Why I Left Goldman Sachs: A Wall Street Story (29 page)

From mid-February through May, I was on the road nearly nonstop. I went to Paris, Frankfurt, Munich, Copenhagen, Zurich, Geneva, and Milan again. On one trip in April, I flew into Paris on a Thursday night, had a day of meetings on Friday, flew to Hong Kong Sunday night, and did two meetings there (and stopped by the Hong Kong office) on Monday. That evening, I flew to Singapore, had dinner with two Goldman Sachs MDs at the Ritz Carlton buffet, and went to the Marina Bay Sands, an incredible new casino by the water with a futuristic Sky Park, Sky Bar, and infinity pool all on the roof overlooking the entire city-state. On Tuesday, I went to visit five different clients in Singapore. That evening, I flew to Dubai for a conference of Middle Eastern high-net-worth individuals—high-net-worth enough that Lloyd Blankfein also made the trip. The next morning, I flew back to London.

The travel was brutal but exhilarating. It was the corrosive atmosphere in the London office that, slowly but surely, started to wear me down.

My travels taught me many things. Client bases varied widely from region to region, and national characteristics often came into play, in almost stereotypical ways. The German clients, for example, were very polite and extremely risk-averse. In meetings, they would just sit quietly and nod their heads. A quant colleague in London told me that the worst meeting he’d ever had was with a big German client. The quant gave a two-hour presentation on derivatives to a room of twenty people, and they all sat politely and nodded, even smiling at times. At the end, he asked, “Does anyone have any questions or feedback?” Silence. Then the senior client, who’d been sitting at the head of the table, told the quant, “By the way, we don’t trade derivatives here.”

The French, as you might expect from the Adventures of Fabulous Fab, were very different. Ostentation and braggadocio were the rule: French clients loved talking about how smart they were, how sophisticated and savvy. A case in point was the Soc Gen “campus” (Société Générale, one of the oldest banks in France) I once visited in Paris—it was like a massive monument to financial engineering: a beehive of quants, espresso sippers, and cigarette smokers. The French market was very “overbrokered,” as financial terminology has it: when clients had ten different banks calling them to get their business, they would split the business ten ways. Markets would quickly become saturated, with each bank getting a tiny slice of the pie.

I sometimes got in the door with new clients by bringing in senior partners from New York. Our meetings made me feel both hopeful and frustrated: hopeful because the business was there to be done; frustrated because the clients themselves were frustrated. I was hearing the same message again and again from clients in Switzerland, France, Germany: “Goldman Sachs is not customer-friendly. In the good times, you’ll compete for the profitable business, but in the crisis, when we needed you, you weren’t there for us. And now, when we want to do flow business, you make it very, very hard for us to do it. Don’t you think it is profitable enough?” By “flow business,” this client meant plain vanilla derivatives such as options, futures, and swaps that they need to trade every day.

One big roadblock Goldman was putting up now was our exhaustive legal process. Even if we wanted to trade something as simple as stock options, we’d say, “You have to fill out this fifty-eight-page document,” whereas every other bank would say, “Sign this one-page form.” It was much easier for clients simply to go with the other banks.

I took on this particular problem as a major project and, with some help from New York, eventually fixed it. By that summer, I’d turned that fifty-eight-page document into a one-page document, and I started signing up dozens of new clients. All it took to make clients happier to trade with Goldman Sachs was to bring a fresh set of eyes to a corner of the business no one had really looked at in a few years. Some people at the firm were impressed: “Wow, I can’t believe ten years have gone by and we never realized this.” And others (of course) said, “That’s great, but these are not elephant trades; these are singles and doubles rather than home runs.” Flat-fee commissions weren’t going to make you a stud or a rock star. These were literally the terms many at the firm applied to someone who got an elephant trade to the tape. You’d see it in e-mails. You’d hear it on the trading floor.

Because of the sovereign debt crisis and resultant turmoil in European markets, investors based there were looking to put their money somewhere relatively more stable. My business area, the United States of America, was where their eyes were turned. I saw that there was a ton of dry powder in Europe, client capital ready to be invested. And the clients who’d been burned by structured products now wanted to invest in transparent, exchange-listed business, business that wasn’t going to rock anybody’s world, but was going to be steady and solid over the next decade.

But in order to do that business, I had to convince the partners that my London colleagues’ mind-sets needed to change. I spent the better part of a year in London shouting that message: “This is important business; it’s going to pay the bills. But more than that, it’s business we need to do to service our clients.”

Now and then I was heard; mostly I wasn’t.

After I returned from one particularly long and productive trip, I e-mailed Georgette saying I’d like to discuss some of the meetings I’d had. To my surprise, she came over to my desk and looked me in the face. She wasn’t smiling. “I don’t typically talk to my employees more than once a month,” she said sternly. “The only time I want to hear from you is in the form of a one-line e-mail that states how big the trade was and what the GCs were.”

My first six months in London flew by very quickly. I had been traveling and working hard but I also got to have some fun. I was lucky to be courtside in Paris to see Rafael Nadal beat Roger Federer for his sixth French Open title, and at Wimbledon to eat strawberries and cream and watch Novak Djokovic win his first. I also got to eat at some good places like Pied à Terre in Bloomsbury, St. John in Farringdon, and The Ivy in London’s West End. I was grateful for these experiences and tried to remember to smell the roses as often as possible. Here’s a tip, next time you are in London: add a lot of salt and pepper to whatever you order. Trust me, it needs it.

In June 2011, I flew back to New York to talk to a couple of the partners and give them my assessment. They were all eager to hear about London.

“What’s the culture there like?” the first of the five partners I met with asked.

I was blunt. I said it was a trading culture where people were, first and foremost, concerned about making money for the firm. This partner had spent a lot of time in London, and he agreed with me.

During my time in New York, I also met with a 2004 partner. Unprompted by anything I said, he asked, “So how bad is the culture over there?” When I gave him my assessment, he smiled a little. “The leaders in London generally aren’t client guys like we are in New York,” he said. “They’re focused on getting clients to do things, not asking clients what they need.” He added that Michael Sherwood (aka Woody), the co-CEO of Europe, and Gary Cohn really didn’t get along.

As I sat there reporting what I thought was wrong with the culture in London, I was thinking that, nevertheless, the mix of the business was exactly the same in New York. The difference between the two offices, it seemed to me, was mainly in tone. Sure, the callous way people bragged about elephant trades in London was more corrosive and more corrupting of young people at the firm, but in New York, elephant trades were every bit as prized.

When you were on the New York trading floor, in the headquarters, right alongside upper management, you had to keep a poker face and act as though everything was on the up-and-up. In fact, it wasn’t. In New York as in London, the Simple Client and the Client Who Doesn’t Know How to Ask Questions were being persuaded to trade structured products that were highly lucrative for the firm, without fully understanding what it was costing them. It was just that at 200 West Street, people were more careful about the way they discussed these trades—much more careful. They knew that if they spoke callously or bragged, they’d get into hot water.

From time to time I discussed all this with my partner mentor. To my mind—and to his—infighting was eating away at the culture and morale of Goldman Sachs. When partners were more concerned about protecting their own GCs than attending to clients’ needs, it set a terrible example down the whole chain of command, from MDs to VPs to associates to analysts. Were some people at the firm simply making too much money to make ethical decisions?

Killing
someone, or
shooting
them, in Wall Street parlance, means getting them fired, demoted, or strategically transferred to another office, often far afield. It usually happens when there is conflict between two parties and one of them goes to a superior and says, “This is not working out between us; it’s disruptive to our business. Besides, this person is doing things all wrong.” By the time this conversation takes place, the air has become so bad that management realizes they have to move one of these people—usually the more vulnerable or expendable one—somewhere else.

The practice has a rich if disreputable tradition in the financial world, and it is executed with varying degrees of shamelessness. Certainly, Hank Paulson and Lloyd Blankfein did their share of maneuvering in getting to where they were. They are tough, ambitious men, and Goldman Sachs is not a charitable foundation. But there was a time at Goldman, and on Wall Street in general, when if people crossed an ethical line in trying to advance, they would be fired, demoted, or reprimanded. The way it works now is, you can push as hard as you want and as far as you want, and as long as you keep your power, no one above you is going to step in. But even in today’s rough-and-tumble world, there’s a certain point where the maneuvering becomes so unethical that it undermines morale at large, and sets a bad example for junior people. It shows the first-year analyst and the new associate that bad behavior gets rewarded.

Georgette was a past master of corporate assassination. A mentor of mine told me: “For whatever reason, she’s decided not to kill you—that’s the good news. That said, she’s still going to keep throwing roadblocks in your way. She’ll try to kind of stunt your progress, not outright shoot you.” There was only one guy on the whole floor, he said, who’d ever beaten her at her game. He was the same guy who had e-mailed me after my initial interviews in London and said, “We have a whole world to conquer together.” He was two or three years junior to Georgette, and his nickname was Punter. The story went that after he inherited some very big clients from someone else, she moved in on him with one of her classic ploys: the 15 percent tax.

The way it worked was as follows: Anytime a salesperson did a trade with a client, the $1,000 commission—or, more commonly, the $100,000 in fees embedded in the product—would be booked next to the salesperson’s name. At the end of the year, management would look at the total next to each person’s name to determine his or her bonus. In the meantime, Georgette would have moved 15 percent of the total of each person in her group’s commission into her own account, thereby raising her own bonus. She would contact Trade Management very openly saying, “Going forward, please move 15 percent of all Laurent’s revenues with X, Y, and Z clients to my account.” It was sheer highway robbery. People were incredulous, but everybody was too scared to call her on it.

Everybody except Punter.

When Georgette came after him for her cut of his rich new revenues, he simply said, “No fucking way.” Even though she was more senior, he told her to back off. The maneuver worked. It worked because Punter was so well respected for legitimately bringing in the bacon that if Georgette had said, “Well, I’m going to take it anyway,” she would have looked bad in front of everyone. So she backed down, and never touched him again.

This was the exception that proved the rule. Apparently Georgette once had the nerve to march into Daffey’s office and, in full view of the whole trading floor, behind his glass walls, stamp her foot and shout demands while he sat there meekly. “There was nothing Daffey could do about it,” my mentor told me. “They’re too scared she’ll get up and leave the firm; they do whatever she says.”

Taking a cut of underlings’ GCs was just one of the special practices I was learning about as I tried to win over my colleagues. There were others. Another manager on the floor, one who was purely and unapologetically bottom-line-focused, was said to have done, just before the crisis, a multipronged, cross-asset structured trade with a large European fund that ended up making the firm $100 million. The rumor was that the manager got paid $12 million that year. The client apparently had a nightmare unwinding the trade over a number of years.

This guy’s trademark response to any e-mail that had even a whiff of a client trade was a three-character e-mail back: “GC?” No other words; no question about why the client had done the trade, what the trade was, or anything else about it. Just how much money was made on the trade. Oddly enough, once the talk went beyond trading, he was a fairly nice guy, with a sharp sense of humor.

Yet sometimes the focus on GCs went too far. One week in the late summer of 2011, while the European sovereign debt crisis boiled and Moody’s and Standard & Poor’s were downgrading the U.S. government’s credit rating, five or six MDs on the floor each sent an e-mail to all six-hundred-plus people on the trading floor trumpeting the big successes of each of their teams in printing a lot of GCs in the midst of the crisis. In the e-mails, the MDs broke down the millions of dollars in fees in highly granular fashion—by elephant trades over $1 million; by type of client (leaving out client names, for compliance reasons); by type of trade—and patted everyone (but mainly themselves) on the back for a “job well done.” Within two minutes, Daffey sent a “Reply All” response to all six hundred people, saying, “It’s way too early for victory laps. The markets are open—get involved.”