, I mean, part of my job, one of the great privileges of being appointed by the President and confirmed by the Senate is to be able to make a judgment there. Now, a lot of times we’re all one team. The antitrust division. So, I don’t view myself as the judge sitting there between a staff and merging parties. We will make a decision, collectively. My job is to make sure that the analysis is done properly. Make sure that the facts are there. And if we’re going to challenge a case in court, that we are looking at all the evidence properly and meet the legal guidelines, and, you know, if the case is there for us to challenge a transaction or suggest changes, we will do that.

DAVID FABER: Right. Back to this national security question, because I don’t feel like you answered. Does national security play a role in the decision you’re making? Because they’re making this argument that -- and, by the way, the President certainly has said it and many of his advisers as well, 5G is the next battle front with China, for example. We need to be ahead in 5G. And these two companies have seized in that theme, it would seem, to say, ‘You need us to be together in order to be able to fight that fight.’

MAKAN DELRAHIM: Well, that’s certainly an argument the parties have made. The issue is do you need this merger to happen for 5G to develop? Or is this something that it would develop regardless of this merger? And that is what we call, you know, one of the efficiency arguments that the party would raise. So, it’s not so much a -- creating a national champion to beat out, you know, a foreign country. That’s not something that necessarily factors into our decision. But is that an efficiency that the innovation will provide for the benefit of the consumers? Because that dynamic competition that they could bring with 5G is something that certainly factors into our decision.

DAVID FABER: Now, there is also the possibility here that even if you were at the DOJ to approve this transaction there are a number of state AGs that may still have objections. Do you work with those state AGs prior to making your decision? And what do you think is the likelihood that perhaps a number of states could get together and still try to block the transaction?

MAKAN DELRAHIM: So, I don’t know. But we do, you know, I don’t know as far as what is the likelihood. There are independent law enforcement authorities in each of those states. There are some phenomenal antitrust lawyers and enforcers and many of these states. We work closely with them. So, we have what are called confidentiality agreements and common interest agreements in place that is routine in every merger transaction where specific states have an interest in a transaction. And this is a merger we have worked closely with the states. Ultimately, they could make a different decision. You might recall the American Express case, the Justice Department prosecuted through the District Court and the Court of Appeals was later appealed to the Supreme Court not by the Justice Department, but by the State of Ohio and a group of other state AGs which went up to the Supreme Court. They make independent decisions from us. And, of course, the Federal Communications Commission is also reviewing this transaction because they’ll have to approve the license transfers as part of that. And we all work closely together.

DAVID FABER: Right. And, again, back to timing. The two parties to the extent that they have been sharing anything seem to indicate June is sort of where they’re working with as a timeline to have an understanding or actual fact as to whether the DOJ is supportive or not. Is that sort of a timeline you’re working with as well here?

MAKAN DELRAHIM: We work with the parties to make sure that, you know, the evidence that we need to make a decision is there. And -- but there is no specific timeline. If it continues on--

DAVID FABER: Is your sense it could be June?

MAKAN DELRAHIM: It could possibly be that. Yeah. Yeah, it could possibly be. But, you know, the FCC has this 180-day shot clock that they can stop and continue. If you look at that timing, what has been reported is that that will be sometime in the June range. But, look, if the parties and we continue to work out, you know, if there is a solution, that time could continue on because we don’t have a specific deadline by which to work on.

DAVID FABER: And your meetings with them I would assume continue? Or the prospect of further meetings with management continue?

MAKAN DELRAHIM: It could. You know, if there is a need for that, we’re not reclosed to not meeting with them.

DAVID FABER: Before I let you go, moving on for a moment, Judge Leon—not a name you probably like to hear that often.

MAKAN DELRAHIM: He’s a friend. And is a good man.

DAVID FABER: Of course, the Judge in the original AT&T Time Warner case that you brought. He’s doing some strange things with CVS and AETNA. Is there -- what is he doing there?

MAKAN DELRAHIM: Well, that’s a merger as you’ve –

DAVID FABER: A merger that is done. That has been approved. That has actually occurred and closed. And yet he continues to hear arguments or –

MAKAN DELRAHIM: Well, we challenged a portion of that merger and we required divestiture of I think about 1.5 million lives to be insured, that was sold to Wellcare. I believe that portion of that divestiture has also been closed. The Judge has a role to – under a law called the Tunney Act, to review our decisions, to make sure that that portion of the challenge has been settled and what is called in the public interest and there is specific guidelines. We’re before the judge and it is a -- you know, it is unprecedented. But certainly, the Judge has a role to review our judgments.

DAVID FABER: But it is unprecedented, you just said.

MAKAN DELRAHIM: It is unprecedented.

DAVID FABER: Nothing like this has ever happened. There is the possibility that he could try to undo the deal?

MAKAN DELRAHIM: What is interesting is in preparation for this, one of my predecessors, Anne Bingaman, who was President Clinton’s – the head of the Antitrust Division, in fact, we just named an auditorium at the Antitrust Division after her. She was the first woman --

DAVID FABER: I saw your speech actually.

MAKAN DELRAHIM: Thank you for that. And she has -- she had argued in the Microsoft case with Judge Sporkin who challenged a settlement and tried to look into that. I was actually working for Judge Buckley on the Court of Appeals at the time. I had the great privilege on that particular case when it was appealed to the D.C. Circuit. And it raised certain issues about what the role and the limits of the Tunney Act are. And we will see what happens in this case. But we are complying with the Judge’s order. We just made some filings last week. And I think he’s going to have a hearing sometime in May. And we look forward to that.

DAVID FABER: Well, Mr. Delrahim, it’s always a pleasure to get some time with you. I’M Sorry we don’t have more, of course, to talk about some of the larger issues that you and I discussed in the past, including right here a year ago. But we look forward to future appearances. Thank you.

MAKAN DELRAHIM: Thank you for having me.

DAVID FABER: Of course. Makan Delrahim, U.S. Assistant Attorney General for Antitrust the. Carl, back to you.

Goldman Sachs Chairman And CEO David Solomon

DAVID FABER: Welcome back to "Squawk on the Street" live from the Milken Institute Global Conference here in Los Angeles. Goldman Sachs Chairman and CEO David Solomon joins me right now at the Milken Global Conference. It’s nice to see you.

DAVID SOLOMON: Great to see you.

DAVID FABER: An annual sit-down for us here, at least here. I’m always happy to do it more often, but my colleagues sometimes like to have some time with you as well. You know, in preparation, I reread a number of your transcripts from your last two earnings calls and it struck me as to how much change you’re bringing to this organization, in so many different ways. Do you feel like your investor base fully appreciates the change that Goldman Sachs is currently going through?

DAVID SOLOMON: Well, it is something we’re spending a lot of time talking about and thinking about and working hard to communicate with investors as to how we would like the firm to evolve. And I would say we are working on a lot. I think it is natural as a new CEO, you really come in, you take a hard look at all the businesses, you re-underwrite the plans and you also look for natural areas to grow, expand and move the franchise forward. And so, we’re working away at all that stuff. We’re making a lot of progress. And I think one things that I’ve been very focused on is how I can approve the transparency we have with the investing community around Goldman Sachs. Now, I say when I look back on our evolution since our IPO, that’s been a slower for us. And so, we’ve changed our presentation format of the earnings call.

DAVID FABER: Yep.

DAVID SOLOMON: You probably noticed I was on the last two earnings calls.

DAVID FABER: I have. Yes.

DAVID SOLOMON: Which was, you know, which was new and different. We have a pretty formal plan to continue to provide more information as we, you know, roll forward, and we’re in a place to better articulate the continued evolution of our plan. But things are going well. And I feel good about what we’re finding and the energy in the organization, you know, to continue to focus on our clients and evolve our franchise.

DAVID FABER: Well, as specific to transparency you’ve talked about performance targets that you will at some point provide.

DAVID SOLOMON: Yes.

DAVID FABER: Any update in terms of when you see that. Is that something this year that your investor base will get ahold of?

DAVID SOLOMON: Yeah. We have said publicly we’re committed to putting out performance targets this year, and as we move forward, we’ll add to that and evolve to that. But we’re committed to performance targets out during the course of the year.

DAVID FABER: What does a multitiered digital wealth platform look like?

DAVID SOLOMON: We’ve talked a lot about our view that starting with a white piece of paper, we could build a digital platform to serve consumers around their financial needs broadly. And so, if you think about the way most of us deal with our financial affairs, still pretty analog, still relatively siloed but can you use it in an integrated way so people can save, spend, deal with insurance and protection issues, invest? And when you think about our asset management business and the access to products and services we have, we’re looking to build something that in a very integrated way can help with their overall financial wellness. And that’s a vision we’ve begun to articulate. We’re in the early stages of starting to develop it. But we’re encouraged by the feedback to the initial products and services on our markets platforms that are developing.

DAVID FABER: Yeah, tell me, why? What has that feedback been like? By the way, it’s for all the years that I’ve covered this company to hear a CEO talking in that way, it’s kind of bizarre, I have got to tell you.

DAVID SOLOMON: Well, I think you have to step back. You know, the world has changed a lot over the last decade and we’re looking at things through the lens of who are our clients and what are the opportunities for us to use our franchise to help a variety of different clients. And at a high level we’ve dealt with corporations and governments --

DAVID FABER: Institutional client base--

DAVID SOLOMON: -- Institutional firm. Corporations and governments. We’ve also dealt with institutions. And we’ve had some businesses with individuals. We’ve had a very high-end wealth management business for very, very affluent people around the world. We also sell some mutual product, mutual fund products, third party distributors, off our asset management platform. But if you think about the brand and the way the regulatory environment has changed who we are, it makes sense for us to have direct relationships with consumers. The most important thing was to start to develop a deposit base. And digitally, which we’ve been doing, it’s been going quite well. So, if you start with a digital deposit platform, you then say, ‘How can you use that platform to potentially bring in an integrated way other products and services to these customers?’ And it’s, a—

DAVID FABER: But to the extent, David, you’re going after a consumer in the way you hadn’t in the past or even a smaller enterprise value company, $2 billion now you’re looking at or even below in terms of hiring people. Does it change the perception or the brand from your typical corporate/institutional client?

DAVID SOLOMON: I think the important thing for us to do is to think about how we serve our clients across the spectrum. And if we do it in a way where we’re really adding value, where we have really good people really making a difference, we have good technology-- we link those things together, and at the end of the day, we’re providing a very valuable service, it’ll be differentiated. And I think the brand can remain very, very strong. Obviously, we’re thinking a lot about the fact that being in these businesses where we’re serving consumers is different, it’s new for us, we’re going to go very slow in a very thoughtful way. And we don’t have to be a huge market share player. We can have nice businesses where we’re adding value and grow slowly. And we’re building something for the long-term.

DAVID FABER: Do you feel you have the metrics by which you want to judge whether you’re making the progress that will actually amount to something meaningful?

DAVID SOLOMON: Sure. I think we have the metrics in place and we’re building the metrics to make sure we do. But this -- if you look at the history of the firm and the way the firm has grown over time, we started in the 1980s building an asset management business from scratch. And sure, we’ve done some inorganic add-ons but we built organically a very, very large global deep asset management platform. And we think we’re good, patient, long-term builders of businesses. We think we’re good at marrying people and technology. And we believe that we can really build some interesting and differentiated –

DAVID FABER: Something that good people’s attention of course was Apple’s announcement over credit card with you. We don’t have a lot of details there, other than this word disruptive was used a number of times. Is it really going to be disruptive?

DAVID SOLOMON: There was an opportunity that I think Apple saw and we saw to redesign certain aspects of the credit card. We can’t talk, you know, more than we’ve talked about it because it’s not yet formally, publicly launched. But in the coming—

DAVID FABER: When will it be? When is that going to happen?

DAVID SOLOMON: Coming soon.

DAVID FABER: What’s soon? A couple months?

DAVID SOLOMON: A few months. Like I said, coming soon. And we’ll talk more about it. But we’re trying again -- and it’s the same thing where when we’re talking about markets, less friction for consumers, no fees. What can we do to have lower overall rates, cash back instantly, more flexibility? And so, it was an opportunity because we don’t have any legacy platform to really think creatively and think, ‘How can we make changes at the margin that are good for consumers?’ as we develop the platform. And so, with all this stuff, David, what I’d say is none of this is going to fundamentally change Goldman Sachs, who we are, how we’re making money in the short-term. But we think we can build successful platforms that over time will make a meaningful contribution for our business, our franchise, and will be value-added for our shareholders.

DAVID FABER: Well, and you need to. I mean, you’ve said this. You’ve said, quote: the available wallet in market intermediaries—intermediation for large institutions has materially declined over the last five years.

DAVID SOLOMON: It has.

DAVID FABER: That was your business.

DAVID SOLOMON: And that was our business. And you know, I think back and I said this publicly on the earnings call, you know, the firm had $36 billion of revenue last year. If five years ago someone said,’ Hey, your thick ICs franchise would be $6 billion of revenue and the firm will be a $36 billion revenue business,’ we would have said, ‘Kind of hard to see.’ But—and the reality is that wallet has shrunk and it’s shrunk for everybody. We’ve actually gained market share in the institutional client business.

DAVID FABER: In a shrinking market, you gained market share.

DAVID SOLOMON: Right. We gained market share in a shrinking market. But we’ve also built around other businesses. We’ve grown our asset management business, we’ve expanded our banking footprint and our banking business, we’ve continued to grow our investing platforms. I think we’ve done a good job, you know, slowly over the last decade, rebalancing our business. But there’s more to do.

DAVID FABER: You’ve spent, what, about $1.1 billion so far in your consumer efforts, at least that was from the last call.

DAVID SOLOMON: Yes. Yes.

DAVID FABER: What’s the number going to look like when we start to really look at them meaningfully contributing to earnings?

DAVID SOLOMON: There’s an opportunity for this to be a significant business over the course of the next five years, significant in the scale of Goldman Sachs, not significant when you look –

DAVID FABER: You’re talking about 4 trillion of deposits out there. You don’t need to get a lot it have for it to start to add up.

DAVID SOLOMON: Absolutely. And you know, we’re very, very pleased with the progress we’re making on our digital deposit platform. It’s grown very, very nicely and it continues to grow quite well.

DAVID FABER: 1MDB. We had to talk about that, of course.

DAVID SOLOMON: Sure.

DAVID FABER: You know, I was looking back, I think it was on the 16th of January. Again, you were on the call which is a bit different, you said there are always important lessons to be learned from difficult situations. So here we are five months later, any lessons learned?

DAVID SOLOMON: Well, we’re spending a lot of time being reflective and really thinking about how it was that we wound up having somebody we hired at the firm and promoted at the firm, became a partner of the firm, turned out to be a criminal. And you know, I think that’s something that’s worth really thinking about. We own that. That’s on us. As far as 1MDB more generally, we’re working hard to get it behind us. There’s not a lot more that I can say. I’d like to say more about it. But we’re working as diligently to put it behind us and move on and stay focused on our clients and our business.

DAVID FABER: Beyond figuring out and making sure you’re not hiring people who conceivably become felons, what about the risk management side? Which, of course, you’ve always been lauded for but some wonder, ‘Come on, 10% on a government bond, shouldn’t that have raised more concern in the institution?’

DAVID SOLOMON: We’ve spent a lot of time talking about this. We committed a significant amount of capital and a part of the world where the distribution process isn’t clean and simple in those transactions, one was sold quickly, one took almost a year to distribute. The risks are real. And if you look at other transactions in other developed economies where you’re committing sizable capital like that, the risk premium for making that commitment, then structuring, rating and distributing the paper, this was not out of the ordinary.

DAVID FABER: It wasn’t, so it wasn’t necessarily something that should have been immediately sort of tagged.

DAVID SOLOMON: No. But they were big transactions and there was an enormous amount of scrutiny around the transactions. Look, when you step back and look at the overall fraud around 1MDB, it went on a long time before we raised money for 1MDB and after. And we and others were fooled by the government and others that were involved and perpetrated the fraud.

DAVID FABER: We usually spend most of the time during this annual interview talking about the markets.

DAVID SOLOMON: Sure.

DAVID FABER: But we can’t do that anymore. You’re CEO now. There’s other things. But I’ll end of that. You’d indicated on your last call that things seemed to be picking up to the end of the first quarter—the March period. Has that still been the case in April?

DAVID SOLOMON: You know, I think April has been more constructive. And I’d say overall from a macro perspective, the U.S. economy is doing well. I think there’s no question China has responded better to stimulus. I was in China, you know, two weeks ago and spent a little bit of time there. Europe and Japan are lagging a little bit. But generally, from a macro perspective, the global economy is moving along pretty well. Markets has been--

DAVID FABER: But what are you seeing in terms of client activity?

DAVID SOLOMON: Client activity has been better. We had a -- after the kind of fourth quarter speed bump and with the government shutdown we had a very slow start to the year. But we saw pickup particularly in March, and activity has been more constructive in April. And particularly we see it in capital markets activity. You see obviously IPO activity and that’s really starting to gain some momentum. So, I would say more constructive. You know, better, more constructive.

DAVID FABER: Got it. We’ll leave it there. David, thank you. Appreciate your taking the time.

DAVID SOLOMON: Absolutely. It was great to see you, David. Appreciate it. Good to see you.

DAVID FABER: Of course. David Solomon is the Chairman and CEO of Goldman Sachs. Back to you guys.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver