It’s only been a couple of years since the investment banking side of Goldman Sachs was ousted from the controlling positions at the legendary investment bank by the traders. The bank underwent a sea change in the past decade as trading rose to overwhelm the investment banking business on which it had built its name. In 1997, investment banking and trading each produced approximately the same revenue for the firm, around $2.7 billion. A decade later, trading was out-earning banking by five to one.
The rocketing rise of the trading division led the traders to dominate the firm. CEO Lloyd Blankfein began his career with J. Aron & Company, a commodities trading firm, after intially being rejected by Goldman Sachs. Later Goldman bought J. Aron, which became. its commodities trading division. He started as a frumpy gold salesman, known for showing up to firm outings in shorts and knee-high socks. But as trading rose with the firm’s earnings, Blankfein also was transformed into the slick executive he is today. The trading division grew so powerful that some folks wondered, at least before Blankfein took control of the firm, if it wouldn’t be spun off to free itself from the shackles of the investment bank.
This year, however, that same trading division is expected to account for a large share of Goldman’s losses. And rumours are flying that the investment banking division may rebel after the firm declares its first ever quarterly loss next week. Many old hands at Goldman resent Blankfein for what they regard as his insufficient reverence for the culture of the firm. Although he’s worked hard over the past two years to ingratiate himself with Goldman’s powerful bankers and clients, there is still some internal resentment against him.
There are still people with huge egos at Goldman Sachs, people who believe that the firm’s turn to trading has damaged the brand in pursuit of fleeting gains. Nonetheless, insiders doubt the growing internal dissent is enough to oust Blankfein. It would likely take several more quarters of losses before a serious uprising would emerge at Goldman, those insiders say. But doubts will remain about Blankfein and the choices to pursue trading strategies over the client advisory business.