Skip to content
Business

Goldman Sachs’s Year of Frantic Upheaval and Same Old Problems

Goldman Sachs’s Year of Frantic Upheaval and Same Old Problems

  • CEO Solomon overhauled team, now investors await new strategy
  • ‘There’s a bigger transformation occurring’ than at any rival
David Solomon
David Solomon

Source: Bloomberg

David Solomon

Source: Bloomberg

David Solomon was zipping through the Outer Banks in an Infiniti SUV when he was pulled over on a scenic byway connecting one island to the next. The Goldman Sachs chief was dinged for going too fast.

In some ways, that moment in June is symbolic of Solomon’s year behind the wheel of Wall Street’s premier investment bank. The 57-year-old is moving at a rapid clip -- shrinking its roster of elite partners, overhauling management ranks and shaking up the structure of businesses -- upsetting some attached to the old Goldman way.

The traffic stop in North Carolina was easy to resolve. It will take a lot more effort to reassure investors and analysts watching his frenetic pace but still unclear on what vision he’s chasing one year into the top job.

Investors and the public are still focused on three things: the fallout from a global corruption scandal, the struggle to revive the firm’s trading unit, and whether a fledgling consumer business will grow from a curiosity into a force.

Solomon’s second year will be a test of whether he can address those -- and give shareholders a new reason to get excited.

He declined to be interviewed for this story.

Analysts estimate he reached the first-year mark with revenue down 1.7% from the previous 12 months. The stock has slipped almost 8%, making it the worst performer among the five biggest U.S. banks. Goldman Sachs Group Inc. is now the only big U.S. bank trading below tangible book value -- what the company estimates its pieces would fetch in liquidation.

Even a year into the job, personnel upheaval remains a constant topic with long-tenured executives departing and thinning the partnership, a throwback to the firm’s days before becoming a publicly traded company.

Goldman underperformed other U.S. banks in Solomon's first year

Solomon is irked by the perception of a feuding family. He’s argued privately it’s no different from when Lloyd Blankfein was installed as the leader more than a decade ago, according to colleagues.

“Two Hundred West has been compared to ‘Game of Thrones’ for as long as I can remember,” said Brennan Hawken, an analyst at UBS Group AG, referring to Goldman’s headquarters. “Successful investment-banking franchises are not warm and fuzzy places. But the magnitude of the turnover has been more than I expected.”

Two senior decision-makers at the firm said it’s less a drama, and more an exercise in pragmatism. Some deadwood needed to be cleared, one said.

Slow to Change

In July, the firm’s president, John Waldron, hosted a dinner for a select group of clients. A lot of the conversation was spent describing how old management was slow to make changes, according to one prominent investor in the room, who asked not to be identified discussing the private event. Goldman’s new team guaranteed they’re rolling out fixes.

Solomon is expected to unveil a fresh multi-year strategy to investors early next year.

“There’s a bigger transformation occurring at Goldman Sachs today than any other large financial firm,” said Devin Ryan, an analyst with JMP Securities. “We have to be patient.”

Solomon cuts a contrasting figure to Blankfein, who came to be known for his backslapping and wry humor while running the firm. The successor has developed a reputation for a more clinical and exacting style. One former colleague recalled how Solomon in his early years would jokingly repeat a line made famous by Gordon Gekko: “If you need a friend, get a dog.”

The CEO is also pushing for more transparency and frequent communication with his 36,000-strong workforce. He’s toyed with the idea of disbanding the offices of the firm’s senior management from their 41st-floor perch in Manhattan and have them sit closer to the nerve center of the various business lines.

No Honeymoon

Solomon didn’t get the honeymoon period that some new CEOs enjoy.

Within weeks of his ascent, the firm’s controversial dealings with Malaysia’s 1MDB investment fund spiraled into a much larger scandal as the Department of Justice unveiled indictments alleging employees at Goldman were more deeply involved than previously known.

That immediately caused the stock to break from its peers, a divergence that’s held. The bank has been trying to resolve what’s become one of its ugliest scandals in a generation, but U.S. authorities and the Malaysian government hold more sway over the timing of any settlement. Meantime, the delay only serves to unnerve observers and ratchet up public scrutiny of the clients Goldman takes in, as well as the work it does for them.

Solomon has been preaching the ideal of client primacy. He wants big investors and corporations to trust Goldman enough to use it as a one-stop shop. To emphasize that shift, he’s given important roles to some of the firm’s top investment bankers across divisions.

That’s a strategy that has doubters among the firm’s illustrious alumni. Two former members of the C-suite privately vent that disbursing investment bankers to other jobs won’t help grow businesses.

Sons of Anarchy

Solomon has embraced the consumer-banking push initiated by Blankfein, and how that effort develops will probably help define his legacy. It goes to the heart of his goal to create a more diversified firm that can count on more than just trading and dealmaking for the bulk of its revenue.

The foray into new areas of banking has been sucking up a lot of cash -- more than $1 billion so far, according to the latest earnings call. Solomon has said the division will grow to become one of the firm’s pillars but needs to be given a longer runway. It already has millions of customers and recently launched a flashy titanium credit card in a partnership with Apple Inc.

In other areas, he’s collated the firm’s disparate investing efforts in one place to give the business more clarity. He’s also seeking to turbo-charge asset and wealth management with acquisitions and product lines.

Despite the many moving pieces, he’s been finding a little weekend downtime. Solomon spent some of it bingeing on “Sons of Anarchy” -- a show about an outlaw biking club searching for a fresh identity.

— With assistance by Shahien Nasiripour, Stephanie Davidson, and Amanda L Gordon