Has Goldman Sachs lost its lustre? The Wall Street powerhouse is wrapping up its worst financial performance since 2008, with profits down more than 40% so far this year. As a result, end-of-year bonus payouts are sure to be lower than in the past. Tighter regulatory controls, meanwhile, could crimp Goldman’s ability to rack up the massive trading gains it enjoyed in the heady days before the financial crisis. And Bloomberg reported yesterday that some three dozen Goldman partners have left or will leave the firm this year.
Goldman’s stock price has tumbled more than 40% this year, and the company’s shares may be headed even lower after outspoken Wall Street analyst Richard Bove slashed his fourth-quarter profit estimates for the company.
Goldman also faces a slew of lawsuits related to the mortgage meltdown and subsequent financial crisis, as well as its role in the recent implosion of MF Global, which was run (into the ground) by Goldman alum Jon Corzine. And earlier this year, CEO Lloyd Blankfein faced the indignity of testifying at the blockbuster insider-trading trial of former high-flying hedge-funder Raj Rajaratnam, who was subsequently sentenced to 11 years in prison. (Rajaratnam, you’ll recall, somehow managed to learn about Warren Buffet’s $5 billion investment in Goldman mere minutes after Blainkfein informed the board about it.)
Then there’s the near-daily opprobrium from politicians, pundits, and those folks on the street outside its lower Manhattan headquarters parading around with a paper-maché “vampire squid” and placards decrying corporate greed. Despite its record-setting $550 million settlement with the Securities and Exchange Commission over its mortgage-backed securities dealings, Goldman remains a prime focal point of outrage among those who feel Wall Street’s most egregious antics remain unpunished.
Cynics might doubt that anyone at Goldman cares what other people think. But the firm canceled recruiting events at Harvard and Brown following Occupy Wall Street protests on both campuses. (The company blamed unrelated causes.) These days, “only” 22% of Harvard’s 2011 graduates planned to seek jobs in the finance and consulting sectors, down from a high of 47% in 2007, according to a Harvard Crimson poll cited by Bloomberg.
In this context, it’s hard not to see the departure of more than three dozen Goldman partners from the firm this year, which Bloomberg reported Wednesday, as a telling end to a lousy year. (Out of more than 34,000 employees worldwide, fewer than 500 individuals can count themselves among the most rarefied club on Wall Street: Goldman Sachs partners.)
But are the good times at Goldman really over? Don’t bet on it. Before you indulge in a dose of holiday schadenfreude over the travails of an investment bank that has become a symbol of the 1%, keep in mind the following sobering fact: With nearly $1 trillion in assets on its balance sheet, Goldman, like the other Wall Street giants, remains too-big-to-fail, despite President Obama’s recent suggestion to the contrary. The Dodd-Frank financial reform bill, which is supposed to protect Americans from another Wall Street-spawned financial meltdown, has yet to be fully implemented, and Congress refuses to put a hard cap on the size of the biggest banks, as former Labor Secretary Robert Reich pointed out recently.
Sure, Goldman faces a tougher regulatory climate than it did before the financial crisis. But don’t think the firm is taking the heightened scrutiny lying down. In 2011, Goldman spent more than $3 million to lobby members of Congress against tighter regulation of the financial industry, according to the Center for Responsive Politics, and the firm ranks fourth on the list of the top campaign donors so far in the 2012 election cycle, showering more than $360,000 on Mitt Romney’s presidential campaign. And of course, Goldman poured more than $1 million into President Obama’s 2008 presidential campaign coffers and will no doubt be generous to his re-election effort. Indeed, almost no other company has been as adept as Goldman at maneuvering its people into the corridors of power in Washington, D.C. For a while, it seemed that working at Goldman was a precondition for a senior job at the Treasury Department.
So don’t cry for Goldman Sachs. It remains the go-to bank for the world’s super-wealthy elite, from Chinese industrialists to Saudi sheiks. It was Goldman that organized a controversial $1.5 billion private investment in Internet darling Facebook — more than a year before the social network’s expected 2012 IPO. If Facebook’s offering is successful, that investment will deliver outsized returns for the firm’s wealthy clients. Goldman is expected to help underwrite Facebook’s offering, which will mean tens of millions more in fees for the firm. And the company’s top executives, starting with Blankfein, will earn millions in 2011, even if their bonuses aren’t as fat as they might have been in more lucrative years.
Sure, Goldman might have hit a bit of a rough patch this year by its own gold-plated standards, but it would be a mistake to think the company’s reign atop Wall Street — and just about everything else it surveys — is over. Most of Wall Street has been feeling the pain this year. But let’s keep things in perspective: During the 12 months that ended this past September, Goldman racked up nearly $5 billion in profits.
And that was during a bad year.