Seeking Clues in Goldman's Succession Plan
From the canyons of Wall Street to the City of London and beyond to Hong Kong, an intense guessing-game has begun: who will succeed Lloyd C. Blankfein when he eventually steps aside as chief executive of Goldman Sachs?
The speculation may be more than idle gossip for bored bankers. Two friends of Mr. Blankfein, 56, say he has told them since last summer that he is exhausted from leading the company through the financial crisis and that he would consider stepping down when he could do so gracefully, without the move appearing to be anything but voluntary.
The choice of Goldman’s next chief could signal the firm’s direction and influence the broader thinking on Wall Street, where Goldman often sets the tone.
For decades, Goldman’s leaders came from its investment banking unit, which provided business strategy and merger advice to blue-chip companies. Mr. Blankfein, in contrast, was a commodities trader, and his ascension furthered the company’s makeover as a trading powerhouse.
To be sure, Mr. Blankfein may decide to stay a while, despite the chatter to the contrary. And as far as Goldman is concerned, Mr. Blankfein is not going anywhere. A spokesman for the firm, Lucas van Praag, declined to comment other than to note that Mr. Blankfein “says he has never felt so energetic and has no plans to retire.”
Even with its reputation tarnishedby a Securities and Exchange Commission lawsuit last year, Goldman remains the world’s most powerful investment bank, with its own mystique on Wall Street. It is a training ground for government officials and hedge fund managers alike, and its powerful alumni network extends its influence.
While other eminent financial companies, like Merrill Lynch, were crushed by the collapse of housing prices and lost of tens of billions with a wager on subprime mortgage debt, Goldman actually spotted the threat early and made a bet against the housing market, racking up sizable gains.
Even as its traditional archrival Morgan Stanley struggles with a stagnant stock price, Goldman shares are up more than 20 percent over the last two years. When Goldman reports earnings Tuesday, analysts expect a profit of about $443 million, according to a consensus estimate from Thomson Reuters, although the latest results will be depressed by the bank’s plans to repurchase Warren E. Buffett’s $5 billion investment.
Like George Steinbrenner in his stewardship of the New York Yankees, whoever is at the top of Goldman cuts an outsize figure among peers. Two recent chiefs — Robert E. Rubin and Henry M. Paulson Jr. — went on to become secretary of the Treasury, and another, Jon S. Corzine, later was a senator from New Jersey, and then governor of the state.
What is more, Mr. Blankfein, who assumed the top job in 2006, is one of only two chief executives of major banks who were at the helm before the financial crisis and remain in charge today. Jamie Dimon of JPMorgan Chase is the other.
The top candidates to succeed Mr. Blankfein, according to three people briefed on the situation, are all company veterans, and they illustrate Goldman’s global reach.
One of them, Michael S. Sherwood, is British and oversees a broad swath of the firm’s international business from London. Another, J. Michael Evans, a Canadian and winner of an Olympic gold medal in rowing, is chairman of Goldman’s Asian business. (Mr. Sherwood and Mr. Evans are both vice chairmen of the firm.)
The final contender, Gary D. Cohn, Goldman’s president and chief operating officer, is Mr. Blankfein’s top deputy in New York.
No favorite seems clear, but that is not unusual at Goldman. Several former partners and analysts said they would be surprised to see an outsider selected. And whether or not Mr. Blankfein leaves soon — his urgency seems to have faded with the passing of the storm around Goldman, two people close to him said — he has been there long enough to justify focusing on a succession plan, analysts said.
Roger Freeman, a financial analyst at Barclays Capital, said Mr. Blankfein might wait to see his firm through the final negotiations with Washington over new regulatory rules for the banking industry in the second half of 2011, before handing Goldman to a younger team in 2012. “This has been an exhausting period,” Mr. Freeman said. “It would not be a surprising time to see a change.”
As the economy stumbled, Goldman’s success brought harsh public criticism, as lawmakers and even some clients complained that Goldman was no longer putting clients first.
That argument gained strength after the Securities and Exchange Commission accused Goldman of fraud last April in connection with a mortgage security it had created and sold. Goldman settled the case last July, paying a penalty of $550 million.
While the firm is clearly doing well, the public ire persists, especially in Washington. On Wednesday, after issuing a report examining the roots of the financial crisis, Senator Carl Levin of Michigan was sharply critical of Goldman’s bet against housing. “Why would Goldman deny what was so obvious, that they were engaged in a huge short in the year 2007?” Senator Levin said. “Because they gained at the expense of their clients and they used abusive practices to do it.”
All three leading candidates for the top job at Goldman have trading backgrounds but only Mr. Cohn took on a public role for the firm in the wake of the crisis.
As Goldman’s president since 2006, he was called to testify before the Financial Crisis Inquiry Commission last summer, and he has spoken out to defend the bank. Mr. Cohn, 50, is also the closest of the three to Mr. Blankfein, having worked with him since 1990, when Mr. Cohn joined the firm as a trader of precious metals. He made his mark a decade ago by turning around Goldman’s trading operations and expanding the mortgage business.
Some analysts said, however, that Mr. Cohn seems too closely connected to the crisis. They added that he lacks the smooth, statesmanlike approach Goldman may now need, though he gets credit for improving his presentation skills in recent years.
Mr. Sherwood, known to friends as Woody, is in a position that bears more similarities to where Mr. Blankfein was before he assumed the top job.
Mr. Sherwood is not only well liked, but also has deep knowledge of both the fixed-income and equities businesses — making him an expert in the areas where Goldman makes the most money. He would presumably move to New York, if he took the job.
One mark against Mr. Sherwood, say former Goldman partners, is his role in pushing Goldman into a 2008 deal with a petrochemical company, LyondellBasell, that ended up being a major money loser. Mr. Sherwood, 45, and Mr. Evans, 53, have known each other for nearly 20 years. They were part of the same Goldman partnership class in 1994. And they were co-heads of Goldman’s securities business from 2003 until promotions in 2008.
Mr. Evans is a more able showman and salesman than Mr. Sherwood or Mr. Cohn. But mentions of him in several media reports last fall as a possible successor alienated other Goldman executives, including Mr. Cohn and Mr. Blankfein, say two people who know them. Some wealthy Asian clients of Goldman are also said to be angry with Mr. Evans because his division was responsible for selling them structured finance investments that later performed poorly.
With the turmoil of last summer behind him, Mr. Blankfein may simply be weighing his options. “I have heard some people at the company talk about it being a five-to-seven-year type of job, and he is getting in that range now, but I don’t sense any urgency,” said Glenn Schorr, banking analyst at Nomura.
It is possible, of course, that Goldman will look beyond the top three candidates to find an heir.
That is exactly what Mr. Blankfein’s predecessor, Mr. Paulson, did when he bypassed the two leading contenders, John L. Thornton and John A. Thain, and promoted Mr. Blankfein in 2004 to the heir-apparent position. Some more junior candidates that analysts mention are: David M. Solomon, who is co-head of investment banking; and David B. Heller and Harvey M. Schwartz, co-heads of Goldman’s securities division.