View From the Top Brass at Goldman, Blackstone

Even with the big banks jumping after impressing investors and the stock market broadly ending the week on a high note, it’s clear that the next few months will be challenging.

Goldman Sachs CEO David Solomon, speaking in a telephone interview this week after releasing results, outlined a “reasonably high chance of recession.” As a result, he said the bank is operating more cautiously and “running a tighter risk lens.”

“When you tighten economic conditions so quickly -- and we really are tightening them very, very quickly -- you’re going to have disruption in economic activity. It lags,” he said. “So far, the consumer has been in relatively good shape, and they’ve been resilient, given all the fiscal stimulus.” But that’s starting to shift, according to Solomon.

Blackstone COO Jon Gray said inflation has peaked. However, he believes it will take longer to subside than most people think due to the high costs of shelter and labor, and that has its own consequences.

“If you talk to our companies, they are becoming more cautious,” Gray told me in a Bloomberg Television interview discussing third-quarter results. “Plans are slowing. And so we see this happening with a lag. I was talking this week with a developer of apartments who’s building this year 15,000 units across the US -- major developer. And he said next year he’s cut his plans by 75%.”

You can find his full interview here.

As for the results themselves, rising interest rates hampered dealmaking, and Blackstone’s stock declined 4.2%. Distributable earnings slipped 16% in the third quarter, and the firm deployed less money than it did in the same period last year. Private equity investments faced writedowns, though performance in certain areas outside of buyouts jumped -- particularly in private credit and core-plus real estate, an area that’s up nearly 20% on the year.

But Blackstone’s stock decline of roughly 35% this year is more than twice as drastic as Goldman’s fall. Gray’s firm surpassed the market value of Solomon’s bank for the first time ever last year, though investors are now weighing how a surge in rates will affect firms that focus on private markets.

When I asked Gray why, he said, “Investors are generally cautious in an environment where asset prices are declining, and they view us maybe as a derivative play on that. And I think what’s lost is the mega-trends here, which are alternatives, our space, are growing very quickly.”

The firms more steeped in liquid markets have beat expectations in some key areas, at a time when investor worries about investment banking and capital markets have been permeating the industry. Solomon’s firm capitalized on the volatility in markets. Fixed-income trading surged more than any of the big five banks, while equities trading posted the highest revenue of any of its rivals. The six largest US banks traded higher on the week -- but the boost in the big consumer banks still outpaced the investment banking-heavy firms.

More on Wall Street

• Gregg Lemkau and Byron Trott reunite after their Goldman tenure, as Michael Dell’s MSD Partners merges with Trott’s BDT
• Credit Suisse is days away from announcing its plans to restructure. It’s in talks to sell a US asset-management unit, while weighing a convertible note, similar to the structures we saw in the panic of 2008
• Read more about Goldman’s plans to reorganize in its third shakeup in the less than five years of Solomon’s tenure, by Bloomberg’s Sridhar Natarajan
• Generali is looking to advance its talks to buy Guggenheim’s asset-management unit, and the firm could be valued at as much as $4 billion
• Apollo has hired longtime Citigroup trader -- and former co-head of markets during the boom in pandemic-era trading -- Carey Lathrop as the COO of its credit business as it prepares for a golden era
• And in case you missed it: Blue Owl’s Dyal unit is nearing a record fund close at $13 billion as it expands its business of taking stakes in money managers
• Deutsche Bank is trimming its investment-banking staff as fears of a recession spur a dealmaking slowdown, Bloomberg’s Gillian Tan reports
• But Citadel is benefiting more from a migration in talent

More to come. It’s historic times we’re living in, including a crazy week in markets with currencies -- particularly the yen -- whipsawing on Friday, and global bond yields reaching key levels. The 10-year Treasury rose to as high as 4.3% to hit the highest levels since 2007 and global markets felt the sell-off in government debt. So I hope your weekend is much more relaxing than what traders experienced Friday. Tips and opinions at [email protected].