What if Goldman Sachs were run by an international DJ? It’s a possibility following today’s news that Lloyd Blankfein, CEO of Goldman Sachs since 2006, will be retiring as soon as the end of this year. When Blankfein leaves, he’s likely to be replaced by David Solomon or Harvey Schwartz, or a combination of the two. The sentiment among some Goldmanites is that Solomon – known for his DJ-ing skillz – is front of the queue.
“The next chapter of Goldman history will likely be written by David Solomon,” says one GS insider. “Lloyd Blankfein’s exit represents the beginning of a shift away from trading, towards a more balanced revenue mix centered on clients and relationships. By definition that should mean more stable, albeit lower absolute revenues.”
“The CEO of Goldman is likely to rotate to an IBD guy,” says another senior GS person. “Either that, or it will go back to the tradition of co-heads.”
While Blankfein’s exit looks like good news for Goldman’s investment banking division (IBD), it could hardly have come at a worse time for the securities business. Both fixed income currencies and commodities (FICC) and equities revenues at Goldman Sachs fell 50% year-on-year in the fourth quarter. Co-head of securities trading Pablo Salame, has declared himself “tired of losing.” Harvey Schwartz (currently COO) has got a plan, but its success – which partly depends on wooing corporate clients without a large lending business – is by no means assured.
Crucially, Blankfein is leaving in a partner year. After promoting its biggest ever class of managing directors in 2017, Goldman is due to elevate a new cohort of partners at the end of 2018. Insiders say the coming partner promotions are likely to be just as plentiful as the recent MD promotions. After all, Goldman is trying to save money on compensation, and what better way to scrimp than bumping ambitious managing directors up to partner whilst simultaneously squeezing their bonuses?
“There is a huge bench here, and when you’re paying less $$, you reward with a bigger title,” says one GS insider.
The corollary of a big new class of partners is usually that existing partners leave. The three co-heads of Goldman’s securities business – Salame, Isabelle Ealet and Ashok Varadhan, are Blankfein’s people. Salame joined GS in 1996 and has been co-head of securities since 2008. Ealet joined in 1991 as a commodities trader (like Blankfein) and has been co-head of securities since 2011. Varadhan joined in 1998 and has been co-head of securities since 2014. If Blankfein goes, they look exposed. For some at Goldman, their departure is overdue.
The frustration bubbled over in a recent comment on this site. “Why the same three co-heads are still in charge of the securities division after a decade of decline is beyond most of us working here,” said one Goldman insider. “We read that they’re getting paid $18m++ for sending us into terminal decline, while the rest of us are being told we need to take a pay cut because the division has done so poorly. It’s no surprise people are leaving. Everyone is talking about it. It’s time for Lloyd and the securities division heads to go.”
Whoever left that comment will soon have their wish partially fulfilled. However, they could yet come to regret it. The imminent disappearance of Blankfein and likely loss of a generation of partners behind him, could pave the way for a far more significant shakeup of the securities division to come. Goldman Sachs is currently hiring in fixed income, but this could turn out to be misguided: banking analysts at KBW pointed out this week that Morgan Stanley’s FICC business is now larger than Goldman’s, despite the rival bank sacking 25% of its FICC staff in 2015.
The jubilation at Blankfein’s exit among some in securities could therefore sour – particularly if Solomon steers the bank back towards IBD. Alternatively, Gary Cohn is now waiting in the wings, but he too is tainted by his historic affiliation to the securities unit. “Gary’s unlikely,” says one GS insider. “We need some fresh air. And we need to show the ranks there’s a way to the top. You’re going to see a lot of changes in the coming year.”
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