Goldman Sachs Has a Year It Wishes It Could Forget


Photograph by Akshar Dave

Eleven months ago, Goldman Sachs' then-chief executive Lloyd Blankfein sat down with Barron's and outlined the bank's plan to continue to diversify its business mix while boosting results in the once-swaggering but now denuded fixed-income, currency, and commodities trading unit.

In the almost one year since, things have not gone as the bank might have hoped. The competition to succeed Blankfein, after moving, some of his underlings might say, at a glacial pace for years, seemed to happen all at once; a reputation-damaging fraud scandal has tarnished the image the bank spent so much time and energy trying to repair; and the company's stock has slid 37% this year through Dec. 21, putting it on pace to be the worst-performing stock in the Dow Jones Industrial Average.

Who, exactly, would replace Blankfein has been the focus of reporting and speculation seemingly since the day he himself rose to the top spot in 2006. At that time, Gary Cohn and Jon Winkelried were co-chief operating officers, effective deputies, and the most obvious successors. Winkelried, however, left the firm in 2009 (he is currently the co-CEO of private equity giant TPG), leaving Cohn as the obvious heir.

Cohn left, however, for the Trump administration in 2016 and a new bake-off between David Solomon, a leader of the bank's investment banking division, and Harvey Schwartz, who had been the CFO and run the bank's trading business, ensued.

The competition came to a head when, after a little more than a year into his role as co-COO, Schwartz pressed the board, wanting to know if he would be chosen as CEO. He got the answer anyone competitive enough to rise that high at Goldman would be loath to hear and left the bank abruptly. David Solomon took over as CEO in October.

And quickly, things started to heat up. A couple of months later, the bank was in the middle of its biggest legal and reputational crisis since the financial crisis. The cause? Three bond deals, totaling $6.5 billion, done in 2012 and 2013 for a Malaysian sovereign-wealth fund called 1MDB. Goldman underwrote the bonds and reaped an astounding $600 million in fees from the transactions, which normally would have pulled in a tiny fraction of that amount.

On November 1, the Justice Department unsealed charges against two ex-Goldman bankers and Jho Low, who effectively ran 1MDB, alleging that more than $2.7 billion of the money raised by 1MDB had been siphoned off to pay bribes and buy things like real estate, yachts, private jets, and handbags. One of the bankers charged, Tim Leissner, pleaded guilty and is awaiting sentencing. Leissner is a former partner and chairman of the bank's Southeast Asia business.

Goldman Sachs denies wrongdoing and stresses that Leissner and Low went to extreme lengths-burner phones and code words-to evade compliance controls. On the other hand, Leissner said in his plea statement that evading compliance was part of the culture at the bank.

Investigations by the Justice Department, Securities and Exchange Commission and the New York State Department of Financial Services are ongoing.

All this, plus the grab bag of worries that have hit Goldman's competitors, have weighed heavily on the bank's shares. Goldman stock is down 34% since the charges were unsealed and has given up the entirety of its post-2016 election "Trump bump." And it is fairly clear that Goldman will have to get to the other side of the 1MDB legal issues before it can hope to gain that back.

Write to Ben Walsh at

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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