Sideways: Goldman’s hidden losses

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By:
Jon Macaskill
Published on:

The recent disclosure that rare wine worth more than $1.2 million was stolen from Goldman Sachs co-president David Solomon, allegedly by a personal assistant, raises questions about which other Wall Street titans may have suffered the indignity of losses they would rather not discuss.

sideways
Solomon’s former assistant, Nicolas De-Meyer, is accused of pilfering wines such as Burgundy’s fabled Domaine de la Romanee-Conti and is said to have been dismissed in November 2016. 

In retrospect, that was around the time that Solomon’s boss, Goldman Sachs chief executive Lloyd Blankfein, seems to have lost his mojo.

Once the shock of the election of Donald Trump that month wore off, many expected market conditions that would make Goldman great again. Volatility seemed inevitable under Trump and when Blankfein’s increasingly impatient heir apparent Gary Cohn went to Washington as head of the National Economic Council, it appeared that contacts at the heart of government would help to guarantee that Goldman could monetize the Trump trade.

Sadly, it didn’t work out like that. Goldman stumbled from one trading blunder to another in 2017, with commodity and distressed debt mishaps compounding the effect of historically low market volatility. 

Blankfein suffered the indignity of seeing Morgan Stanley overtake Goldman in fixed income trading revenue during much of 2017 and then in early 2018 by stock market value, for the first time in over a decade. 

Morgan Stanley chief executive James Gorman has been oozing self-satisfaction at this trend, but has he too suffered an undisclosed loss? Gorman certainly seems to have mislaid his sense of humour many years ago, although perhaps it was surgically removed when he was a management consultant at McKinsey as a harsh but necessary step in navigating his way to the top.

Other Wall Street chiefs have been robbed of the ability to understand how their comments appear to regular mortals. JPMorgan CEO Jamie Dimon seemed to lose his sense of perspective when he described the London whale credit derivatives trading disaster – which eventually cost over $6.2 billion – as a “tempest in a teapot” in 2012, and if anything he has become more imperious in his public statements since then.

Contagious

This attitude may be contagious. Jes Staley, who was nominally in charge of JPMorgan’s investment bank when the London whale ran aground, has jeopardized his current tenure as chief executive of Barclays with a lunatic search to unmask a whistleblower, for example.

The disclosure of Solomon’s loss of some expensive wine has not had an immediate effect on his role at Goldman, but it may subtly alter the dynamics of the competition to succeed Blankfein as CEO. 

Solomon has been conducting a relatively open campaign to position himself as a more appealing and modern candidate for the succession than his co-president Harvey Schwartz. Articles have appeared detailing Solomon’s fun side, which includes mixing music at parties under the stage name ‘DJ D-Sol’. Nothing says approachable like spinning the tracks at an exclusive party for rich people! 

Schwartz, by contrast, is often described as a former bouncer with a black belt in karate, implying that he has an almost unhealthy appetite for competition.

Solomon’s latest incarnation, as a Wall Street guy so detached he does not initially notice he has lost over $1 million worth of wine, may push his party image too far and give an advantage to Schwartz, who is from a much less privileged background.

Charting a recovery from Goldman’s current malaise will be the main determinant of the succession to Blankfein, of course. Solomon’s background in the corporate finance businesses, such as M&A, that are performing well at the moment would seem to give him an advantage in this competition, compared with Schwartz’s track record in sales for the flailing trading arm.

But image is increasingly important as banks such as Goldman try to improve their mixed reputation with both clients and potential employees; so the battle for public perception should not be dismissed entirely.