There may be no winners in the battle for Goldman Sachs
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Opinion

There may be no winners in the battle for Goldman Sachs

The manner of the campaign against chief executive David Solomon risks causing the lasting damage that his internal opponents presumably wish to avoid.

Mark Baker on investment banking 1920px

Goldman-bashing: it is the game that never ends. At Euromoney, we have been known to indulge in it over the decades – most notably in 1993, of course, but also more recently here, here and here. At the same time, we have also recognised the firm’s persistent excellence in its core business of investment banking, naming it the world’s best in 2020 and in 2022.

Poking Goldman Sachs with a stick has always been an activity that in part reflects the pre-eminence of the franchise. And until now it has been easy to assume that Goldman bankers have always worn the sniping as a badge of honour, the target on their backs proof that they are well ahead of the pack.

But there are two things that make the current spate of poisonous briefings unusual. One: their highly targeted nature, attacking chief executive David Solomon as much – or more so – for the kind of person he is as for the strategic decisions he has made. And two: that much of the criticism is emerging from within the camp rather than from jealous rivals without.

Solomon’s enemies are inside the tent and pissing in.

That is a difficult look to pull off for long. On the face of it, the first of these concerns is perhaps more perplexing than the second, for the simple reason that the case against Solomon’s strategy is mounting enough to make the ad hominem route to getting rid of him odd.

The reversal of direction on consumer banking in general was already an embarrassing admission that the firm had gone down the wrong path. The planned sale of online lender GreenSky – which Goldman had bought as recently as 2021 and will book a big loss on – was another. And this week the bank confirmed reports that it is considering selling the personal investment advisory business that it bought in 2019.

One might have expected Solomon’s opponents to take the gloves off only when there was no other possible conduit for their criticism

The consumer banking foray had already begun under Solomon’s predecessor, Lloyd Blankfein, but the latter two moves were very much on Solomon’s watch.

On top of that, there has been a succession of senior departures, including most recently Julian Salisbury, the well-respected chief investment officer of the asset and wealth management division that was supposed to be a key part of the revenue diversification strategy.

Equity analyst Mike Mayo at Wells Fargo thinks that Goldman’s performance doesn’t yet justify ditching its CEO – he reckons the noise the market is hearing right now is largely down to Goldman traders who don’t like the fact their still-substantial pay is not as substantial as it has been in the past.

He told Bloomberg Television last week that Goldman shares would likely fall if Solomon were fired, because it would show the bank was running the company in response to media coverage rather than financials.

Mayo is not one to shrink from a fight with Solomon – as illustrated by his “the good, the bad and the ugly” dissection of Goldman’s performance at this year’s investor day – and he makes a fair point here. But it is surely also true that the momentum must be shifting away from Solomon.

After all, Goldman’s profits over the last 12 months have fallen by more than Morgan Stanley’s, and now sit behind its great rival. And even if the financials are not cratering, Goldman’s shareholders and its board must also consider the opportunities and returns missed by having indulged its adventures into decidedly non-Goldman areas.

Losing the room

That is not to say that the focus on personality hasn’t been tremendously diverting. Who doesn’t want to hear about bankers calling other bankers jerks? The latest barrage, courtesy of New York Magazine’s wonderfully damning portrait of Solomon, has been compelling.

There has also been much comment about how Solomon marks the first break from a Goldman chief executive brought up amid the supposedly more collegiate partnership approach that prevailed before the firm went public in 1999 – although that characterization of the past might come as a surprise to some of the firm’s longer-serving bankers.

Solomon joined in the year that Goldman held its IPO, and still joined as a partner – Goldman, like many of its ilk, retained many of the trappings of partnership even after that was no longer a real thing. In the early days of being listed, many of its bankers thought of the firm much as they had done before, seeing its new shareholders as a curiosity rather than fellow owners of the shop.

How far does that attitude still prevail, and how much does it fuel the resentment of a CEO that isn’t cut from quite the same cloth?

What might seem odd is that it is only now that the lustre is coming off Goldman’s reputation for strategy and financial performance that the personal attacks are coming thick and fast. After all, one might have expected Solomon’s opponents to take the gloves off only when there was no other possible conduit for their criticism.

Those who would rather see Solomon gone and are prepared to dish dirt on him to do so may feel they are doing the firm a favour in the long run

For some observers, the explanation is the reverse: the commercial missteps are being taken as a licence to uncork all those bottled-up emotions about the boss that Goldmanites seem to have been suppressing for years. Now at last can they give full vent to their fury over the DJ gigs and the private jet trips.

Those who would rather see Solomon gone and are prepared to dish dirt on him to do so may feel they are doing the firm a favour in the long run – and it is also notable that third parties like the students of Hamilton College, NY, share in the dislike of Solomon that some of his own staff have expressed.

The substantive point may be the existence of the internal backlash in the first place, an approach that may ironically be providing stronger evidence that the Goldman of old is being irretrievably lost than anything in a quarterly earnings announcement ever could.

Back in 2020, at the time of Goldman’s first investor day, there was a heavy focus on heritage – where Goldman had come from, the persistence of its business principles, its DNA. The strategy being outlined, investors were assured, would not jeopardise that heritage.

At the time, we reached a different conclusion: that the firm’s change of direction in fact marked the end of what had made Goldman special, its stubborn adherence to a pure-play model of investment banking, executed in the firm’s idiosyncratic way, and with a self-confidence that dispensed with the need to justify its approach.

The public unravelling of Goldman’s image now looks like more of the same. For some, the calculation has obviously been that Solomon in post is more corrosive to Goldman’s business than the messy campaign to oust him will be.

For Solomon himself, the problem is a fundamental one – other people’s confidence, or the lack of it. If he didn’t already know it, he will now be realising that in this regard bank chief executives are indistinguishable from banks, their survival subject to the same fractional reserve risk that was so amply demonstrated in March this year.

If a few withdraw their confidence in you, you can tough it out. But if everyone does it at the same time, you’re finished.

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