What the heck is going on at Goldman Sachs

June 2024 ยท 4 minute read
2023-06-23T19:36:35Z

The bad news just keeps rolling in over at Goldman Sachs.

Here are some headlines from the past 36 hours:

Ouch.

Those headlines follow earlier reports from The Wall Street Journal, which stated Goldman Sachs is at war with itself, and reporting from The New York Times on CEO David Solomon's luxury real-estate side hustle.

Insider's own Dakin Campbell meanwhile has reported extensively on Solomon's use of the private jet, which has left bank insiders grumbling. Many, many high-profile partners have left (you can see our running list here), while some remaining partners have discussed complaining about Solomon to the board. 

There was the botched capital raise for Silicon Valley Bank, which was later seized by regulators. US authorities are now investigating Goldman's work for the California bank in the runup to its failure. And there were layoffs back in January. 

All in all, not a lot of uplifting news. So what the heck is going on?

Failed consumer strategy

Goldman Sachs has been forced into a hurried retreat from its big bet on consumer banking, exemplified by a sales process for GreenSky just two years after Goldman Sachs acquired it for $2.4 billion. Any writedown on that sale would add to billions in losses already booked on the push into consumer banking. 

The failure of that strategy has had two effects. First, insiders saw the losses and cost of loan loss reserves in consumer as offsetting outsized gains in other divisions like trading and investment banking. When Goldman Sachs cut the 2022 bonus pool for partners, leaving some top performers feeling short-changed, fingers were pointed at the consumer business. 

Second, it has dented Goldman's prestige brand. A firm that has historically been known as the elite of the elite has been criticized for flubbing a push to bank with customers like "Capable Dad."

The Economist put a fine point on this earlier this year when it ran a cover story titled "The humbling of Goldman Sachs." Goldman insiders were aghast when they saw it. 

DJ D-Sol's other interests

Then there's David Solomon. You don't get to be CEO of Goldman Sachs without having sharp elbows, but Solomon has gained a reputation for being especially prone to grouchiness.

That this trait would be held against a CEO in a mercenary, money-obsessed business might seem bizarre to those outside the Wall Street bubble. But Goldman Sachs' historic partnership model has given it a distinct culture, where these kinds of things matter.

Then there's Solomon's outside interests. His passion for DJing started out as a quirky hobby, but for some, it's become an annoying distraction.

And Solomon's involvement in luxury real-estate company Discovery Land Company led to some serious column inches in The New York Times, and later Air Mail, even though his investment is relatively small.

Big names are leaving

Goldman Sachs has been clear that the average tenure of partners has been going up, and that turnover is actually at a low. And it's true that Goldman partners have lots of opportunities available to them.

But the caliber of some of the people departing is striking: Dina Powell McCormick; Gregg Lemkau; Stephen Scherr; Eric Lane; Katie Koch, Fred Baba. These were all leading lights at the firm. 

The exits don't just represent talent lost. Lemkau, for example, has stuck up for Solomon's leadership since leaving the firm, but unhappy campers who exit could become powerful outside voices given the sway Goldman's alumni hold. Those who are aggrieved but remain at the firm can also make life difficult for Solomon. 

So what happens next?

Goldman's stock price performance has been solid. Solomon's supporters point out that he's been running the firm with the stockholders, not the partners, in mind, and that the strategy's working. The firm has continued to excel in its core strengths of investment banking and trading, while the money-management business is making strides. 

The Messenger's report this week that Solomon's position as CEO is in doubt and that he'd lost the support of power-behind-the-throne and board secretary John Rogers was met with a firm denial.

"There is absolutely no truth to this. It's complete nonsense. Anyone who knows John Rogers would understand that this is a lie. It is categorically false. Period," global head of communications of Tony Fratto told the publication. 

Whatever the truth is, it's clear that Goldman Sachs and David Solomon are going to remain in the headlines for some time. And that's sure to take a toll. 

Watch:

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