Goldman Sachs CEO David Solomon on the economy, markets and the firm's performance

Macroeconomic Outlook and CEO Sentiment

• CEO sentiment regarding a 2023 recession has softened compared to June/July 2022; the probability of a "soft landing" or shallow recession is now viewed as more likely.
• Goldman Sachs economists forecast approximately 1.3% economic growth for 2023.
• David Solomon projects inflation will remain stickier than market expectations, potentially keeping rates "higher for longer" than the current market terminal rate of just over 5%.
• Businesses perceive the current economic construct as "resetting," leading to increased strategic caution and reduced capital spending.
• Announced M&A volumes in early 2023 are at their slowest relative to the first six weeks of any year in the past two decades.
• CEOs are increasingly modeling long-term scenarios involving 3% to 4% inflation rather than returning quickly to the 2%–2.5% target.
• Small businesses face significant pressure from wage inflation but are attempting to rebalance via pricing power, though they possess narrower flexibility than larger enterprises.
• The labor market remains tight with low unemployment, making it difficult to cool inflation without potentially aggressive further action by the Federal Reserve.
• Solomon characterizes the current economic phase as being "somewhere in the middle" of a multi-inning game (like baseball), not near the end of the tightening cycle.

Risks, Headwinds, and Opportunities

• Geopolitics: The U.S.-China relationship and the war in Ukraine are identified as major headwinds that complicate the global landscape and impact growth.
• Cyber Risk: Cybersecurity is flagged as a persistent, systemic risk across the economy requiring continued adaptation.
• Technology: AI (specifically generative AI like ChatGPT) and advancements in med-tech/biotech are viewed as primary drivers for future workflow acceleration and economic optimism.
• Clean Energy Transition:
  • The transition from fossil fuels is projected to take decades; 81% of global energy came from fossil fuels last year, with emissions growing by 6%.
  • Goldman Sachs plans to continue financing fossil fuels while simultaneously investing in technologies to accelerate the transition.
  • Successful transition requires trillions in investment and cooperation between the U.S., China, and global governments via public-private partnerships.
  • Energy security has become a primary lens for policy and supply chain decisions following the Ukraine war.

Goldman Sachs Performance and Strategic Shifts

• 2022 Performance: The firm reported a 10.2% Return on Equity (ROE), described as "middle of the pack" compared to peers but below its historical aspirational standards (20%+ ROE in the prior year).
• Q4 2022 Drag: The fourth quarter was an outlier driven by a confluence of four factors:
  • Anemic capital markets activity.
  • Significant markdowns on Russian assets and closure of Russian activities.
  • A reduction in revenue from the balance-sheet-intensive asset management business (a swing of nearly $10 billion compared to 2021).
  • Higher credit loss provisions in consumer platforms as they scaled.
• Core Resilience: Despite overall challenges, the core Banking and Markets business gained market share and outperformed competitors.
• Strategic Reorganization (October 2022):
  • Banking & Markets: Merged into a single division to benchmark effectively against competitors and serve overlapping client bases.
  • Asset & Wealth Management: Consolidated into a single unit; now the world's fifth-largest active asset manager, having raised $180 billion in alternatives over three years.
  • Fintech: Combined transaction banking and consumer platforms to increase transparency and focus on reaching pre-tax profitability.
• Fee Target: The firm remains on track to meet its $10 billion asset management fee target by 2024, with fees reaching $8.8 billion in the reported period.
• Investor Relations: An Investor Day is scheduled for February 28, 2023, to detail progress on banking market share growth, asset management scaling, and the trajectory toward consumer platform profitability.
• Strategic Focus: Leadership emphasizes medium-to-long-term franchise growth and shareholder value over quarter-to-quarter fluctuations.