Goldman Anoints Heir to Blankfein -- WSJ

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03/13/2018 | 07:47 am
Lloyd Blankfein

By Liz Hoffman

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (March 13, 2018).

David Solomon became the heir apparent at Goldman Sachs Group Inc. Monday after his main rival for the top job abruptly resigned, moves that show the Wall Street powerhouse is continuing to move beyond its trading roots.

The surprise announcement came after Goldman's board of directors last month anointed Mr. Solomon as the eventual successor to current Chief Executive Lloyd Blankfein, over co-President Harvey Schwartz, according to people familiar with the matter.

The Wall Street Journal reported last week that Mr. Blankfein could retire as soon as year-end, though he remains firmly in control of his exit. Messrs. Schwartz, 54, and Solomon, 56, who were jointly elevated to the No. 2 role in December 2016, were the top contenders to succeed him.

The two hail from different parts of the firm. Mr. Solomon is a longtime investment banker who DJs on the side. Mr. Schwartz, a karate black belt, scaled the ranks of Goldman's trading arm on his way to becoming chief financial officer.

In choosing Mr. Solomon, Goldman is going with a business builder who is respected, if not universally loved, inside the firm. The move amounts to a bet that the coming decade will look little like the last one, as Goldman continues to evolve from a secretive trading powerhouse into a more entrepreneurial place.

The two men were told of the board's decision last week, at which point Mr. Schwartz, who was informed upon his return from a West Coast trip, said he would leave, people familiar with the matter said.

Mr. Blankfein shared the news Monday morning with the firm's management committee, a group of about 35 top officials. "Harvey's leaving the firm, " the typically blunt CEO said, according to people briefed on the meeting. Mr. Solomon quickly canceled a planned trip to China.

For generations, power at Goldman has swung between bankers and traders. When Mr. Blankfein, a former trading chief, took over in 2006, that business was dominant. Since the financial crisis, though, it has faltered, sending Goldman into new businesses like consumer banking and low-fee index funds in search of growth.

Those changes were seen to favor Mr. Solomon. He is known less as a superstar deal maker than a strong manager, able to prune dead weight, motivate strivers and marshal Goldman's resources behind big initiatives.

"David is a pied piper, and I mean that in the best way," said Chris Nassetta, CEO of Hilton Hotels Corp., who worked with Mr. Solomon at Bear Stearns. "People want to follow him."

Mr. Solomon came to Wall Street in the mid-1980s, selling commercial paper at Drexel Burnham Lambert. Off duty, he played social planner to a group of college friends, organizing casino outings in Atlantic City and summer rentals in the Hamptons, where roommates would wake up to find him mowing the lawn.

After a stint at Bear Stearns, Mr. Solomon joined Goldman as a rare outside partner in 1999 and set about to build a junk-debt business. In 2006 he assumed responsibility for Goldman's investment bankers, who advise companies on mergers and fundraisings.

Mr. Solomon is credited with professionalizing that division, which he ran for a decade. The unit's profit margin doubled, even as some longtime bankers lamented the decline of collegiality and autonomy.

He had a policy of giving zero bonuses to the bottom 5% of employees, executives said. But he also spearheaded Goldman's efforts to lighten the workload for junior bankers, and took a leading role in the firm's effort to recruit and promote women. He built a debt capital-markets business that reported record revenues last year.

Mr. Schwartz, meanwhile, embodied Goldman's profitable past, having scaled the ranks of its trading division. As finance chief from 2013 to 2016, Mr. Schwartz navigated the political and market forces that reshaped banking after the crisis, and was a strong hand in the areas of risk management and regulation.

He graduated from high school in New Jersey and didn't bother applying to college, instead joining a local gym as an athletic trainer. He eventually attended Rutgers University, working as nightclub bouncer and other odd jobs to pay his way, and joined Citigroup Inc. as an operations temp in 1989.

He came to Goldman's commodities trading arm in 1997 as a derivatives salesman, helping energy and mining companies protect themselves from price swings.

By 2008, Mr. Schwartz was running the trading division. As the financial crisis unfolded, he kept the firm on the offensive while competitors pulled back. The gambit worked: Goldman's traders made $33 billion in 2009, the most profitable year on record for a Wall Street broker-dealer.

Mr. Schwartz was named CFO four years later, a move so unexpected that senior executives including the firm's heads of risk and accounting threatened to quit, according to a person familiar with the matter.

But Mr. Schwartz won over critics by overseeing an operation that avoided surprises that plagued other banks. His 18-quarter tenure as CFO is captured in pen on a pair of lime-green boxing gloves that he keeps in his office, a gift from Goldman's finance team: "18-0, all by KO."

As co-president, he helped shepherd the firm's consumer-lending initiative, Marcus, to its 2016 launch. He served as Goldman's point man on client accounts including Tesla Inc. and SoftBank Group Corp., and organized a new $5 billion investment joint venture with China Investment Corp. that was announced in November, according to people familiar with the matter.

"It's been an incredible 21 years," he said in his final management committee meeting Monday, according to attendees. "I've gotten more out of the firm than I put in. It's been an honor."

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