Just over a week ago, on the evening of Dec. 7, Lloyd C. Blankfein hosted a reunion of one of the most elite clubs in American finance: former partners of Goldman Sachs, the Wall Street giant he has led, with remarkable and controversial success, since 2006.
The gathering, held at the venerable New York Athletic Club, both celebrated Goldman’s past and looked toward its future. What, Mr. Blankfein was asked, did he want his legacy to be?
Mr. Blankfein replied that like his predecessors, he hoped to position Goldman Sachs to capitalize on whatever opportunities might arise during his tenure. As bland as that might sound, few on or off Wall Street have seized opportunities in these troubled economic times as skillfully as Mr. Blankfein.
But as President Obama prods the financial industry to do more to help ordinary Americans — he chided “fat cat bankers” on Sunday for increasing their pay — some current and former Goldman executives say Mr. Blankfein has built a money machine that, while it still values its customers, culture and reputation, puts profits above all.
Interviews with nearly 20 current and former Goldman partners paint a portrait of a bank driven by hard-charging traders like Mr. Blankfein, who wager vast sums in world markets in hopes of quick profits. Discreet bankers who give advice to corporate clients and help them raise capital — once a major source of earnings for Goldman — have been eclipsed, these people said.
Mr. Blankfein has surrounded himself with a tight circle of executives drawn from Goldman’s trading operation. Many of these executives, like Mr. Blankfein, cut their teeth in the commodities division, J. Aron & Company. Gary D. Cohn, Goldman’s president, as well as the heads of the bank’s asset management division, are J. Aron alumni. So is the head of human resources.
With the traders ascendant, Goldman’s bankers are being urged to generate bigger profits. In what former partners called a significant shift, Goldman now uses “profiles” to track how much money its bankers are bringing in.
Granted, money is what makes Wall Street run, and Goldman Sachs is no exception.
“I don’t buy the argument that the old Goldman was more principled and less greedy,” said Arthur Levitt, a Goldman adviser and former chairman of the Securities and Exchange Commission.
But even Goldman concedes it is changing with the times. “This business is all about serving clients, and if you don’t evolve, you die,” said Lucas van Praag, a Goldman spokesman.
After first guiding Goldman through the near collapse of the nation’s financial system and then deftly extricating his bank from a federal bailout, Mr. Blankfein is now presiding over one of the richest periods in the bank’s 140-year history. Mr. Blankfein has accelerated a decade-long decline of Goldman’s old partnership ethos, which was built around the principle that its bankers and traders can do well — indeed, very well — while putting their customers first, former partners said.
Some Goldman alumni worry that Mr. Blankfein is jeopardizing the culture of success that defined the bank for much of its modern history. They wonder if Goldman will become, as one former partner put it, “just like every other bank on Wall Street” — that is, focused on short-term profits rather than long-term gains.
Publicly, Mr. Blankfein espouses the Goldman Sachs way. But privately, current and former partners say that he has fundamentally changed the way Goldman views its customers and the broader marketplace. The changes began when Goldman went public in the late 1990s, but have accelerated under Mr. Blankfein, they say.
None of these people were willing to speak out publicly about Goldman, which, for most of them, has been the source of sizable fortunes.
Bowing to pressure from shareholders and the public to rein in runaway pay on Wall Street, Goldman announced last week that its top executives, including Mr. Blankfein, would forgo cash bonuses this year. Instead, the executives will be paid in the form of special stock — an arrangement that, while eliminating big paydays this year, nonetheless may turn out to be enormously lucrative if Goldman’s share prices rises in the future.
Even so, many Goldman employees are stunned by the public resentment directed at the bank in general and Mr. Blankfein in particular, who, after first steadfastly defending Goldman’s profits and pay, recently offered a vague apology for “mistakes” that led to the financial crisis.
“Would John Weinberg ever be in this situation?” asked one former partner, referring to the legendary senior partner who ran Goldman for many years. “No way. He would have thought about the firm over 50, 100 years, not what people will get paid this year.”
Since the modern Goldman emerged during the Depression, its executives have cultivated a ruthless professionalism tempered by what might best be described as Goldman Sachs Exceptionalism: a sense that Goldman stands apart from, if not above, Wall Street rivals.
This sense, strengthened by a tradition of government service among senior executives, runs deep inside the bank’s headquarters at 85 Broad Street in Lower Manhattan. Indeed, from the day they arrive, employees are steeped in the firm’s 14 principles. No. 1 is: “Our clients’ interests always come first. Our experience shows that if we serve our clients well, our own success will follow.”
Almost from the start, however, two camps inside Goldman competed for profits and power: investment bankers and traders.
Today, the traders — Mr. Blankfein’s camp — are firmly in power. While Goldman employs nearly 31,000 people, in business ranging from money management to traditional investment banking, the bank makes the bulk of its money from trading. Mr. van Praag said 50 percent of Goldman’s revenue came from fees that it charged for services like investment banking. The other half is generated by Goldman, using its capital for itself and its clients. While Mr. Blankfein’s traders are minting money, his investment bankers are being pressed to keep a closer eye on the bottom line. Bankers who once spent years cultivating corporate clients in hopes of one day landing lucrative work like advising on a big merger, are now being urged to squeeze more revenue from their customers.
In 2006, Jon Winkelried, a Blankfein lieutenant who was then Goldman’s co-president, stunned some bankers by suggesting that the bank make more money from its powerful corporate customers. One goal was to have Goldman wear several hats in deals, for example, by advising on a merger, financing it and investing in the transaction.
Mr. Winkelried and executives under Mr. Blankfein changed the way investment bankers were measured. Goldman instituted banker “profiles,” a sort of daily profit and loss statement, to see how much business its employees and clients were doing. While such assessments have long been common elsewhere on Wall Street, Goldman disdained them until Mr. Blankfein became chairman and chief executive.
Mr. Winkelried, who has since left Goldman, declined to comment for this article.
The shift had two effects, Goldman bankers said: It focused employees on the customers who might generate the most money for Goldman, and it prompted bankers to fight more aggressively for credit for their deals.
“It was more efficient,” one former partner said. “But it changed the way we ran the business.”
Mr. van Praag, the Goldman spokesman, said that banker scorecards were traditionally used only for so-called relationship bankers, who cultivate customers over time. But starting in 2001, investment bankers became responsible for a wider array of products — debt, complicated securitized products, and other types of financing — and the new system kept a tally on all their activities, not just advisory work with clients.
The profiles update automatically with revenue tallies. Bankers may review them at any time.
Former partners said that while Goldman had always sought to maximize profits, the bank used to take a longer-term view. For instance, if a corporation that Goldman was advising decided against a merger, the bank would not necessarily drop the customer, figuring that it might reap profits from a deal in the future.
“You probably had a little more tolerance for longer-term perspective,” one former partner said.
Given Goldman’s plans to pay out billions of dollars in bonuses this year, many outsiders might think the bank pays little attention to its public image. In fact, current and former executives say, Goldman is acutely aware of its diminished public standing.
But even people close to Goldman acknowledge that as long as the bank is making a lot of money, public opinion does not matter all that much.
“Their reputation has suffered,” Mr. Levitt said. “So has every other financial institution. And I’d rather suffer the way Goldman suffers.”
Still, Goldman’s tarnished reputation has become a hot topic inside the bank. A few months ago, at a meeting of Goldman’s in-house leadership program, known as the Pine Street Group, the bank’s image came up. The group of 30-odd people wrestled with questions like how to talk to family members about Goldman and its role in the financial world.
Another question that came up was what to do if someone at a cocktail party started criticizing Goldman. Mr. van Praag, who ran the meeting, suggested that the executives should explain how Goldman made its money. But another Goldman executive offered a different answer: change the subject.