A6
BUSINESS DAY
Tuesday 24 July 2018
LEADERSHIP
Goldman’s cool crisis commander bows out, finally Lloyd Blankfein steered bank through turmoil, but is his legacy assured? ROBERT ARMSTRONG, LAURA NOONAN & ARASH MASSOUDI, FT
M
ost chief executives, upon their departures, are measured by how their companies grew under their stewardship and the returns reaped by their investors. On both of these metrics, Lloyd Blankfein is unexceptional. In 2006, the year he took the helm of G oldman Sachs, the renowned investment bank had revenues of $38bn and net income of $9.5bn. That is roughly the same level of revenue and profit that analysts expect Goldman to generate this year. The shares are up 50 per cent over the intervening 12 years, well below the S&P 500 index. But Mr Blankfein — whose departure was announced go days— will be measured not just against the market but also against the leaders of L ehman Brothers, Bear Stearns, and Merrill Lynch — peers and competitors who were not able to steer their own institutions to safety during the financial crisis. Goldman has unique strengths that sustained it as an independent bank, but two particular characteristics of its chief executive made the journey easier: an ability to keep his head when others were losing theirs, and skill as a manager — both of people and of risk. Another aspect of Mr Blankfein’s legacy will, however, only come into sharper focus in years to come. It will fall to David Solomon, the Goldman president who is expected to succeed Mr Blank-
Lloyd Blankfein
fein later this year, to complete the strategic re-positioning of Goldman — shifting its focus towards traditional banking activities, using technology as a platform. The crucial pivot that allowed Goldman to limit the damage from the crisis was a sharp move away from trading, which contributed the meat of the bank’s profits in the years leading up to the crisis and provided Mr Blankfein’s start. “He is the most improbable CEO Goldman ever had,” says Roy Smith, a professor of Finance at New York University and Goldman partner in the 1980s. “He came as a small fry in a gold trading firm that Goldman bought [J. Aron & Co, acquired
in 1981] but probably shouldn’t have. He was trading a commodity when Goldman didn’t know how to spell the word — when it was an investment bank and brokerage with some arbitrage and proprietary trading on the side.” The trading business grew fast and when Mr Blankfein took over the CEO and chairman roles, it represented more than half of the company’s revenues and profits. But Mr Blankfein was not a gun-slinging trader: he had spent his career first as a salesman and then a risk manager. “He leaned against the conventional wisdom, both within the firm and more broadly. In 2005-6-7, when the numbers were great and there was a lot of ‘this time
CV: Lloyd Blankfein BORN - New York, 1954 EDUCATION - Harvard, BA in history, 1975, Harvard Law School, 1978 GOLDMAN CAREER 1982 Joins J Aron, a commodities trading firm recently acquired by Goldman 1988-1994 Partner 1994-1997 Co-head, currency and commodities
1997-2002 Co-head, fixed income 2002-2004 Vice-chairman, fixed income 2004-2006 President and chief operating officer 2006-present Chairman and chief executive INTERESTS Reading, history, swimming, running
is different’ going around, Lloyd would get up and say ‘Plenty of time to have our worst year ever’,” a senior Goldman partner recalls. During the crisis itself, colleagues remember him as consistently calm and maintaining his sense of humour throughout. “Lloyd successfully led Goldman Sachs through a oncein-75- year financial storm and its bitter aftermath, and has repositioned the firm for today’s world,” says Hank Paulson, who preceded Mr Blankfein as chief executive of Goldman before stepping down to become Treasury secretary. “His keen intellect and sense of humour have made him an effective spokesman for his industry and his firm.” In the end, it may have been Goldman’s careful management of its own balance sheet risks that precipitated a sort of second crisis — a crisis of reputation rather than solvency, and focused almost exclusively on Goldman, rather than on the industry as a whole. The bank became the symbol for Wall Street double- dealing: reducing its exposure to the teetering housing market even after it continued to underwrite complex mortgage security deals. Mr Blankfein was hauled before the Senate for this alleged “big short” and attacked in the press. In the second crisis, the cool-
ness of manner and dry wit that served Mr Blankfein so well in the first became a liability. When in an interview in 2009 he said that Goldman was “Doing God’s work,” he may have been attempting irony. If so, the humour was lost on the public. But, remarkably, Mr Blankfein survived the reputational damage the bank suffered and the investigations and fines which followed. “There was obviously a bit of a wobble in 2010 in the wake of the DoJ investigation and the [$550m] fine [from the SEC],” a partner at the time recalls. “He was probably within 5 or 10 per cent of being replaced by [vice-chairman] Mike Evans.” He survived, once again, because of his coolness and ability to keep things in perspective. The job did not get easier in the years that followed. Goldman’s revenues stalled between 2012 and 2015, and started to slip in 2016. Lines of business that had served the bank well historically were not well suited to a world in which regulators had doubled the bank’s capital requirements and discouraged most forms of proprietary trading. A rival at another investment bank says: “Right up to 2012 Lloyd really positioned Goldman Sachs as a great winner from the crisis . . . [but] he failed to realise after that the secular changes in the markets.” His legacy would have been stronger “if he’d gone home in 2016 . . . before the downturn in fixed income”. While Goldman, and Mr Blankfein, may have been late to change, the bank has significant ambitions for technology-based retail and consumer banking. The bank aims to add $5bn in new revenue by 2020, with $2bn of that to come from lending. The retail bank has made waves both by being entirely virtual — and by paying high rates for customer deposits. Mr Blankfein’s legacy, beyond ensuring Goldman’s survival, depend on these new growth gambits. If they pay off, Mr Blankfein may be remembered as the last leader of a Goldman Sachs that ruled Wall Street and the first leader of a sedate provider of financial services.