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Goldman Sachs Chairman and CEO Lloyd Blankfein speaks to The Nikkei in Tokyo on Feb. 28. (Photo by Hiroyuki Kobayashi)
Interview

Goldman looks to help China reform economy

CEO Blankfein 'negative' but not 'hysterical' on bitcoin

YAMATO SATO, Nikkei senior staff writer | China

TOKYO -- Goldman Sachs has an important role to play in supporting Chinese economic reform, Chairman and CEO Lloyd Blankfein told The Nikkei here Wednesday in a wide-ranging interview that also touched on Toshiba, bitcoin and the prospect of his retirement.

The Wall Street bank has been building up its China-related business, including through a partnership with state wealth fund China Investment Corp. announced last fall. Blankfein stressed the country's importance as a market for Goldman Sachs, noting that "we've had a relationship with [China] for a long time."

"My predecessor, Hank Paulson, went there a lot. I go there a lot," he said. "It's the second-largest economy in the world, and certainly on the way to being the largest."

Blankfein also said that China will need his company's services as it works to join the ranks of advanced economies, a goal that will require the country to intensify economic and financial reform.

"You're going to need rules and regulations that allow companies to go bankrupt in a sensible way so that bad assets can be recycled and redeployed in the economy," he said. "You're going to have to reorganize companies to make them more efficient."

"Those are all ways in which we normally help an economy, and so we think it's very important for us to be there, and I think it's very important for China to have companies like us there helping the economy grow," he said.

My bottom line is that I don't think it accomplishes any legitimate mission that I hear ascribed to it

Lloyd Blankfein on bitcoin

Blankfein also discussed Goldman Sachs' relationship with Japan, where it has operated for more than four decades.

"Commitment is especially important in Japan, where relationships really matter," he said. "It takes a long time, and we've been here a long time. Sometimes it's frustrating: You want quick results, but Japan gives solid and durable results, but not quick results."

Goldman arranged a roughly 600 billion yen ($5.68 billion) capital increase for Toshiba last year, providing the troubled industrial group with much-needed funds until it completes the sale of its memory chip unit. Blankfein showed pride in his company's ability to pull together such a large sum in a short time from global investors, including such activist funds as David Einhorn's Greenlight Capital and Daniel Loeb's Third Point -- a task that would have been difficult for a Japanese brokerage.

"Toshiba was a very important transaction for us because it demonstrated our commitment and what capabilities we have," Blankfein said.

Japanese companies are unaccustomed to dealing with activist investors. But Blankfein emphasized that activists, too, are shareholders that expect a company to be run with owners' interests in mind.

The Goldman Sachs chief expressed skepticism about the cryptocurrencies that have gained such a following in Japan, particularly bitcoin.

"My bottom line is that I don't think it accomplishes any legitimate mission that I hear ascribed to it," he said. "Bitcoin is not a very good medium of exchange because it's very expensive and difficult to transact. It's not a good store of value because it can move 10% on a normal day."

But he acknowledged an "elegance" about it, citing "the blockchain of distributed technology and the distributed ledger that allows everybody to see something at the same time," as well as "the way in which confidentiality can be maintained with absolute security."

"So I am negative, but I am not hysterical," he said.

Goldman Sachs alumni occupy key economic posts in the Trump administration, including Gary Cohn, director of the National Economic Council, and Treasury Secretary Steven Mnuchin.   © Reuters

Blankfein also offered his take on the recent wobble in U.S. stocks that interrupted their steady climb under President Donald Trump and unsettled other global equity markets.

"The U.S. economy right now is very strong this late into a positive period, which is very unusual, maybe even close to unprecedented," he said. "We have a budget that's going to provide a stimulus, and we have new tax legislation that's also going to be a stimulus."

"The risk that is making everybody anxious now is that it goes too well, too quickly, with the result that the Federal Reserve looks at all the fiscal stimulus and takes a more conservative monetary position by raising rates more aggressively than the market is contemplating," he continued. "So then you can see we're back to a period of time where good news is now bad news."

This situation leaves new Fed Chairman Jerome Powell in a difficult spot that Blankfein compared to landing on an "aircraft carrier at night, in a storm, with very pitching seas."

"My base case is that things will work out," he said, expressing confidence in Powell's skills. "But I will tell you there's not an insignificant risk."

Goldman Sachs alumni occupy key economic posts in the Trump administration, including Gary Cohn, director of the National Economic Council, and Treasury Secretary Steven Mnuchin.

"I think they're doing a good job, and I am proud of them," Blankfein said. "I believe that people who've done well in life and who are capable should try to commit some part of their life to public service, and these people have."

"Now, I don't necessarily agree with everything that the administration does, and I won't necessarily agree with my former colleagues -- I didn't necessarily agree with them even when they were in the firm," he joked.

It has been 12 years since Blankfein took over from Paulson, who left Goldman Sachs to serve as treasury secretary under then-President George W. Bush. Blankfein steered the company through the global financial crisis and its fallout, and he has become a long-standing fixture on Wall Street. Asked when he will quit, he replied, "I don't know."

"I will tell you this: I am closer now to the day I leave than I have ever been before," he added with a laugh.

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