Jun 27, 2011, 12.41 PM | Source: Reuters
David Solomon isn't your typical master of the universe, but he might have what it takes to lead Wall Street's most powerful bank.
The 49-year-old co-head of Goldman Sachs' investment banking unit is an unassuming banker who moved into junk bonds early in his career and stayed in underwriting, even as other Wall Street businesses grew hotter.
He has been promoted into ever-more senior roles, and now works mostly behind the scenes, making sure that investment banking clients get what they need, that employees are happy and that Goldman's deal-making machinery operates smoothly. He has been behind some spectacular deals, even if he is not famous for them, and some clients view him as one of the best bankers in the business.
Some Goldman insiders believe that his low-key personality may be just the thing for a firm that has spent two years dodging charges of greed, conflicts of interest and fraud. With Goldman having recently named a third "co-head" of investment banking, these insiders believe that Solomon could be elevated to a more prominent position, putting him in the race for the chief executive job one day.
"Most people see Solomon as being in line for a promotion soon and as a CEO candidate down the line," said a banker who works closely with him. "Clients love him, we love him -- he's actually a really good guy. Competitors don't love him necessarily, but they respect him."
Wall Street veterans are loath to handicap any race to succeed CEO Lloyd Blankfein. Goldman is swarming with smart and ambitious people eager to run the show, and insiders familiar with Blankfein's thinking say he has no plans to step down any time soon, leaving plenty of time for a race to sort itself out.
Promoting a banker like Solomon to CEO would be a departure for Goldman, which has been led by traders in recent years and still earns most of its profit from trading. Less than 10% of Goldman's USD 4.04 billion of pre-tax earnings in the first quarter came from banking activities such as underwriting securities and advising companies on acquisitions.
But changes to US financial law likely will lower trading profits, and the bank's reputation has been dented by government investigations into its derivatives dealings during the subprime crisis. The steady fees that underwriting and advising can generate look unimpeachable by comparison.
More than three dozen friends, clients and current and former colleagues described Solomon as a consummate dealmaker who plays well inside and outside the bank.
"He's very technically capable and he's also really good with clients," says Alan Schwartz, the former CEO of Bear Stearns who is now executive chairman at investment bank Guggenheim Partners. "But what differentiates David from a lot of bankers is he's a great leader and manager. A lot of people are just practitioners, but he knows how to inspire, manage and lead other professionals."
Solomon, through a Goldman spokesman, declined to comment. Many sources for this article spoke on condition of anonymity to protect their jobs and business relationships.
A CROWDED FIELD
At least three other senior Goldman executives could be successors to the 56-year-old Blankfein, who just entered his sixth year as chief executive.
Gary Cohn, Goldman's president and chief operating officer, is Blankfein's right-hand man and has long been considered his heir apparent. But Cohn came from the trading side of the business, and his leadership during a time of controversy could be a handicap, insiders say.
A Senate panel in April released a lengthy report that described Goldman unloading subprime exposure onto unsuspecting clients in 2006 and 2007, among other practices that look unsavory.
Cohn's name appears often in the report, in communications with senior traders. Cohn was not accused of any wrongdoing and Goldman said it disagreed with many of the findings of the report. Government investigations have ensued.
Michael Sherwood, a British native who is also thought to be a candidate, took over a powerful position from Cohn in March, as head of the bank's partnership committee. Sherwood was one of the top revenue generators in Goldman's London office. As former co-head of the international division, he also brings valuable overseas experience.
Yet another potential contender is J. Michael Evans, a vice chairman who oversees Asia and growth markets.
But Evans irked some colleagues last year as co-chairman of an internal committee that analyzed Goldman's missteps during the financial crisis, sources familiar with the matter said.
Evans angled for a more prominent role after the committee's work was done, they said, and other top executives were not pleased with the publicity surrounding him.
TURNING ON THE CHARM
Solomon avoids the spotlight. Bald and paunchy, with a gravelly voice and a casual demeanor, he hardly radiates power. Described by friends as a family man close to his wife and two daughters, Salomon lives in an apartment on tony Central Park West in Manhattan, and is not known to flaunt his wealth.
Solomon's candor on a topic of great sensitivity, Wall Street pay, appears to set him apart from some colleagues.
"The incentive systems have gotten out of whack," the alumnus told Hamilton College students last year. Short-term incentives producing outsize pay have not been productive for the financial system, he said, and need to be "rebalanced."
Associates who describe Solomon frequently use words like "modest" and "humble," but they also paint him as tenacious, hard-working and shrewd.
Guggenheim's Schwartz said the two speak often about their personal lives and current events, but avoid talking business because they're too competitive. "We'd kill each other," he joked.
Former Bear Stearns Co-president Warren Spector said in an interview that he was sorry to see Solomon leave the bank for Goldman: "It was their gain and our loss."
Solomon's sometimes bland exterior masks a savvy negotiator who can turn on his charm as readily as he can pound fists on the table, say coworkers and competitors.
"David has always been a very large presence in meetings and rooms, even when he wasn't maybe the most senior guy in the room," said a former colleague. "But you also wouldn't mind hanging out with David after the meeting's over. That's a pretty unique combination."
Solomon entered Wall Street in 1984 armed with a B-plus average and a degree in political science from Hamilton College, a liberal arts school in Clinton, New York, more than 200 miles northwest of lower Manhattan.
After beginning his career as a commercial paper salesman, he moved into junk bonds and leveraged finance at Salomon Brothers, Drexel Burnham Lambert and Bear Stearns. They were hot and scrappy in his day, but today evoke memories of fantastic implosions.
Blankfein plucked Solomon away from Bear Stearns in 1999 and gave him the coveted title of partner. He climbed the management ladder fast at a bank that typically promotes people at a glacial pace, and in 2006 -- soon after Blankfein became CEO -- was tapped as a co-head of investment banking.
Clients describe Solomon as one of a handful of top Wall Street bankers who can deliver what they need in a crunch -- whether that means funding, connections or advice on the wisdom of a deal.
"Clients feel he's a smart guy who's going to be very responsive to their needs," said Ted Virtue, chief executive of private-equity firm MidOcean Partners, who hired Solomon at Drexel and occasionally consults with him on deals.
Solomon has the pull of Jimmy Lee, a vice chairman of JPMorgan Chase & Co who made his mark selling buyout loans, Virtue said. "Those are guys people like to know, who can speak for their organization," he said.
Indeed, Solomon was recently spotted having lunch at the Four Seasons Restaurant in midtown Manhattan in a room full of Wall Street heavyweights.
Lee was chatting nearby with billionaire Home Depot founder Ken Langone. At another table sat prominent financiers Steve Rattner and Damon Mezzacappa, both of whom were once top executives at Lazard Ltd.
Solomon was dining with Glenn Hutchins, a co-founder of the private-equity firm Silver Lake Partners, who is a longtime friend and occasional client.
Just 10 days before their get-together on May 19, Hutchins announced the biggest deal in his firm's history: Microsoft Corp's USD 8.5 billion acquisition of Internet telephone service provider Skype.
Once the deal closes, Silver Lake will book a USD 2 billion profit and 209 percent return on its investment in less than two years. Goldman will have reaped an estimated $30 million in fees from advising on the two transactions.
Across Wall Street, traders have long fought for the upper hand against bankers, and at Goldman, traders have been on top for years.
When Blankfein, a former commodities salesman, took the reins five years ago, Goldman's trading desks were booming, fueling 72.8% of profit. But regulatory reform is trimming trading results across Wall Street. Profit from the businesses fell 60.6% at Goldman in 2010, and continued to fall in this year's first quarter.
Investment banking is small in comparison, but it's growing -- fees were up 7% in the first quarter from a year earlier.
"Going forward, trading will be a sparse area to raise vegetables," said Jacob H. Schiff, chair in investment banking emeritus, at the Harvard Business School.
Goldman has frequently had an investment banker in one of its top management seats Schiff said, and it would be logical to put one in place again. That's partly because bankers do not just structure and execute deals; they also generate trading business through client relationships.
This may put Solomon in a favorable position, according to some insiders. His businesses have generated solid, steady fees for the company, not the erratic swings in profits and losses that traders often produce.
Still, some think that if Goldman is trying to hearken back to the days of aloof, white-shoe investment bankers, Solomon may not be the best choice.
"The only negative I see for David -- whom I like and admire and find very smart and a very good banker -- is that he is just a mongrel," said William Cohan, who knows Solomon from writing books about Bear Stearns and Goldman Sachs. "He's not a thoroughbred from Goldman Sachs."
Then again, Solomon is not the only Goldman executive to have skipped the Ivy League, or to have worked at other firms. The bank prides itself on being a meritocracy.
Blankfein, the son of a post-office worker, started at the commodities firm J. Aron & Co, which Goldman bought. Cohn went to American University in Washington, D.C. Sidney Weinberg, Goldman's most powerful and longest serving CEO, started as a janitor.
Still, Cohan predicts that Blankfein won't step down for another five years and that his successor will be a banker "whose name we don't yet know."