March 5 2008: 8:02 AM EST
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The man who must keep Goldman growing

Lloyd Blankfein has a lot on his mind. The chief of Wall Street's most successful investment bank has to outsmart treacherous markets while balancing the firm's interests with those of its clients.

By Bethany McLean, editor at large

Blankfein has to perform a high-wire act.
Blankfein has a lot in common with his two top aides, co-chief operation officers Gary Cohn (left) and Jon Winkelried.
Blankfein visited India in the fall. He knows that countries with rapidly growing economies, like Brazil, China, India and Russia, are crucial to the firm's future.
Keeping Goldman growing
Fortune's Bethany McLean describes how Wall Street's most successful investment bank outsmarts treacherous markets

(Fortune Magazine) -- Lloyd Blankfein worries. True, as CEO of Goldman Sachs, he stands at the summit of the financial world. He just led his firm to its best year ever. He was paid $68.7 million in 2007 - record for a Wall Street chief - and recently bought a $26.5 million apartment at 15 Central Park West, the Robert A.M. Stern-designed building that also houses Sting and Sandy (Weill). But still, Lloyd Blankfein worries. "If you're really poor at what you do, maybe there's a 9% chance that you'll have a problem," he frequently says. "If you're really, really good, maybe there's a 3% chance." Or he says, "If you're on a beach and a tsunami hits, you'll drown whether you're a small child or an Olympic swimmer." Or he says simply, "Some things will go bad no matter how good you are."

In other words, Blankfein, 53, knows that Goldman Sachs (GS, Fortune 500), despite all appearances to the contrary, is not invincible. And he wants to make sure that you know that he knows it "I'm always imagining how much worse the headline about Goldman will be when we screw up if we have a quote out there claiming magnificence," he told the firm's managing directors at a meeting in London in October. "People are dying for us to misstep."

Of course, it's hard to remember the last time that Goldman seriously stumbled. (Its Global Alpha hedge fund has underperformed badly, but that's a rounding error in the firm's results.) Goldman has come to outshine its industry the way few companies ever do. While other companies confessed to billions of dollars of losses amid the collapse in the mortgage market - and jettisoned their CEOs - Goldman's revenues famously grew, jumping 22% to a record $46 billion as profits hit a record $11.6 billion. Goldman's shareholders' equity, which stood at just $10.1 billion at the end of 1999, is now $42.8 billion. Its total assets have also quadrupled, to more than $1 trillion. Goldman's 2007 bonus pool of $20.2 billion could buy Bear Stearns (BSC, Fortune 500), as noted in a Bloomberg story that sped around Wall Streeters' in-boxes.

That success has inspired a mixture of admiration, envy, resentment, and fear that can border on paranoia. "I wake up every morning with a pit in my stomach realizing I have to compete against them," says one banker at a rival firm, describing a common ailment on Wall Street. The presence of so many Goldman alums in powerful positions - Hank Paulson, Treasury Secretary; Joshua Bolten, White House chief of staff; Jon Corzine, governor of New Jersey; Robert Zoellick, head of the World Bank; and on and on - breeds conspiracy theories. "How can you be right that much?" asks a money manager who worries that Goldman's alumni connections give it access to information that others don't have. The writer and gadfly Ben Stein went so far as to suggest in the New York Times that Goldman was broadcasting gloomy economic forecasts to support its trading positions.

Success has also subjected Goldman to intense scrutiny. "The business media focus on us like People focuses on movie stars, except they're better-looking and have more fun," says Blankfein, who is as good a wisecracker as he is a worrier. The fact that Goldman made bets against the housing market while selling mortgage-related securities inspired protesters to gather outside one of its holiday parties, singing "Goldman the Two-Faced I-Bank" (to the tune of "Rudolph the Red-Nosed Reindeer") and "Frosty the Goldman ("Frosty the Goldman/Was a very crafty soul"). Blankfein, for his part, seems in equal parts proud of and - surprise - worried about Goldman's image. "We've gone from, maybe being pitied is a little too strong, to scary," he says.

Over the past few months Fortune had the chance to learn of Blankfein's worries and visions for Goldman firsthand, giving us an unusually personal view of the man who has the daunting job of sustaining Goldman's winning streak in an increasingly treacherous market. What we saw was partly what you'd expect - a stunningly smart, demanding, and competitive executive at the top of his game - but also a surprisingly thoughtful, self-reflective leader with a wicked sense of humor. "Anything I haven't asked about?" I say at one point in our conversations. "Virgo, blue," he shoots back. (It took me a moment to figure that out, which probably explains why I left Goldman Sachs in 1995, after working as an analyst for three years.) Of course, the joke goes only so far. As a former Goldman executive puts it, Blankfein is "funny and self-deprecating and can reach across the table and rip your throat out when it's warranted."

Now Blankfein's prediction that "things will go bad" may be on the verge of coming true. Analysts are speculating that the first quarter will bring an end to Goldman's string of stellar results, given the bank's exposure to troubled sectors of the market, such as the loans used to fund leveraged buyouts, where risks can't be hedged away. But coping with a bad quarter shouldn't be a big deal. Blankfein's real challenge is to help Goldman keep the balance it has historically maintained between competing strains in its culture: aggression and caution, entrepreneurship and robot-like teamwork, confidence and (yes) worry, and looking out for the firm's own interests vs. those of its clients. Blankfein doesn't want to be the Goldman chief who falls off the tightrope. In London he told a group of managing directors that every time he walks by the portraits of former Goldman Sachs leaders - from John Whitehead to Gus Levy to Robert Rubin, all legends in the world of finance - at the firm's Manhattan headquarters, he thinks, "If you inherit the empire, you don't want to leave behind a smaller or worse empire."

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