Goldman Sachs Group Inc. shares fell on Tuesday after Chief Executive Henry Paulson said he was leaving to become the U.S. treasury secretary, but investors say his heir apparent, Lloyd Blankfein, could continue the bank's winning ways.
After months of speculation that Treasury Secretary John Snow would quit, President George W. Bush on Tuesday announced Snow's resignation and nominated Paulson, 60, to the post.
Paulson had been rumored as a possible replacement but repeatedly denied any intention to leave the New York bank that he has led for eight years. Goldman's shares fell 1.5 percent to $150.64 in midafternoon trading.
It's clearly not a positive event. Paulson's done a great job. He's been very effective, said Sandler O'Neill & Partners analyst Jeff Harte. That said, Lloyd is a very popular, very competent second-in-command. There's a clear succession path people should be happy about.
Blankfein, 52, joined Goldman in 1982 and was appointed president and chief operating officer in January 2004.
In an internal memo, Paulson said he was leaving Goldman on a high note so that he could return to the government after 32 years in finance. He joined Goldman in 1974 in Chicago after four years in government, serving with the White House Domestic Council and as a Defense Department aide.
It is my hope that in this next position I will find opportunities to make a difference on a number of important domestic and global economic issues, said Paulson.
Goldman Sachs spokesman Peter Rose said Paulson has removed himself from day-to-day management, while the board tackles the issue of succession. Rose declined to comment on how soon the board will make a decision.
Paulson said in the memo he will remain at Goldman during the nomination process, which could last six to eight weeks.
BIG SHOES TO FILL
Paulson has won plaudits for his leadership of Goldman over the past eight years and is credited with leading the bank through tough times.
Seven years ago, he took the 137-year-old partnership public and navigated a three-year bear market after the tech stock bubble burst in 2000.
More recently, though, Paulson has helped Goldman post record profits and returns that are the envy of Wall Street. Its shares currently trade at 2.5 times book value, at the high end of its historic range and tops among the largest Wall Street banks.
Analysts and investors say Blankfein helped make Goldman's trading business the biggest on Wall Street, and expressed confidence in his ability to keep the money machine humming.
Paulson's departure is not a critical blow. Hank is a well regarded manager who will be missed, but Lloyd's succession has been planned for some time, said Erick Maronak, chief investment officer at Victory NewBridge. One thing Goldman does well is make sure they have pretty good bench strength.
Blankfein, a Bronx native and son of a postal worker, began his career as a commodities trader at J. Aron in 1982, which was then acquired by Goldman. Rising through the ranks, he compiled a stellar record as head of Goldman's mammoth fixed-income, currency and commodities business.
Perhaps his most valuable contribution was staying the course in the late 1990s, when many rivals cut back their trading efforts and took on fewer risks. Goldman's trading arm is by far the biggest on Wall Street and the primary driver of Goldman's financial performance.
Lloyd Blankfein is a superstar, said Michael Holland, chairman of investment firm Holland & Co. Lloyd was not predestined to be a Wall Street titan. He's a kid from the Bronx who worked his way up, a scholarship student at Harvard. He's really smart and good with people.
The bigger question in the markets, now, is who would replace Blankfein. Veteran Merrill Lynch analyst Guy Moszkowski told clients the firm may choose among trading co-heads Gary Kohn and Mike Evans, investment banking co-head Jon Winkelried and chief financial officer David Viniar to be co-presidents.