Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein may have saved his job by reaching a $550 million settlement with regulators, a relatively mild rebuke for a firm accustomed to pumping out billions of dollars in profits each quarter.
Blankfein and his firm have suffered a tumultuous three months since the U.S. Securities and Exchange Commission announced civil fraud charges against Goldman, but now the CEO — who has led the firm since 2006 — can take credit for calming investors and nervous employees.
"I think he was artful in getting this settlement without essentially admitting anything," said Matt McCormick, a portfolio manager with Bahl & Gaynor. "The conclusion is a clear victory for Goldman Sachs. You can quibble with the way he got them there, but you can't quibble with the results."
Not only was the settlement amount at the low end of what some investors had feared — Jeff Harte, a Sandler O'Neill analyst, estimated its impact at 6 percent of 2010 earnings per share — but it also stopped short of any admission of fraud and got rid of the biggest issue on shareholders' minds just days before Goldman reports quarterly earnings.
The resolution of the case has already added billions to Goldman's market capitalization. It also looks to have lessened the chance of litigation stemming from the SEC's allegations that the firm concealed the role of a short seller in structuring a mortgage-linked security.
Blankfein, 55, can stay until he decides to "hit the beach," rather than being forced out, former employees and investors say.
"He's probably politically, within the organization, strong enough to leave on his own terms," said one recently retired Goldman managing director. "He handled it well enough to continue to have the support of everybody."
Blankfein, with four years as CEO, is not nearing a typical retirement age, nor is his tenure exceptionally long for a Wall Street executive. But Blankfein, whose rise to power exemplified the mushrooming importance of proprietary trading at Goldman and its rivals, may step down within the next year or two, possibly as new financial regulations set in.
The reform bill that won final congressional approval on Thursday put clamps on highly profitable trading activities and could cause Goldman to redouble its focus on investment banking. Blankfein, who once worked as a precious metals salesman at commodities firm J. Aron & Co., has been a driving force behind the firm's trading operations.
"The next CEO will probably be in investment banking," the former Goldman employee said.
In the first quarter, Goldman reported net revenue of $7.4 billion in fixed income, currency and commodities trading, compared to net revenue of $1.18 billion in investment banking.
The public backlash against Goldman began long before the SEC filed its charges.
Fury over the firm stashing away billions of dollars to pay employees so soon after U.S. taxpayers bailed out the banking industry put Goldman in regulators' crosshairs.
Blankfein last year was quoted in London's Sunday Times newspaper as saying he is just a banker doing "God's work" — stoking public anger even more.
This year, Blankfein has testified in Washington before two panels investigating various aspects of the financial crisis. Both times he was on the receiving end of tough questions about Goldman's role in the meltdown.
The upheaval likely distracted Blankfein from the key personnel responsibilities expected of a CEO of a firm like Goldman Sachs, another former managing director said.
"He's got to pick 30 to 40 lieutenants," the former employee said. "He's not been able to make the decision on whether Tom or Joe should be promoted. He's leaving those decisions to someone beneath him who has a totally different agenda."
But the former employee said Blankfein's focus has been where it needed to be.
"When bad things happen on your watch, you are responsible for it," the former employee said.
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