Goldman Sachs is having an identity crisis

I never thought I'd write this but … I miss the old Goldman Sachs.

I miss Lucas van Praag. He was Goldman's spokesperson during the 2008 financial crisis, and he became known the world over for his sharp tongue. He regularly eviscerated reporters for being stupid and failing to understand finance. He once described a Wall Street Journal story as "effluent." And when Rolling Stone published its infamous profile of the bank that dubbed Goldman a "vampire squid," van Praag called the story a "hysterical compilation of conspiracy theories … Notable ones missing are Goldman Sachs as the third shooter [in John F. Kennedy's assassination] and faking the first lunar landing."

That was the voice of Goldman Sachs 2009 — the adamantine firm that managed to make its way through the crisis relatively unscathed. The Goldman Sachs of 2023 could never. What in 2009 was a disciplined force of finance's greatest killers has been humbled, weakened.

The source of this stagnation is both strategic and cultural. The public outcry and regulatory changes following the crisis forced all of finance to be more transparent. But ultimately the bank's stumbles come down to the leadership of David Solomon — the 61-year-old CEO who thinks it's cool to hang out with The Chainsmokers. When he took power in 2018, Solomon set out to morph the bank into something less highbrow, more ordinary. In 2020, he invited the public to the 154-year-old bank's inaugural Investor Day and announced plans to build the "digital consumer bank of the future." The patricians of Wall Street would extend their reach to the masses.

But Solomon's attempt to craft a new image for Goldman did not turn out as he intended. Solomon's bets on consumer banking have turned into a mess, and Goldman Sachs is losing its edge in the bread-and-butter investment banking for which it became famous. The sinister, crisis-era image of Goldman Sachs manipulating the world from rows of flashing computer screens and skyscraping boardrooms has been replaced by a new, much worse picture — a rudderless bank in disarray.

These are lean times. As dealmaking has dried up and losses in his pet projects pile up, Solomon has laid off 3,200 employees and slashed partner compensation by about half. "Deal flow is highly correlated to board confidence," one Goldman banker told me, and right now, that's at an all-time low. "The knives are out."

Back in the bad old days, van Praag quipped to the Sunday Times of London that "vampire squid are very small and harmless to humans." This sort of dry humor worked back then, but for today's Goldman Sachs, the joke just doesn't hit the same way. The essence of comedy is truth, and right now the truth hurts.

When the winning stops 

Lucas van Praag's Goldman may have been hated by society, but on Wall Street it enjoyed the prestige of being feared. Say what you want about LVP's elitism, his innate condescension, his scorn for the media, and his detachment from the notion that a powerful institution like Goldman Sachs might need to have a dialogue with civil society — he was, at least, a creature of excellence. He was the mouthpiece for a place that fostered a culture of winning, and back then winning meant never having to say "I'm sorry." Goldman is not that place anymore.

In July, Goldman was the only one of the six major Wall Street banks to miss earnings estimates. In fact, it was one of the few companies that missed earnings estimates at all — nearly 80% of S&P 500 companies beat their estimates this quarter, FactSet reported. Goldman's headline numbers were ugly: Profit plunged 58% from the same quarter a year before and was down 62% from the previous quarter. And things didn't look any better under the hood. Goldman took a $485 million write-down for its real-estate holdings and a $504 million loss related to its purchase of GreenSky — a fintech company it acquired to move into the consumer-loan business. Return on shareholders' equity fell to 4%, down from 11.6% the quarter before.

"The knives are out."

The bank is also starting to lose its once-unquestioned footing at the top of Wall Street's League Tables — basically the scoreboards for the business of banking. This past quarter, Goldman surrendered its No. 1 spot in mergers-and-acquisitions dealmaking to JP Morgan for the first time in five years, according to tables put out by Bloomberg and Refinitiv. In fact, JP Morgan is wiping the floor with Goldman — it has the top spot for 2023 in 11 of the 13 tracked industries. Goldman has only one. This, undoubtedly, chuffs LVP's cufflinks.

In February, Solomon issued as clear an apology for this underperformance as you're going to get on Wall Street. "There were some clear successes, but there were also some clear stumbles," he said. "We learned a lot." 

And the bank is still learning. Goldman's more recent terrible results in July were "impacted by selected items related to the execution of strategic goals as outlined at Investor Day — in particular, the narrowing of consumer ambitions and the transition of the Asset & Wealth Management business to a less capital-intensive model." In other words, Goldman is losing money because Solomon's strategy has become an albatross around the bank's neck.

Heart and DJ Sol

Given the maelstrom that followed the financial crisis, it's not hard to see why Solomon might think Goldman needed to enter a kinder, friendlier part of banking. It was already trying to project the image of a kinder, friendlier business.

Van Praag — who was once dubbed "Goldman Sachs' Rococo PR prince" by The Observer — left the firm in 2012. He was replaced by Jake Siewert, a former Obama administration Treasury official who effortlessly imbued the bank with a gentler tone for a gentler time. Given new regulatory requirements, Goldman had to seek out new ways to power its business and find new avenues for cash. But even as the bank dipped its toe in consumer banking and asset management, Lloyd Blankfein — who remained CEO until 2018 — maintained Goldman's focus on the kind of ruthless moneymaking and international scandal we've — lamentably — come to expect from investment banks.

Ultimately, what dragged Goldman Sachs down from its pedestal was not its attempt to be more transparent or adapt to the new rules of the banking game. What dragged Goldman Sachs down was Solomon's attempt to make it a part of Main Street by pushing aggressively into the consumer-banking space. His vision for Goldman's future required it to be both ordinary and elite at the same time — liked (at least enough for regular people to bank there) and feared (enough to crush Wall Street as usual). Problem is, Goldman never had the range.

To enter into the consumer business, Solomon invested heavily in growing Marcus — a book of high-yield savings accounts and personal loans started under Blankfein. He also — against the advice of some in Goldman's consumer business — bought the fintech GreenSky for $2.24 billion in 2021. By 2022, people within the bank came to understand that this was an expensive boondoggle that would yield paltry returns of 10% or below over the next decade.

Beyond the Main Street missteps, Solomon was also running around trying to be what I can only assume is his understanding of "cool." Years ago, Solomon began DJ'ing under the moniker DJ Sol, playing a raucous Hamptons set during the pandemic and traveling to perform at festivals and silent discos (whatever those are). Inside the firm, Solomon reportedly prefers bankers who have a social life — who go to charity events and post pictures with celebrities on Instagram. Outside the firm, DJ Sol has about as regular a presence in Page Six as a minor Real Housewife of New York City. He has defended this time-consuming, attention-seeking hobby by saying that he's "having fun" and that it makes him "feel good." Beyond the DJ'ing, Solomon raised eyebrows among the other executives at the firm when he bought a set of private jets in 2019. Before that, bankers flew around in rented jets, and that was "cool" enough for them.

All of these shifts have rubbed many of Goldman's senior staff the wrong way. According to the WSJ, older partners, including the former CEO Lloyd Blankfein, have griped about Solomon's extracurricular activities. Solomon's use of the private planes — which seem to spend a lot of time going to and from the Bahamas, an investigation by Insider's Dakin Campbell found — has also rankled some leaders. Perhaps not coincidentally, the bank has seen a large exodus of senior-level bankers, with an alarming 90 partners leaving since Solomon took over.

Solomon's thirst is a management problem and a real culture problem. Goldman used to be a collective of hard-charging, never-sleeping, workaholic nerd assassins. At the old Goldman, everyone knew work-life balance was for weaklings. If you wanted to have fun and feel good there was always the glorified McDonald's PlayPlace that is Silicon Valley. But Solomon is a man who flaunts his free time by performing at Lollapalooza, going to the same parties as Kim Kardashian, and jetting down to his beach house. Free time used to be something Goldman people enjoyed in secret — a guilty pleasure, like Oprah enjoying bread. 

Cloudy future

It is not hard to see why new Goldman and old Goldman's worlds cannot coexist, especially as Solomon's attempt to pivot to the consumer business has turned into a massive money loser for the bank. Without the winning, Goldman's identity and place on Wall Street is unclear. It's too small to be JP Morgan, too rarified to be Bank of America, and becoming Morgan Stanley would, frankly, be a mortifying step down. 

It's also unclear who would replace Solomon were the situation to come to that. One former Goldman banker I spoke to suggested that had he not debased himself working for the Trump administration, perhaps the bank's former COO Gary Cohn could waltz back in and take the seat. But he did, and so here we are.

In the world of finance, the image of Goldman as a giant vampire squid ingesting any capital in its path is far more preferable to the image Goldman has now — that of an Ivy League-bound mathlete who's decided to run for both homecoming king and class president to impress a crush who doesn't even know their name. If Lucas van Praag happens to read this, he should feel free to email me and tell me how stupid this article is. It would be nice to see the old Goldman Sachs ferocity is still out there somewhere, even if it's not on Wall Street.

Linette Lopez is a senior correspondent at Insider.