Goldman Sachs Ushers In New Era as Solomon Takes CEO Reins
(Bloomberg) -- It’s official at long last: David Solomon will inherit the crown from Lloyd Blankfein at Goldman Sachs Group Inc.
The news, announced Tuesday -- after more than a year of jockeying, choreography and speculation -- fully and finally sets in motion one of the most significant succession plays on Wall Street. On Oct. 1, just 76 days from now, Solomon will start running Goldman Sachs, which sits at the center of more concentric circles of money and power than perhaps any other firm in the industry.
Between now and then, Solomon has a freer hand in carrying out critical leadership changes that have been expected after Blankfein’s 12-year-run as the CEO. Even before Tuesday’s announcement, a shakeup in the trading division in May had insiders pointing to a more assertive role being played by Solomon.
This is only the second handover in Goldman’s two-decade run as a public company -- insiders and outsiders alike are calculating the winners and losers. Blankfein, for his part, isn’t going out near the bottom: He’s helped bring its vaunted trading division back to even footing after stumbles last year and leaves behind a firm that has made inroads into new and varied corners of finance.
Yet, for a man who has joked he would die at his desk, the transition has arrived sooner than even he might have expected.
“Today, I don’t want to retire from Goldman Sachs, but by my own perhaps convoluted logic, it feels like the right time,” Blankfein said in a note to staff. “It’s always been hard for me to imagine leaving. When times are tougher, you can’t leave. And, when times are better, you don’t want to leave.”
Blankfein, 63, has previously admitted that he’d have to give up the top spot before he was ready to move on, and has said that Solomon would benefit from more time in the president job.
"Once the process starts, you become a lame duck,” said Charles Peabody, a veteran banking analyst. “It’s hard to stay on and feel like you are a productive part of it after that.”
When Solomon, 56, does take over, he’ll be the oldest new leader at the firm in almost 50 years. Solomon is the fourth chief operating officer under Blankfein’s reign, with the previous three exiting the firm having seen their path to the top curtailed.
Blankfein will relinquish his role as chairman at the end of the year, which will also be taken on by Solomon. Solomon’s stature as the heir apparent was cemented in March, when the firm announced that he would become sole president while Harvey Schwartz -- his chief rival for the job -- would leave the company.
The handover is taking place as Goldman Sachs diversifies away from its trading operations, a traditional profit center, and pushes deeper into newer areas like consumer lending. The bank’s shares rallied after Donald Trump’s election on the hope of more trading activity and looser rules. That optimism has faded, with the firm’s shares dropping more than 9 percent this year, the most among major U.S. banks.
The change in the firm’s business was evident in the firm’s second-quarter results, also announced Tuesday morning. While trading revenue bounced back from a year earlier, that business accounted for about 38 percent of overall revenue, down from almost 70 percent in 2007.
Solomon joined Goldman Sachs as a partner shortly after the firm went public in 1999, and has since climbed the ranks through its investment-banking division. He ran that unit for a decade and led a push into debt underwriting, a business that had record revenue last year and contributed almost 10 percent of the firm’s total.
“I have competed against David Solomon many times as a banker for over 30 years, most often unsuccessfully," said Ken Moelis, a prominent dealmaker. “He is smart, focused and innovative but, most important, his integrity is unmatched. David is a brilliant choice to succeed Lloyd as CEO.”
Solomon grew up in Hartsdale, New York, and studied at Hamilton College. After a stint at Drexel Burnham Lambert Inc., which overlapped with Mike Milken’s time there, he rose to prominence at Bear Stearns Cos., where he helped run the junk-bond desk before being lured to Goldman Sachs.
Goldman Sachs adopted the status of a trading powerhouse in the early years of Blankfein’s tenure, earning the envy of competitors. But that changed in the aftermath of the global financial crisis, as the firm quickly became the poster child for Wall Street’s misdeeds in the eyes of the public.
That took a toll on Blankfein as he was hauled in front of congressional committees and was tasked with explaining Goldman Sachs’s actions during the crisis. Lawmakers lambasted the firm for taking steps to limit its losses from the housing rout, while continuing to sell mortgage-linked products. As the public continued to heap scorn on the firm, Goldman’s favorability ratings plummeted even among the financial elite. Blankfein, as the face of the firm, bore the brunt of the attacks.
“Lloyd successfully led Goldman Sachs through a once-in-a-75-year financial storm and its bitter aftermath,” said Hank Paulson, who was Blankfein’s predecessor before becoming U.S. Treasury secretary. “He has grown in stature to become an industry leader. His keen intellect and sense of humor have made him an effective spokesman for his industry and his firm.”
Since the crisis, the firm has had to lean more on its investment-banking group -- where Solomon hails from -- and less on the trading franchise. The trading division’s outsized money-making ability has been curtailed in the aftermath of the crisis under the weight of new regulations.
One of Solomon’s key decisions will be picking replacements for his current role. Candidates include John Waldron, co-head of investment banking, and Stephen Scherr, who leads the company’s consumer and commercial banking division.
And analysts and investors will keep a close eye on the resources he devotes to help the bank accomplish its target of identifying $5 billion in new revenue opportunities by 2020.
Solomon and Schwartz had been competing for a shot at the top job since being promoted to co-presidents in late 2016. That happened after Gary Cohn, Blankfein’s longtime No. 2, left to join President Donald Trump’s administration.
Solomon will likely be the first person to lead a major bank while flaunting his credentials as an electronic music disc jockey, a gig he has continued to embrace even after his status as heir-apparent was established back in March.
©2018 Bloomberg L.P.