Is The Era of Goldman Sachs Exceptionalism Over?

For more than a decade, Goldman Sachs played the role of Wall Street’s Black Pearl, the ship from the movie ‘Pirates of the Caribbean,’ as it deftly took on more risk and accumulated more treasure than the other buccaneers in the great sea of global liquidity. While Goldman has survived the storm of the financial crisis in sound condition, its reputation as “nigh uncatchable” has been diminished.

阅读William D. Cohan的新书的一章，题为“金钱和权力：高盛如何统治世界”，他探讨了金融危机后高级遭受的声誉损害。

几乎任何合理的措施e, Goldman has come through the financial crisis in good shape. If nothing else it has survived, when others failed. It did so in a series of maneuvers, converting itself into a bank holding company so that it could tap emergency funds made available by former CEO Hank Paulson, who became President Bush’s Treasury secretary in 2006. Paulson led the company during the boom years in Captain Jack Sparrow-like fashion.

高盛 - 在许多人的懊恼中 - 是一系列糟糕的保险公司AIG的糟糕赌注，使其免于巨大的损失。它还筹集了50亿美元的沃伦巴菲特的紧急资本。该银行已偿还其债务到巴菲特和政府，现在是稳定和有利可图的。虽然它仍然面临法规和法律的不确定性，但它的财务状况强劲，税前利润率为34％。

Yet something has been lost. The era of Goldman exceptionalism may be over. The Black Pearl is still afloat but no longer the fastest vessel in the water.

Under the leadership of Paulson, who led the company from 1998 to 2006, the one-time private partnership exploded onto the scene as a public company. It raised and deployed capital in a way that set itself apart from its peers. By March 2006, the height of the credit boom, Goldman’s value at risk – a measure of the average daily amount of money it could lose – was $92 million, up 135 percent from $39 million in 2001, BusinessWeek reported in a cover story that year. And during that first period of March, it earned a stunning $2.6 billion in profits on $10 billion in revenue. Those profits were driven by a readiness to use leverage, which topped out at ratio of 25 to 1.

Rivals went to extreme lengths to catch up, but Goldman was too fast for them.

“Across the Street, bankers and their bosses struggled to keep shareholders happy, taking more risks to keep generating higher and higher rates of return on equity in the (ultimately vain) attempt to out-earn Goldman Sachs,” Suzanne McGee (an Institutional Investor contributor) chronicled in her book Chasing Goldman Sachs.

As BusinessWeek has noted, Morgan Stanley CEO Phil Purcell, a veteran of the retail side of the business, probably lost his job because he wouldn’t take on more trading risk. His successor, John Mack, boosted value at risk to $56 million by mid-2006, up more than 60 percent in three years. Morgan Stanley reported $1.6 billion in profits on $8.5 billion in revenue during that first quarter of 2006--impressive indeed, but no Goldman.

In the wake of the financial crisis, Mack announced in September 2009 that he was stepping down as CEO of Morgan Stanley, which had come close to failure. Mack – who remains chairman – had faced criticism from some investors that year who were frustrated that the bank continued to post losses after the crisis, including a $1.2 billion loss during the second quarter, a period in which Goldman earned $2.7 billion. Other rivals – Bear Stearns, Lehman Brothers, Merrill Lynch – fared worse.

Thanks to a combination of troubles – some market related, some of its own making – Goldman no longer outstrips all rivals when it comes to taking on risk and generating return. Its value at risk for the quarter ended in March 2011 was $113 million, just behind that of Morgan Stanley, which reported $121 million. Goldman’s return on equity from continuing operations was 5.2 percent during the latest quarter, compared with 6.2 percent at Morgan Stanley, according to Barclays Capital. Barclays has an “equal weight” rating on Goldman and an “overweight” rating on Morgan Stanley. Goldman notes that on an annualized basis, however, its first-quarter return on average common shareholder equity was 12.2 percent.

Goldman’s mortality is on display in its fixed income business, which drove much of its profit during the boom. Fixed income revenue for the first quarter was $4.3 billion, down 28 percent from the comparable quarter of last year. That wasn’t as bad as the 40 percent decline that Barclays expected. Yes, the decline was inevitable, given shifts in the credit markets –but the fact is, a certain amount of revenue and earning power has been lost, at least for now. Goldman CFO David Viniar said on a conference call that market share and bid/ask spreads have fallen from “unsustainably high levels” in 2009 and 2010.

And Goldman still has an outsized presence in the business – its FICC revenue was more than twice that of Morgan Stanley’s $1.77 billion. But JPMorgan’s FICC business is larger. It declined a mere 4 percent during the last quarter to $5.2 billion.

“FICC is an enormous part of their business. They did well this quarter, but it was nothing sensational,” says Jeff Morris, a portfolio manager and head of U.S. equities for Standard Life Investments.

Morris says Goldman also continues to lose a certain amount of talent in trading and other areas to smaller firms, which are gaining share. "In the case of the M&A advisory business, smaller boutiques are gaining share against large rivals due to the perception that the advice they provide won’t be influenced by the potential for other financing related fees," Morris says.

高盛也生活在监管和法律突出。该监管问题 - 与Volcker规则的去年有关 - 从利润丰富的专有交易业务迫使它能够主导竞争对手。从某种意义上说，法律似乎几乎都是用高盛作为特定目标的。然而，一位高盛发言人指出，专有的贸易业务并不像许多人认为公司的一部分，它从未占收入的10％以上。

While the rules that constrain Goldman are industrywide, the legal issues are specific to the company. Levin, still fuming over Goldman’s performance during Congressional hearings, has suggested that criminal charges could follow. And there is the risk that private investors will come forward with additional lawsuits.

在其并购业务中，高盛的压力也是明显的。高盛在第一季度下滑的市场上似乎仍然不可用的铅。

在第一季度末期，高盛在全球投资银行业务后面是两家相对遥远的二号，背后摩根大通追逐。研究人员Dealogic称JPMORGAN有29.9％的市场份额，并在今年参加了价值为2.15亿美元的交易。

At the end of the quarter, Goldman was number two in the global M&A business, behind JPMorgan Chase. Researcher Dealogic says JPMorgan has 26.98 percent market share, and had participated in $217.1 billion worth of deals for the period. Goldman had 23.2 percent share of the market and had participated in $187.6 billion worth of deals.

Over the last year, the company suffered a series a PR setbacks, which started with the perception that bailed out insurer AIG needed public funds, at least in part, because it made Goldman whole on a series of derivative bets gone bad. Goldman has explained that it was simply a middleman in those transactions, acting as a market maker.

Then, there was the SEC’s civil case against Goldman, which argued that the company failed to properly disclose to clients some details of how it helped hedge fund manager John Paulson bet against the subprime market. Those clients didn’t realize that they were essentially betting against Paulson and that some people within Goldman thought Paulson was on the winning side. Goldman CEO Lloyd Blankfein defended himself and the firm during congressional hearings, arguing that Goldman simply was functioning as a market maker. Regardless of the legal merits of the case, it was a PR battle that simply couldn’t be won. Goldman ended up settling the case.

And then, there was Goldman’s plan to invest $500 million in Facebook and drum up $1 billion in additional funds from investors. That transaction had to be limited to investors outside of the US., for fear that pre-announcement publicity would violate U.S. disclosure rules. The deal made financial sense for Goldman, but it seemed to some that the company was once again at odds with the SEC, seemingly ready to push the limits of the law.

The SEC suit raised concerns among some legislators that Goldman was putting its interests ahead of its clients. Blankfein told Senator Carl Levin that the bank was merely serving the clients in question as a market market and had no fiduciary duty to advise them. While Blankfein might have been on solid legal ground, it didn’t placate critics.

Blankfein’s role as a lightning rod for criticism during the last few years is a measure of how much the perception of the firm has changed. Its CEOs and senior executives have gone on to play big roles in government and in business ever since World War II. In recent years, Paulson and Robert Rubin ran the Treasury. Former chairman Stephen Friedman was chairman of the US Foreign Intelligence Advisory Board. Goldman partner Gary Gensler now runs the Commodity Futures Trading Commission. Former CEO Jon Corzine was governor of New Jersey. And former vice president Neel Kashkari ran the TARP bank bailout program.

世界银行总统罗伯特佐利克和纽约美联储酋长也是高盛。

The tradition – viewed charitably as public service, or, alternatively, as the ultimate public-private revolving door – has been firmly entrenched for decades. Former Goldman chief Sidney Weinberg was vice-chairman of the War Production Board during World War II. As BusinessWeek notes, he also was credited with creating the “long-term greedy” culture that placed long-term gains and, ultimately, public service, above an ethos of short-term profit.

Blankfein is unlikely to follow his predecessors into a high level government position. While one can argue that he has managed the firm well enough in a financial sense, the diminution of the firm’s standing with the public over the last few years is clear. And that loss of prestige and trust may well be hurting its performance, too.

在过去几年中，校友在政府中的纯粹广度 - 迅速训练库房，拓扑银行救助计划和纽约美联储，提及一些职位 - 将公司放在激烈的审查下。高盛似乎从救助中受益的事实，而AIG的巨大损失的工作引起了关于其政府影响力的疑虑。那些关于其自我处理政府水平的怀疑可能是不可能证明的，但也无法真正消除。

公司的业务实践,布兰克费恩vigorous defense of those practices on national TV – didn’t help the company’s image, either. During the height of the credit boom, it developed a “triple play” business model of participating in deals on multiple levels--as investment bankers, traders and private equity investors.

That was just fine when the markets were rising and everyone was getting paid. But as the credit boom turned into the financial crisis, investors, regulators and politicians wondered how Goldman could justify selling certain mortgage-related assets while another arm of the firm was betting against them at the same time.

During Congressional hearings in 2010, Blankfein tried to explain that the company was merely acting as a market maker--taking the opposite side of a trade for its clients, regardless of whether they wanted to buy or sell. It was a practice that evolved over the last decade, in which Goldman often took a loss on a transaction to help secure more business from a client down the road. In the case of the mortgage assets –developed by the now notorious Fabrice “Fab” Tourre – the firm just happened to make a profit on some trades, Blankfein suggested. "We are the other side of what our clients want to do," he said.

Levin, the chairman of the permanent subcommittee on investigations, wasn’t buying it. While Levin has been derided as a buffoon in the financial world, that probably isn’t fair. Blankein’s argument, while perhaps technically true, sounded contrived to Levin, a lawyer with a Harvard degree.

“这不是市场制作。你不只是卖掉那些走在门口的人。你正在打电话。你是营销。你不仅仅是从你的库存中销售。这不是我的谈论，“莱文说。

“The testimony we gave was truthful and accurate and this is confirmed by the Subcommittee's own report. The report references testimony from Goldman Sachs witnesses who repeatedly and consistently acknowledged that we were intermittently net short during 2007. We did not have a massive net short position because our short positions were largely offset by our long positions, and our financial results clearly demonstrate this point,” Goldman said in a statement.

The fallout from the hearing continues. Levin has intimated that perjury charges stemming from the hearing could follow. And regulators at the SEC and the Labor Department are considering rules that would impose a new fiduciary duty across much of the financial services industry.

There have been calls for new leadership. The latest came from veteran bank analyst Richard Bove of Rochdale Securities, who cut the company’s rating from buy to neutral in the wake of its first quarter earnings, in which it reported earnings of $2.74 billion on revenue of $11.9 billion. While the earnings were well above analyst expectations, analysts are worried about the quality and sustainability of its earnings, and about the downward direction of revenue, which fell 7 percent.

Bove says the “burst of trading” in the first quarter, driven by the catastrophe in Japan and the uprisings in the Middle East, are unlikely to be repeated. That will limit trading income for Goldman. He says the asset management business needs to be rebuilt and that investment banking is not keeping up with its peers. “The gains on ICBC, the Chinese bank, and debt holdings are not likely to be repeated in the next few quarters particularly if interest rates go up as expected, he said in an email to clients. And he says the possible downgrade of U.S. debt hurts Goldman and other financial companies.

“我认为管理变化是necessary,” Bove told the Wall Street Journal’s MarketBeat blog. “There’s been no accountability whatsoever in this firm.”

但是，这不一定发生。金曼投资者在普莱德时代可能会越来越糟糕。股票价格为153美元，高于他们的金融危机在50美元的范围内。虽然他们可能不会很快就返回到240美元的高度，但是，巴克莱也看到了很少的下行风险。随着云监管图片变得更加清晰，巴克莱表示，金人可以将其返回股权从低青少年恢复到中期，并命令较高的倍数。在他的任期期间，股票价格与标准差距500的股票价格大致保持速度，单位数量低，并且很容易击败纽约证券交易所金融指数，在同一时期下跌超过30％。

"Despite these challenges, Goldman Sachs is likely to generate stronger returns than most large banks while being more nimble in adapting to the new financial landscape," Morris, of SLI says.

与此同时，高盛正在努力与一个非常异常的困境 - 过度流动性。股东股权拥有约650亿美元，比其囚犯中期的2006年高达500亿美元。这种流动性与更低更低的外形相结合应保护其免受法律，监管和市场风险的风暴。但它不能在很快投资这笔钱 - 肯定不是在博夫票据之前，司法部诉讼的风险已经解决。黑珍珠将保持漂浮。但随着它的镇流器的重量，它也不是海洋中最快的船舶。

黑珍珠将保持漂浮。但随着它的镇流器的重量，它也不是海洋中最快的船舶。

A number of elements of this story were corrected on May 30, 2011.