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The humbling of Goldman Sachs
LAUGHTER. You could hear it above the noise of traffic in Manhattan last month. Goldman Sachs had sweated bullets to deliver its first-ever investor day. Rival bankers were tickled, not terrified. "Is that all they've got?" chuckled one. The pitch, led by chief executive David Solomon, was as slick as any Apple product launch. But the modesty of ambition - for group earnings to exceed capital costs by a few percentage points - signalled how badly the bank's fortunes have waned.
In the noughties, Goldman Sachs figured as the world's most powerful investment bank. Heads of state courted its bosses. Its share rating was stratospheric. During the financial crisis, hostility supplanted awe. The bank was "a great vampire squid, wrapped around the face of humanity", raged Rolling Stone journalist Matt Taibbi.
The piece could have been written by Hunter S Thompson, if the gonzo journalist had been taking economics classes, not acid. But, like its subject, Mr Taibbi's polemic has not aged well. It implied that Goldman was special in its ardour for networking and skimming rents from asset bubbles, the common pursuits of bankers for centuries. Moreover, Mr Taibbi's fear that nothing would change has been proved wrong.
Regulated lenders, which was what Goldman became in 2008, have since paid a penalty for any bailouts they received. Ever-rising balance sheet buffers are the reason Goldman's securities trading business now drags on returns. Goldman has the smallest market worth of its peers. But critics still equate it with global capital: omnipresent, calculating, amoral. The downside to that became clear in 2016 when British MPs publicly roasted Michael "Woody" Sherwood, Goldman's most prominent British boss. His involvement in Philip Green's controversial sale of failing retailer BHS had been peripheral, but he ended up stepping down all the same.
More damagingly, Tim Leissner, another former partner, pleaded guilty in 2018 to helping fixer Jho Low loot billions from 1MDB, a Malaysian wealth fund. While there is no suggestion of wrongdoing by Goldman, both cases reinforced suspicions its bankers depend on connections to make money.
In fact, all bankers seek to win franchises and befriend the powerful. A legacy of partnership gives Goldman executives a special advantage. The group became a quoted company in 1999, but it still appoints a privileged tier of "partners". After a decade or so of elite toil, many take prestigious external jobs. They constitute an influence network as formidable as McKinsey's.
Goldman has an enviable lead in corporate finance advice, where contacts are vital. The bank topped league tables for handling takeovers and US flotations compiled by Dealogic last year. It has a strong position in technology deals. Last week, tech bros flocked to Goldman's annual San Francisco conference at the swanky Palace Hotel. "It's a super-exciting time for engineers at the firm," said co-chief information officer George Lee.
An affinity with Silicon Valley, and a big fund management arm, are not enough to save Goldman from an ignominiously low share rating. JPMorgan, which has hefty scale in retail, commercial and investment banking, is rated twice as highly. Goldman's diversification strategy is "spray and pray", carps one critic. It is pushing into areas such as personal banking, where it is a minnow to such leviathans as Bank of America and Chase.
'VAMPIRE SQUID' METAPHOR
Goldman's influence engine is also losing traction. Alumni are either going or gone from the top jobs at the US's National Economic Council, the European Central Bank and the Bank of England. The book that former Goldman CEO Henry Paulson wrote about his campaign to cosy up to China's authoritarian leaders reads queasily these days. But so does the "vampire squid" metaphor. For caricaturists, interfering octopi have personified communism, colonialism - and Jewish-founded businesses like Goldman, against which hate has proliferated this decade.
Such bigotry is wholly despicable. But there is less to deplore in Goldman's loss of status on Wall Street, even for its executives. If the business had truly been able to manipulate capitalism's casino rules, it would not be languishing. Instead, it has been prosaically handicapped by post-crisis curbs.
Pre-eminence breeds complacency, as the cases of GE and Boeing have shown. Better to be a challenger, as long as your business is financially robust. "For too long we were in denial about being a bank," said one insider. No longer. Running savings accounts and lending to small online vendors could turn into a decent business. Meanwhile, big branch networks will handicap rivals if retail banking digitises heavily.
Mr Solomon's task is to make a business that once reeked of entitlement feel like a scrappy outsider. That should be easier than it seems. Such quirks as calling support staff "the federation" suggest an institution as imbued with elite history as Eton College. Instead, Goldman only elbowed its way into Wall Street's front rank in the 1970s.
Goldman executives now have reason to hustle hard again. The laughter of rivals will only matter if it persists. For the moment it is Mr Solomon's greatest asset in motivating his staff. FT