Why I Left Goldman Sachs: A Wall Street Story (28 page)

The party was loud and long and fun. A lot of alcohol was consumed, and a lot of table tennis was played. Early in the evening, I hit for a while with Connors, who was a reasonably good player, and I got to show off a bit, standing fifteen feet back from the table and returning all his smashes.

Then Corey walked in.

He certainly knew how to make an entrance. Nobody had expected him, but there he was, larger (and cooler) than life. Before he could even make his way over, several people came up to me to say what a big deal it was that he’d come. “Wow, Corey showed up,” one of my team members said to me. “That’s a pretty big endorsement.” Even Mr. Cleanse was impressed—I think because it showed that Corey had more respect for me than for far more senior people whose parties he would never have thought about attending.

Corey clapped me on the back and bumped my chest with his. He was smiling significantly as he shook my hand. He looked unsurprised when a stir ran through the crowd behind him: Corey’s legendary half-brother, an NFL Hall of Famer, had entered the room.

Everybody crowded around him, wowed at the appearance of this NFL superstar and major celebrity. But to me, Corey’s gesture—asking his brother to come to my party—meant even more than the Legend’s showing up. It was a gift to me, and a powerful endorsement. He had done right by me my entire career, and tonight was no different. Mr. Cleanse was a huge football fan, and he had never met the Legend before, even though Cleanse was Corey’s boss. And then there was the poignancy of the fact that all those years ago, the Legend had picked my résumé—the guy who spoke Zulu…

A little later I was standing with Corey and his brother, who asked, “Are you excited about going to London?” Cleanse was standing right next to us, eavesdropping.

“Greg is going over there to do an important job,” Corey told his brother. “He’s going to run U.S. Derivatives.”

“That sounds great,” the Legend said. “Isn’t Daffey over there?”

“Yeah, he is,” Corey said.

“I’m sure Daffey will look out for you,” Corey’s brother said—he had met Daffey a few times over the years. “You’ll do great there.” Then, giving me a wink and a fist bump, he was off into the night.

Later still, after Corey had left and the party had started to die down, I was standing with Mr. Cleanse, who was still glowing from his encounter with the Legend, not to mention more than a few drinks. “So,” I said, “who are the important people in London?”

He looked at me intently. “You’re the important person in London,” he said.

I smiled. “Thank you.”

But he wasn’t through. “Let me tell you two things,” he said. “One is, I know that Jonno loves you”—he was talking about an Australian MD named Jon Clarke, part of the Aussie Mafia, a big, cool, up-and-coming guy—“He’s an important dude. Make sure you stay close to him,” Cleanse said. He gave his vodka soda a stir. “Actually, Georgette likes you quite a bit, too.”

I was thinking about that one when another MD, closer to my age, walked up. “How do you think I should approach things in London, Jesse?” I asked him.

Jesse, too, had had a few drinks. “I’ll tell you how you should approach things,” he said. “You should show up wearing a cowboy hat and cowboy boots. You should walk right onto the trading floor, right up to Jonno, and punch him right in the face. Knock him out. Don’t say a word to anyone else. Then go sit down at your desk.”

I should have taken the advice about wearing the cowboy boots. London really was the Wild West.

There was a lot of open terrain for doing my kind of business in Europe. Whether the Goldman Sachs team wanted to play ball, though, was a different story entirely. As I got ready for my first road show to visit clients in Copenhagen, Paris, Milan, Frankfurt, and Munich, I got a taste of what I was in for. I called my guys in New York, the quants and strats whose job it was to help with client presentations. I needed some materials to present the case for why clients should execute U.S. derivatives business with Goldman Sachs.

“I don’t mean to be a dick,” one strat said to me. “But we’ve been told by management to focus only on trades that could yield a possible one-million-dollar profit for the firm. Sorry, man.”

Click.

Maybe the guys in New York were just in a grumpy mood
, I thought.
Let me try the strategists here.
There were a few friendly Frenchmen who could be helpful.

“Right now we are mostly focused on
beezness zat
have high GCs,” the French strat said. “Anything less
eez
not worth our time.”

Click.

In my first few weeks in London, I couldn’t believe how many times people told me that something was not worth their time. I could understand the CEO of the company or the Queen of England thinking of his or her time in such precious terms, but what struck me was that we were supposed to be in a client-service business. If the client was asking to do business with us—even if it wasn’t sexy business with a million-dollar payday—what kind of message were we sending by refusing to do it? After the Abacus settlement, the firm had relationships and reputational damage to repair. So my view was, why not show some of the biggest institutions across Europe and the Middle East that we
were
interested in the sort of old-fashioned, plain-vanilla trades that we had been turning away in order to focus on structured products?

On January 10, 2011, I walked into River Court (120 Fleet Street) for my first day of work in Goldman’s London office. I had taken my friend Phil’s advice and invested in a navy blue Barbour jacket, a waxed cotton jacket worn by all the expats in the City, as the London equivalent of Wall Street was called.

I had stayed up until 3:00
A.M.
the night before writing a market commentary piece. I wanted to announce loud and clear to the European offices that I had arrived. I wanted some early visibility, but I also wanted to get the message across that I was there to help. I was there to build the business, not steal their business. Scratchy-eyed, I got to work at 7:00
A.M.
, wearing my lucky tie, a bright orange Hermès with little black fish on it.

At 7:30 came the morning call. In New York, this rundown of the day’s action items is mostly done over the Hoot; in London, everyone gathers in one of the partners’ offices to the side of the trading floor. To go with the low-ceilinged, hot-tempered intensity of the London trading floor, the meeting had a tone of aggressiveness that I hadn’t seen in New York. In London, the main question seemed to be: How can we convince clients to do what will make our traders the maximum profit?

My first few weeks were a blur. Because I was building a new business, I had to start to learn the systems, the infrastructure, the problems from scratch. What was the difference in tax regulation in Germany versus France, versus Dubai? I had to be very strategic about how I spent my time. There was so much information, it was like trying to drink out of a fire hydrant.
Focus on the important things
, I thought.

Excruciatingly, I also had to prepare for the FSA Regulations exam. I couldn’t believe it—ten and a half years after taking the Series 7, I had to buckle down again and memorize a phonebook of arcane European regulations that I would probably never again encounter after the exam was over. The MDs kept pestering me about it: “When are you going to take this exam?” But they were right: I needed to get it out of the way so I could legally start talking to clients in Europe.

On Sundays and sometimes during the week, I was also hustling to find an apartment. The first ten I saw were—excuse my language—absolute shit. Double the price of what I was paying in New York, and much less nice. But finally I struck gold on flat number eleven: an eight-hundred-square-foot duplex on the top floor of a Victorian house in Belsize Park, the neighborhood just south of Hampstead Heath that had become trendy because Gwyneth Paltrow and Chris Martin (of Coldplay) had moved there.

I loved the place: it had recently been remodeled, and everything was white and modern, with big, bright windows and skylights upstairs. What’s more, the landlord and his wife had come up with a genius idea: Why not turn the twelve-foot back wall of the living room into a movie screen? So instead of having a TV in the living room, they installed a high-definition projector. I invited people over for movie nights and to watch rugby, cricket, NFL and Stanford football games. Coming home every day was a pleasure.

During my first week in London, I got an e-mail marked
IMPORTANT
, and reading, “All Vice Presidents need to report to the seventh-floor auditorium.”

The occasion was a mandatory training session that Daffey would be delivering: the topic was the results of Goldman’s year-long Business Practices Study, which had just been released in January 2011. This was the Board-level study that the firm had conducted to take a long hard look at the causes of all the reputational damage that Goldman suffered during, and since, the crisis. It was designed to suggest remedies in areas such as: conflict of interest, treatment of clients, structured products, and transparency.

A thousand of us sat in the room waiting for Daffey to begin. I’m sure most people in the auditorium had not known what to expect, but I was actually looking forward to the session. For one, if you could hand select someone to give a pep talk to the troops there were few people who were as charismatic and respected as Daffey. Plus, he was a culture carrier. And two, I believed this was an important study that
needed
to be done. Self-reflection was required and I wanted to see whether this was a genuine exercise.

What followed was supremely deflating. Daffey went through the motions, reading down a long list of proposed reforms. It was a flat performance: no emotion, no inspiring words. No “Come on guys. We have suffered some reputational hits, but let’s all take it upon ourselves to set an example and do the right thing. Let’s show clients through action how we are changing the way we do business.” None of that. Just a long checklist of items read in an almost monotone. I wondered to myself whether Daffey was perhaps himself deflated that the firm had fallen so far that we were now fighting for our lives to repair our reputation. Or if deep down he knew that this was just a PR stunt designed to get the media off our back, and that in itself wasn’t great either. I didn’t need the Sermon on the Mount or “Mr. Gorbachev, tear down this wall!” but I did want to see some conviction behind what he was lecturing us on. What happened to the Daffey that I traded with through the New York blackout of 2003?

After the session, as he was walking up the aisle, I called out his name.

He turned around. “Hey, buddy—welcome,” he said. His mood changed, he was now animated. He shook my hand with a smile. Since an American MD was also standing there, the three of us talked about NCAA basketball for a few minutes. Then Daffey was gone, back to his inner sanctum.

My very first week in London, a junior associate, twenty-four or twenty-five years old, was telling me about a piece of business he had just done. I had only met the guy a minute earlier.

“My muppet client didn’t put me in comp on the trade we just printed. We made an extra $1.5 million off of him.” What he meant was that the client was trusting and hadn’t checked the price with any other brokers. So the salesperson had effectively overcharged him. This wasn’t some rogue associate who’d gone off the reservation. His boss was sitting right next to him, smiling and nodding along.

Times had changed. When I was an associate, you would have been called into a partner’s office and severely reprimanded for this type of callousness. You could have even been fired. It would have been seen as counter to the firm’s long-held principle that if you don’t have the clients’ long-term interests at heart, they won’t do business with you for very long.

Muppet
was a word that, for me, had once evoked childhood memories of cute puppets such as Kermit the Frog. But the way it was used in the London office had nothing to do with cuteness. Being a muppet meant being an idiot, a fool, manipulated by someone else. Within days of arriving in London, I was shocked at how many times I heard people—both very senior and very junior, refer to their clients as muppets. Where, I wondered, had this adversarial viewpoint come from—the idea of the client as someone much less smart than you, someone you could try to take advantage of?

Over the first few months, I heard clients called that name over and over again. One client was deemed a muppet because he didn’t pay the very expensive rates Bloomberg Market Data charged for real-time pricing. So when the client’s Goldman salesperson was executing a trade, he would give the client a price that had been good fifteen minutes earlier—in other words, the price the client was seeing on his technologically inferior data stream. The salesperson, of course, was looking at real-time data on his Bloomberg as he executed the trade. The difference between the real-time price and the price the client was seeing was, naturally, highly advantageous to the firm, sometimes adding more than a million dollars to the GC on the trade.

Another client was deemed a muppet because he couldn’t quite get the concept that, when buying futures, you had to post a certain amount of margin.

Another client mistakenly gave an order on his options contract with the wrong strike price (the stipulated price at which the client could buy or sell the underlying stock in the future). The client asked the salesperson if Goldman could just adjust the price of the strike and leave the price the client paid for the option the same, so he wouldn’t get in trouble with his boss. What the client failed to grasp, because he didn’t understand options pricing theory, was that the error was in
his
favor. Sure, said the salesperson. The muppet didn’t realize that his price for the derivative should’ve improved significantly, and that he had overpaid for the structure by about $1 million.

Still another muppet, who “had no fucking clue what he was doing,” put on a huge short volatility position right before the crisis and got blown up. The list went on and on.

I was struck by how out in the open this attitude was. It was odd, and was so counter to what I thought the firm once stood for. It was also problematic, because in order for me to build my book of business, I needed to build relationships with clients, not muppets.

The basic streams of revenue I wanted to turn on required a little elbow grease at the beginning, but once we could persuade clients who’d done only elephant trades to use Goldman for options, swaps, and plain-vanilla derivatives—and it wouldn’t take much persuading—they could provide us with an ongoing stream of profit. This was found money. Low-hanging fruit. Why the resistance?

The first partner I pitched my bread-and-butter business to was one of the heads of sales in Europe. I said, “I’ve been meeting with your salespeople, and they’re all telling me they think the business I’m here to start up isn’t lucrative enough. But the clients I’ve talked to feel differently. What kind of message are we sending to them if we’re turning away their business?”

He pushed back at me pretty hard, with what I had now come to recognize as the Goldman company line, European-style. At least he had a colorful (if hostile) way of expressing it. “We only have a certain number of bullets to use with clients,” he told me. “We’ve got to make sure we keep them for the big elephant trades, the high-margin trades.”

I blinked.
Where was he coming from?
I wondered. The last time the elephants had run free was 2008. They weren’t doing much running anymore. He was holding on, I guess, to the dream of those $1 million and $2 million structured-product deals that were drying up but that could still be sold to the Simple Client or the Client Who Doesn’t Know How to Ask Questions.

The business I was planning would bring in $50,000 in fees here and $50,000 there, and at the end of the year we’d have made the $20 million I had projected going into the job. By telling clients, “We don’t do smaller, U.S. derivatives-based business,” we were just alienating them—or worse, sending them elsewhere. How did we ever expect them to do their big business with us if we were telling them that their small business wasn’t good enough?

On February 12, I took (and passed) my FSA exam. At last I could start to do business. And on that same day, I embarked, with my boss and a colleague, on my first trip to visit clients, in Milan. I was excited to see Italy for the first time, but I was also very relieved to have my exam out of the way.

Milan was all I expected, and then some. The boss stayed at the Bulgari, a super-fancy hotel that had only one room left. My colleague and I were at the Park Hyatt, which wasn’t much less luxurious. I was in a standard room, but “spectacular” would’ve been a better description: it was like a room in an elegant Italian villa, with a view of the Duomo right across the way, where Napoleon was crowned king of Italy. That first night, we went out for dinner with one of our biggest Italian clients, enjoying an amazing four-course meal at Antico Ristorante Boeucc, one of the oldest and best restaurants in town. This was the good life.

The next day, we met with five of our clients in Milan: hedge funds, mutual funds, and an insurance company. Each of them managed more than $1 billion. Talking with them made me feel optimistic, because it threw into sharp relief just how unaware our people in Europe were about the kind of business I knew we could build quite easily.