Can Goldman’s Trading ‘Rainmaker’ Bring Back the Glory Days?

(Bloomberg) -- He’s the last link to another era at Goldman Sachs, to the time when the traders ruled.

Now Ashok Varadhan confronts one of his most daunting challenges: helping restore Goldman’s trading operation, the bank’s long-time profit engine, to something resembling its former glory.

It’s a tall order even for Varadhan, a prodigy trader who catapulted from an associate at Goldman to become one of its elite partners in just four years. Many of the people who helped guide his rise are already gone. Few expected him to stick around this long.

One by one, the team that ran Goldman’s trading powerhouse under the firm's longtime leader, Lloyd Blankfein, has left in the most significant transition of power on Wall Street this decade. Under his successor, investment bankers now hold sway.

Varadhan, 47, is the last of Blankfein's trading lieutenants still there, left atop a division that, like rivals, has struggled in recent years with subdued markets. Many are watching to see how the former macro trader, now the business's most tenured leader, might help reinvigorate the $13 billion operation, which used to generate billions more.

This look at his journey through the trading division's best years, its later struggles, and the challenge that Varadhan faces is based on interviews with more than a dozen associates. Some predict conditions in global markets may finally be ripe to give Goldman Sachs Group Inc., known for profiting in turmoil, a lift.

“He has a very good feel for markets,” said Stan Druckenmiller, one of the most renowned macro investors. “I have a lot of respect for his work. Macro hasn’t had the opportunities in the last few years, but these things go in cycles and it will return.”

For all of Goldman’s flirtations with new lines of business, such as lending to consumers, a revival of the trading group probably has the most potential to boost the firm’s depressed stock price in the near term. It's Varadhan’s experience — as someone who understands both risks and trends — that his new boss is counting on.

“When I need to know how markets will react to big macro-economic events, Ashok is my first call,” said Chief Executive Officer David Solomon.

Bleecker Street

A story that has long wound its way around Goldman Sachs is of the Monday-morning huddle of its powerful management committee. As it goes, every time the discussion turned to India, Blankfein would cast an eye toward Varadhan, prompting exasperation from his protege: “Don’t look at me, I’m from Bleecker Street!’’

The son of two acclaimed instructors at New York University, Varadhan has spent almost all of his life in New York City. His father still holds the distinction of being the more famous Varadhan — recipient of the Abel Prize, a top mathematics honor modeled on the Nobel Prize. He also received special recognition from President Barack Obama in 2011.

The younger Varadhan attended Duke University, where he also had the unglamorous role of a manager on its famed basketball team. It was a period that yielded two championships for the Blue Devils, as well as the famous buzzer beater to beat Kentucky in 1992. He can still be seen in clips bounding off the sideline, clipboard in hand, flinging himself on top of a heap of players celebrating Christian Laettner's shot.

“Even though he was on the team for four years, he’s never left,” said Mike Krzyzewski, known as Coach K. “I love the fact that he still gets so emotionally involved with our basketball program.”

Coach K, the legendary coach of the Duke team, still counts Varadhan as a special friend.

The Duke grad might well have been headed toward a career in academia were it not for a tug from his brother, Gopal, who’d tasted success on Wall Street. Still early in his own career as a macro trader, Gopal lured his younger brother to come along. Varadhan made his mark at Merrill Lynch & Co. And then came a fortuitous opening at Goldman Sachs in New York, just as trader Chris Rokos was setting out from the bank in London. Rokos eventually went on to become a billionaire hedge fund investor.

Varadhan interviewed with a pair of senior Goldman executives including Tom Montag (now Bank of America’s No. 2 man) over a ham sandwich, and spoke with then-CEO Jon Corzine. With the newfangled market for derivatives about to explode on Wall Street, the bank offered the 25-year-old more than $1 million in guaranteed pay when he joined in 1998.

“It was a mind-boggling sum for an associate,” said Michael Karp, a veteran recruiter who was involved in the process.  “But he was the right man for the job.”

In his first six months as an associate, the brash young trader with a penchant for big bets raked in more than $300 million in gains.

Brother’s Call

Three years into his tenure, when Goldman was still in its old digs at 85 Broad St., Varadhan got a call at his desk from his brother, who was just a few weeks into his new role at Cantor Fitzgerald.

It was Sept. 11, 2001, and the first plane had just struck the World Trade Center below Cantor’s headquarters. It would be the last time they spoke. Gopal was among the 658 people at Cantor who lost their lives in the terrorist attack.

“It was a vulnerable moment for him,” said Stacy Bash-Polley, a veteran Goldman trading executive who was with Ashok Varadhan that day and left the firm late last year. “The senior management embraced Ashok. The firm cared for him and not just as someone who made them a lot of money.”

For Varadhan, work became something of an escape.

The `Rainmaker’

Goldman Sachs was just embarking on the most prosperous era in its history. Hedge funds and other large clients were starting to use derivatives as tools for managing risk on their books, and Varadhan was constantly showing up on the other side of those trades.

In the years that followed, Goldman Sachs enjoyed unprecedented success trading interest-rate products and currencies, with his desk pulling in billions of dollars. He emerged as one of the company’s most highly compensated traders.

“Ashok’s accomplishments as a rainmaker in his professional life are the stuff of legend at Goldman,” Ram Sundaram, a senior Goldman trading executive, said at an event last year. He went on to give him the moniker “Legend of Bleecker Street.”

Even as he climbed to the heights of Wall Street, the Indian-American executive still has encounters that are rare among Goldman's top ranks. When driving up for a private flight at Teterboro – the getaway airport for the wealthy near New York – workers often ask if he’s there to pick someone up or drop them off.

Recent years have been taxing inside Goldman Sachs. Revenue from fixed-income trading, which once drove the bank’s profit to a Wall Street record, has slumped to less than $6 billion from roughly $10 billion in 2012. And then there’s been the turnover.

The Defections

Two of Blankfein’s longtime deputies, Michael Sherwood and Gary Cohn, announced they were leaving at the close of 2016, with Cohn joining President Donald Trump’s new administration in Washington. Executives were starting to wonder when Blankfein would finally pick an heir, and that left some thinking about their own next career moves. Varadhan himself was looking elsewhere.

Billionaire investor Izzy Englander had lost a top lieutenant around the same time and was looking to fill the void. Varadhan made the shortlist.

Varadhan’s willingness to mull it over sparked anger from Blankfein, who was forced to plead patience that year with more than one of his senior executives eyeing an exit.

The changes atop Goldman soon became irreversible.

In early 2018, Harvey Schwartz, long seen as a leading contender to succeed Blankfein, stepped down. It was growing increasingly clear that Solomon was the favorite to become the bank’s next leader. Soon, he would start elevating colleagues from his investment-banking unit, which advises companies on deals. By that May, several weeks before the board formally disclosed its decision to elevate Solomon to CEO, Varadhan’s trading division co-heads — Pablo Salame and Isabelle Ealet — announced they were leaving, catching many at Goldman by surprise.

On an evening out with some of his top traders a few weeks later, Varadhan joked he couldn’t believe the pair left before him.

That sentiment would echo inside Goldman. In conversations last year, many at Goldman wondered when Varadhan might leave too. That speculation has since abated, for now.

`Standing Guard’

Solomon has rejiggered the trading division in a way that probably gives Varadhan more sway in decisions on taking risks. And one of the firm’s biggest trading partners explains why that makes sense.

“Not many folks I take note of and listen to, but when he’s talking about the macro environment, I put my pencil down and listen,” Jim Zelter, a co-president at Apollo Global Management, said of Varadhan.

To further reshape Goldman’s trading division, Solomon selected two executives to join Varadhan atop the group. The bank’s chief financial officer, Marty Chavez, was assigned to enhance its technology — a key objective for the firm. The third leader, longtime syndicate banker Jim Esposito, has been touted for his sales touch. Varadhan remains the only head cut from the trading cloth.

Some within Goldman hope he comes to be seen as one of Solomon’s people, rather than just Blankfein’s.

“I’ve never thought of Ashok as the old guard,” said Stephen Scherr, who took over as CFO. “I consider him a part of the standing guard. He got an opportunity to step up and lead, and he’s embraced it.”

--With assistance from Amanda L Gordon, Stephanie Davidson and Melissa Karsh.

To contact the editor responsible for this story: Michael J Moore at mmoore55@bloomberg.net, David ScheerDan Reichl

©2019 Bloomberg L.P.