Goldman’s Blankfein Feels ‘Shame’ for Underestimating Firm’s Importance

"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 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 from these times as I would not have extrapolated what happened in 2006 and 2007. We had a 12.2% ROE in what we would regard as a very, frankly relatively poor, opportunity set."

On what kind of ROE can be generated in a good opportunity set:

"I think there's a confluence of a lot of changes going on around the world. Some will be supportive. Competition is lessening and a lot has been written about how the global institutions are under pressure with respect to their own capital are becoming much more closed in with their own countries and less global. We're still a global bank. Our reputation and our reach into the rising economies is quite strong. That's a big positive. We'll have to hold more capital against the things we do and that's a positive for safety and soundness but in and of itself, would tend to reduce ROE.  If you net all of these considerations, it is a big unknown." 

On Goldman recently issuing a dividend to shareholders:

"We engage our shareholders a lot. We're a young public company. We're an old company, 140 years old. But we've only been a public company for a dozen years or so. In terms of engaging our shareholders and finding out what they want to do, it's clear they wanted the predictability of a dividend flow. We're still primarily returning capital to our shareholders through share buybacks. If you do the math, that's always felt like a better way for us to do it. But we've exceeded to the interest of our shareholders on this as we should." 

On whether it's a better strategy to use the money to buy back the stock when it's trading at less than book value:

"Personally, we've always preferred to do buybacks. We like to reduce the share count, it helps for our ROE per share. But it's not that far off, and our shareholders like the predictability and the discipline of us feeling the need to reserve some money to set aside as a dividend on a predictable basis, as opposed to buybacks, which are a little more episodic."  On whether Goldman could survive if it didn't have access to the Fed's discount window:

"We did not have access to the Fed window as the bank leading up to the crisis because frankly we run ourselves very conservatively. One of the reasons why we came out of that crisis, that moment so well is because we went into so strong.  Today, we carry over $170 billion of liquidity. We are very highly capitalized among the highest tier in our industry.  We don't borrow from the discount window."

On whether it would be better to cease to be a financial holding company and go back to the way things once were:

"On one hand, that has an appeal. But I think the world needs institutions as big as we are to have a lender of last resort and have the regulation that implies. Even if we were not a bank holding company today, we would be a SIFI and regulated almost as extensively. It's not a question of what we want, it's how people want us to be. There is a regulatory and legal commitment to achieving that anyway." 

On whether it's necessary for some institutions to be too big to fail:

"I think some of the rules being written, specifically to allow institutions to fail, allow for lending to go to those institutions so they can be managed down. But those will still be failures. Equity holders and debt holders will be wiped out as a result of it. The lending that a lender of last resort will provide under some of these rules is lending associated with a wind down, with allowing a failure to occur." 

On what he's predicting for the markets and global economy:

"I tend to be a little more positive than what I am hearing from other people. I think the world is a bit bifurcated between what economists are saying and what market people are saying. Economists looking at all of the deflationary pressures, austerity that is building up, things looming in the distance, tend to be quite negative and they're doing the appropriate thing, the policymakers, making contingency plans for QE3.  The risk is skewed.  Even if you thought there was a better chance for the world to grow, the consequences of not growing and sliding back are so much greater that you want to build insurance on that side.  A lot of the rhetoric that comes out of the economist point of view and the people of advising policymakers would make you feel a lot more negative. If you look at how much cash there is, how big a trauma we have had and how we are reversing out of it, it is a lower trajectory of growth, but it's going in a positive direction. In some way, markets is economics plus sentiment. Were there to be a sentiment change, there is a lot of pent-up demand to do things.  I spend all of my time talking to CEOs in this country in this country and outside of this country in addition to policymakers and others. There is a lot of interest in doing things. We are unsure of the environment and we're not executing all of our big plans and ambitions because we would like to see some clarity."  On what Goldman is holding back:

"Clearly, our fortunes hinge on growth around the world. A lot of growth is occurring overseas and in the BRICs countries.  We should intend to build out our footprint a little more. We have been conservative with that because we have to scale our investment relative to the opportunities…But there is a consequence sometimes to being too early and we have to scale that opportunity in the right place. On the whole, I would think that most pundits that come on the television, I would say 80% of the time they are negative and provocative and that way in a way that gins up interest in their sentiments, and if you think about it, the world progresses and moves forward about 90% of the time.  There are a lot of things that could go wrong, and it would take a whole show to go through it. I'm in the risk management business. But one of the big risks people have to contemplate is that things go right and we get through all these different issues, whether we know about them or other things compensate for them. We have a big slowdown in Europe, but even China, at its lowest growth, is growing, its growth is equivalent of half the U.K. economy every year." 

On Facebook's IPO:

"There are a lot of important things happening. If we ever added an S to the end of BRIC to make it BRICS, you might have to throw Silicon Valley in there."