RIP Goldman Sachs
My first job after college was as an analyst at Goldman Sachs. The three years I spent there were very long — time plays tricks on you when you’re working 100 hours a week — and very unhappy. But they were also very formative. I learned how to think about how a business makes money. I learned how to work really hard. I learned how not to be intimidated. And I acquired a deep and lasting paranoia of being even a minute late, a mindset that is familiar to anyone who has been a junior analyst at Goldman, and one that my friends today find equal parts baffling and amusing.
As the years passed, my short stint at Goldman continued to give me a sneaky sense of pride. I say “sneaky” because after the global financial crisis of 2008, criticism of the bank — some of it even written by me — mounted dramatically, culminating in Matt Taibbi’s famous piece likening the firm to a “vampire squid.” But here’s the thing: The criticism always contained a trace of awe. There was a mystique to Goldman. It was cool and competent. Even when it lost hundreds of millions on a trading bet gone awry, or intentionally screwed its own clients, well, that had a certain swagger to it. Being a partner at Goldman meant you were part of the greatest wealth-creation machine the world had ever known. You were one of Wall Street’s kings. “Thank God I didn’t go to Morgan Stanley,” I’d think to myself as I watched Morgan transform itself from a firm that was once very much like Goldman — prestigious, brilliant, a bit mysterious — into yet another run-of-the-mill firm that catered mostly to retail investors.
Which is why the past few years of bad press about Goldman, mainly focused on CEO David Solomon, have been shocking, and oddly painful — the way you feel when something you didn’t realize mattered to you is being broken. It isn’t just that the bitterness about Solomon’s leadership has spilled outside the firm, prompting The Wall Street Journal to describe Goldman, in a headline, as “at war with itself.” It’s that the leaks are coming from very senior levels inside the firm — a development one longtime Goldman observer I spoke with called “unprecedented.” While there was always plenty of internecine warfare at the firm — think CEO Jon Corzine being knifed by his partners — what happened at Goldman stayed at Goldman. As Solomon recently confessed to a former partner, “It’s a very, very hard war, and I’m being fracked by my own troops.”
Those troops include none other than Solomon’s predecessor, the man who chose him to run the firm, Lloyd Blankfein. Insiders differ about what Blankfein has actually said, but few close to the situation dispute that he has made disparaging remarks about Solomon. “Once Lloyd does that,” says one Goldman partner, “it opens the door for other people to do that.”
Nor did Solomon do himself any favors with his disastrous attempt to imitate Morgan Stanley all these years later, catering to consumers, but in Goldman’s case by offering everything from checking accounts to credit cards. Only after Goldman’s fledgling retail business had lost $3.8 billion did Solomon finally agree to shut it down. The episode was a shocking failure on the part of a firm whose people pride themselves on being the smartest, and whose core business is telling other businesses how to be smart. “People always said: You guys are greedy,” a former partner told me. “But they never thought we were incompetent.”
John Taggart
But the sniping, at heart, isn’t just about Solomon. There’s a deeper subtext to the angst swirling around Goldman, one that reflects an existential terror over how much the Wall Street ecosystem has changed. “People are romantic for a time gone by, which can’t exist anymore,” says Dan Dees, a fellow analyst in my class who now coheads the bank’s global banking and markets division. In 2013, a few years after Goldman became a traditional bank instead of an investment house, I found myself at a reunion for former analysts, standing with two men who had been in my class. One worked at KKR; the other worked at Goldman. Where would you rather be now, the KKR guy asked with a laugh. At a heavily regulated bank like Goldman? Or at a private-equity firm, where you can do anything you’d like, and make multiples more money?
The Goldman guy laughed too, but a little sourly. In 2020, as if to underscore Goldman’s new situation, the bank was forced to sell an insurance company it had purchased, Global Atlantic, to none other than KKR. Because under the crazy rules of our current regulatory system, an unregulated private-equity firm is allowed to own an insurance company, but a bank is not.
All of which makes me wonder: Has the age of America’s last great investment bank finally come to an end? Is Goldman Sachs dead?
The sense that Goldman was no longer invincible didn’t start under David Solomon’s watch, but it has clearly accelerated. Earlier this fall, when I meet with him in a conference room overlooking the bank’s trading floor at its headquarters in Manhattan, Solomon is defensive. There has always been dissension at Goldman, he says, but he blames the press for serving as an “amplification system.” Still, he acknowledges that the most threatening calls, like those in a slasher movie, are coming from inside the house.
“There are definitely people leaking at Goldman Sachs, including some senior people,” he says. “They’re damaging the firm. Clearly. Irreparably? I don’t think so, but I’m not going to dispute that it’s damaging to the firm. I worry about that.”
Solomon is not unwilling to admit error. “Look, I don’t know that we’ve gotten everything exactly right,” he says. “We definitely haven’t.” But he wants it known that he does not recognize himself in what’s been written about him. He’s been called, among other things, a “jerk,” and a “prick,” and a “dick.” Solomon’s defenders frequently use the word “tough” to explain why he isn’t well-liked. “He’s not a teddy bear,” concedes someone close to him. Still, Solomon’s predecessors, Blankfein and Hank Paulson, weren’t exactly known for being soft and fuzzy. What’s different about Solomon is that his toughness is unleavened by Blankfein’s humor, or by Paulson’s knack for being simultaneously ferocious and oddly endearing. Solomon has a habit of beginning an answer by questioning your premise, or by quibbling with something you said. During a recent interview in California, when the CNBC anchor David Faber made a gentle joke about how both he and Solomon had flown across the country just to talk to each other at a conference, Solomon said, “Well, I flew across the country to be at the conference and talk to a bunch of clients.” He will point out a small mistake, rather than going straight to a larger agreement. He doesn’t mean to be unpleasant — he’s just extremely literal. But it’s a style that even one passionate defender calls “suboptimal.”
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Within the rarefied world of Goldman, Solomon is something of an outsider, simply by dint of his background. As the bank’s first CEO who wasn’t a partner back when it went public in 1999, he isn’t seen as having a direct link to its storied past, and he wasn’t able to cash in on the initial public offering the way partners did. The place has always been a study in contrasts: Goldman’s offices, which were at 85 Broad Street when I joined, were sort of seedy. But everyone knew that becoming a partner at Goldman was the ultimate brass ring. Even as Wall Street changed — and it is always changing — Goldman seemed to stay one step ahead, as if by magic. When I was there, the firm made all its money advising on mergers and acquisitions; everything else was a sideshow. By the 2000s, Goldman was making its money in trading, and banking had become the sideshow. Once the firm went public, of course, everyone knew how much money Goldman was making, but they didn’t know precisely how it was getting so rich. That was part of the mystique.
To Solomon, part of the problem Goldman faces is people’s tendency to view its previous eras through the pretty haze of nostalgia. “Fantasyland,” he calls it. In our conversation, he’s eager to point out all the problems he inherited. In the decade before he became CEO, the firm’s stock had basically flatlined. By 2018, Goldman’s revenues were less than they were in 2010. Even more alarming, the firm was losing market share in several key areas, because its customers were tired of feeling as if Goldman were out to get them. In the best-known episode, which served as inspiration for the film “Margin Call,” Goldman dumped its most toxic holdings just before the financial crash of 2008, at the expense of some of its customers. After that, the firm’s first business principle, “Our clients’ interests always come first,” introduced in the days of the legendary John Whitehead, became something of a punchline. When I wrote about the firm in 2009, a trader I spoke with likened Goldman to the mob. “You do business with them because you have to,” he told me, “not because you want to.” A friend who worked at the firm recalled that after the financial crisis, his mother, who lives in Palm Beach, was ashamed to say her son worked at Goldman.
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Solomon points to the aftermath of the financial crisis as evidence that the firm needed to change. “If you went up to someone at a dinner party and said, ‘Where do you work?’ the answer was: ‘I work in finance. I work in New York.’ People were embarrassed to say they worked at Goldman Sachs. Nobody’s embarrassed to say they work at Goldman Sachs right now.” In this telling of the story, Solomon, despite his flaws, or maybe in some ways because of them, was the right CEO for the moment. He was willing to do what was necessary. “He’s impervious to what people think,” says a former partner whose views of Solomon are mixed. “He has indomitable will.” Russell Horwitz, Lloyd Blankfein’s former chief of staff who made headlines for his return to Goldman in August, points to the book “Our Crowd,” a history of great banking families, from Rothschild to Kuhn Loeb to Lehman, many of whose firms have disappeared. Solomon’s mindset, Horowitz says, is that “Goldman doesn’t have a preordained right to thrive, let alone exist.”
As CEO, Solomon moved quickly to return Goldman to its roots as a client-centered firm. On his first day in the job, he announced an initiative called One Goldman Sachs, in which employees across the firm are encouraged to refer business to other areas of the company. Satisfaction soared: In 2019, chief operating officer John Waldron told me, an internal survey of 100 of the most important firms worldwide showed that only 44 ranked Goldman as one of their top choices when they needed financial services. Today the number is 79. “We’ve made a lot of progress,” Waldron says. Goldman has also accomplished the remarkable feat of remaining the No. 1 M&A firm in the world for 20 years running. “It remains the crown jewel of Wall Street,” says Dees. In this way, at least, Goldman is still the Goldman of old.
Still, even after the IPO, Goldman was widely perceived as running more for the benefit of its partners than its outside shareholders. “I felt it was not really acting like a public company in terms of lack of transparency, targets, investor days, or moves that are typical of a Fortune 50 company,” says the longtime bank analyst Mike Mayo. Changing that culture, he says, was bound to rile things up. “If you’re truly transforming a company that for two decades was run like its legacy self and you now want it to run like a Fortune 50 company, there’s going to be a lot of bruised egos and upset people.”
One of the biggest cultural changes at Goldman since the IPO has involved the way partners are compensated. For most of the firm’s history, partners were rewarded based largely on their share of the firm, rather than their own performance. That meant the money the firm made went mostly to the partners; at the time of the IPO, they owned about 60% of the firm. A large part of every partner’s net worth had to stay in the firm until their retirement. It was socialism, of sorts, atop the world’s most capitalistic enterprise. Everyone was in it together — and there was no place else on Wall Street you’d rather be.
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It was Blankfein who first overhauled the compensation system for partners, placing a far greater emphasis on the discretionary part of their bonuses. That introduced greater inequality among those at the top. The share of the firm that partners own has also declined steadily to just a sliver today. As a result, the solidarity of the partnership is no longer created and reinforced by the firm’s financial structure. At the same time, the total amount Goldman pays out in compensation has declined sharply over the years, from roughly 50% of the firm’s revenues in the early 2000s to less than 30% today. To make matters worse, compensation plunged even further last year, thanks to losses in the consumer business and a slowdown in the markets. On Wall Street, getting paid down feels like an unbearable insult, even if the absolute number is still a king’s ransom.
Solomon, for his part, says he was told in no uncertain terms that broad change was needed. “I had a board who gave me a very, very clear message that they wanted the firm to operate more like a public company, with a mandate to perform for shareholders,” he says. That required transforming the culture of Goldman — in ways that felt to some partners like Solomon was adding insult on top of the injury to their paychecks. “David has really tried to corporatize the firm,” says one partner. “It’s a big firm now, he feels, and it needs to have more of a corporate structure, and less of a partnership structure.” Solomon has reorganized the firm not once, but three times, in part to deal with the fact that Goldman is now regulated as a bank.
The old Goldman had a handful of businesses — fiefdoms really — that invested the firm’s own money in everything from real estate to Thai baht. But that often placed Goldman at odds with the interests of those whose assets it managed. When the firm found a good investment, did it seize the opportunity for itself, or give it to its clients? What’s more, the amount of capital the Federal Reserve began to require Goldman to hold to offset any losses in its deals made the returns negligible, and shareholders didn’t like the unpredictability of the earnings. So Solomon sold off the firm’s own investments — some $60 billion in total — and focused on managing money on behalf of outside investors, from high-net-worth individuals to pension funds.
The move sparked a lot of internal disruption and dissent. “Not many would have had the guts to do it,” says Horwitz, Blankfein’s former chief of staff. “Because senior people, they liked their businesses, and they had great track records.” Another former senior executive recalled that Blankfein recognized the need for Solomon’s move. “He’s probably doing the right thing,” Blankfein told the executive at the time. “But it’s not the stuff I could have done.” Blankfein, the executive adds, “was too culturally embedded in the place” to kill the fiefdoms that his friends had spent their careers building.
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“I know people in those businesses viewed this as sacred, and I have no right to touch it and change it,” Solomon says. “I’ve looked and I said, ‘Could I have handled it differently?’ I don’t know. But at the end of the day, whoever did this was going to have resistance.” In the end, he says, “We got the right result — and the benefit we’re getting from the right result far outweighs every single slight or every single anger about it.”
But the strategic shift, necessary though it was, came at an unnecessarily steep price. During Solomon’s tenure, more than 200 partners, including over 60 from asset management, have left Goldman — a significant talent drain at a time when it’s trying to compete with private-equity firms that have a big head start in building relationships with large institutional investors. Goldman’s asset-management clients, a former partner told Insider, “are frustrated with having the churn.” I’ve heard rumblings that the turmoil isn’t over — and these days, rumblings seem to have an uncomfortable way of becoming fact. Earlier this year, Goldman boosted the share of profits that investment teams can pocket for themselves, more closely aligning their compensation with that of the big private-equity firms. It’s a tacit admission that Goldman cannot afford to keep losing so much talent in such a critical part of its business.
Then there’s Solomon’s effort to build the consumer business, which virtually everyone I spoke with at Goldman agrees was a massive screwup. They all told me a version of the same thing: that Goldman didn’t have the right people, nor the expertise, nor the DNA, to succeed as a retail bank. The basic idea, which began under Blankfein, wasn’t wrong: It made sense to diversify Goldman’s funding sources by seeking consumer deposits, and to boost the firm’s stock by creating a reliable stream of earnings. But Solomon’s emphasis on growing the business, and fast, required hiring way more people to meet the compliance requirements that the Federal Reserve places on retail banks. From the end of 2018 through 2022, Goldman’s head count soared by 33%, to 48,500 employees. That meant there were more mouths to feed, which further cut into the compensation for partners. This year, the firm started laying people off — over 3,000 in the first quarter. The consumer business “was set up in a way that made it obvious it was costing us money,” says a partner. “People wanted it to stop, so the criticism got personal.”
What is unclear is whether the move into consumer banking was doomed from the start, or whether it was doomed because of the way Solomon went about it — in a hurry, and without enough buy-in from partners. “It was never going to succeed during one CEO’s tenure,” a long-time investor says. “He made it too big too fast and in so doing lost the chance to build it at all. At the end of the day, if you’re going to grow these businesses, you should grow them one step at a time, and you should make sure the losses aren’t going to run away with themselves. Because if it goes wrong, then you damage the place.”
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Partners both current and former worry that Solomon has already done a lot of damage to Goldman. “We’ve had strategic whiplash,” says one. “It’s hard for the organization.” Another says, “There’s been some real self-inflicted pain over the last year, which we didn’t need, and which was so easily avoidable.” Insiders complain that Solomon not only failed to include them in the firm’s new direction, but also damaged the culture that made Goldman such a powerhouse on Wall Street. “I think the firm could definitely be more partnership-like,” says one. “It’s having a leadership group that really feels included, consulted, listened to, having a voice. It means reaching out more broadly across the partnership and making sure you’ve got proper buy-in.” Another close colleague says Solomon has so far failed at one of the most fundamental requirements of leadership: “I don’t think he did a good job bringing people along — and by people, I really mean the partners.”
When I ask whether it’s fixable, the colleague hesitates. “I think it can be improved,” he says. “Fixed, I don’t know, fixed is a harder word. I think it can be improved.”
It’s a truism that people can’t change. But sometimes, when there’s no alternative, they do. Solomon apparently tried out a kinder, gentler version of David Solomon when he became CEO, but it didn’t work. “He couldn’t maintain it,” one insider told me, “because that’s not who he is.” But the relentless public criticism of his leadership has been enough to humble him. “How did it get to this point?” another insider recalls Solomon asking him earlier this year, in the midst of a particularly nasty media maelstrom. For the past several months, Solomon has been having dinners and retreats with small groups of current and former partners all over the world, to listen to their concerns and criticisms. “David knows there’s a problem and is working very hard to address it,” a top retired partner says.
Despite all the criticism of Solomon, there’s a key constituency that still supports him: Goldman’s board of directors. The disaster with the consumer business actually seems to have enhanced his standing with his ultimate bosses. “David didn’t start it, but his name was on it and he knew it,” someone familiar with the board tells me. “The execution was not perfect. But he had the courage to come to the board and say: ‘You know what? This isn’t working. We have to do something different.’ That’s what leaders do.”
Solomon, several insiders tell me, is very, very good at managing up. Those to whom he answers haven’t found him difficult in the way those who answer to him have.
Solomon, several insiders tell me, is very, very good at managing up. Those to whom he answers apparently haven’t found him difficult in the way those who answer to him have; Blankfein, I’m told, was shocked to hear that Solomon is disliked. And it doesn’t hurt that, last year aside, Goldman’s financial performance has been fantastic. “Just look just at the numbers since David has been the CEO,” the person familiar with the board says. “Our stock price is up 50%. Our returns on equity are up. We’ve been the best- or second-best-performing firm on almost every metric since he’s been the CEO.” Mayo, the longtime analyst, reported in October that he’d had a conversation with Goldman’s lead director, Adebayo Ogunlesi. “In that meeting I was really wondering, how long is David Solomon going to stay around?” Mayo recalled. “Is it weeks or months? But the answer was years. There’s no question. In fact, the response was, why am I even asking the question?”
Ultimately, it’s the market that will determine how Solomon’s legacy is viewed. “Winning cures all,” Mayo says. “So if the capital market cycle turns and Goldman continues to gain share, then a lot of these stories will be in the rearview mirror.” By virtue of its M&A business, Goldman is still very much at the center of the Wall Street universe. “You’re not number one in advisory for 20 years in a row without having incredible relationships,” says Mayo. “You’re not gaining the most market share of anybody in capital markets without having a lot of mojo and sway and power.” As Solomon puts it, “We’re the middle of everything that matters in the world financially, and people like being a part of that.”
In the end, Solomon’s argument — that Goldman had to change to survive — is both an explanation and an excuse. It’s true. But if survival comes at the expense of the firm’s partnership, then Goldman is no longer Goldman. Throughout the firm’s many changes over the years, it’s the power and stability of its partnership, ultimately, that made Goldman special. The real trick of leadership is not choosing between a partnership or a corporation, but finding a way to profit from the benefits of both. If Goldman transforms itself into just another financial-services firm, why would anyone choose to work there instead of at Blackstone or Citadel, or even JPMorgan or Bank of America? And if the firm is no longer the most desirable place to work on Wall Street, then Goldman Sachs as we’ve known it is truly dead.
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Compounding the internal issue is the external one: the meteoric rise of private equity and hedge funds, which are siphoning talent away from Goldman. Solomon points out that talented people have always left Goldman, and by some measures, now is no different. But it’s clearly a major worry. “It’s a big, big issue,” says John Waldron, the firm’s chief operating officer. “And we’re spending a lot of time wrestling with how to navigate it. Because, with humility, we believe we have the best talent in our industry — and we can’t not have the best talent in our industry.”
I’ll confess I’m guilty of a certain nostalgia when I think about Goldman. It’s hard, despite the firm’s many flaws and misdeeds, not to look back with a degree of respect for the place that introduced me to the power, and the vagaries, of high finance. But I’m also guilty of a very dangerous, and very common, misperception: that the Wall Street of tomorrow will remain what it is today. It will not. The very first story I worked on when I started off in journalism in 1995 was about Lehman’s comeback as a stand-alone firm, after its spinoff from American Express. At the time, no one could have guessed that in little over a decade, Lehman and so many other financial giants would vanish into the ether. Today, as we approach the 25th anniversary of Goldman’s IPO, we’re also passing the quarter-century mark since the hedge fund Long-Term Capital Management imploded over its $4.6 billion in high-risk investments. Yes, at the moment it’s the big, market-moving hedge funds and private-equity firms, which now control vast swaths of American business, that are allowed to operate beyond the reach of regulators. But that financial ecosystem — like the ones that enabled Lehman and so many other failed institutions — will one day crash under the weight of its own excesses. And when it does, Goldman Sachs will still be here.
Nor is reinvention anything new for Goldman. The firm almost collapsed in the mid-1970s when Penn Central, for which Goldman had sold commercial paper, went bankrupt. In 1994, huge trading losses resulted in a mass exodus of partners, many of whom didn’t want to take the risk that their entire net worth would vanish if the firm failed. And there was the fight over the IPO, which helped lead to Corzine’s ouster. The firm has always managed to emerge from its internal battles, and its external challenges, as powerful as ever. Maybe it’s core DNA, in the end, is survival.
“It’s not the swashbuckling traders of old, and I do think there’s some lost romance there,” says Dees, my fellow analyst who now heads global banking and markets for Goldman. “There’s a lot of people who look and say, ‘Ah, that period of yesteryear where someone could put a trade on distressed credits in Thailand and make a billion dollars and beat his chest’ — I get it. But that’s not realistic. They’re nostalgic for a thing that can’t exist today at any bank, under the current regulatory system. This place is still about excellence. It’s just going to have to be in a different format.”
Goldman Sachs is dead. Long live Goldman Sachs.
Bethany McLean is a special correspondent at Insider.