1947: John C. Whitehead joins Goldman from Harvard Business School.
1948: The Justice Department files an antitrust suit (U.S. v. Morgan [Stanley] et al.) against nineteen investment banking firms. Goldman had only 1.4 percent of the underwriting market and was last on the list of defendants. Goldman would not be included in a 1950 list of the top seventeen underwriters. Sixty years later, of the nineteen firms named in the suit, only Goldman and Morgan Stanley remain as independent firms.
1950: John L. Weinberg, Sidney’s son, joins Goldman. A list of the top seventeen underwriters does not include Goldman.
1956: Goldman leads the underwriting of Ford Motor Co.’s IPO, building the firm’s reputation in investment banking. Whitehead and John L. Weinberg become partners. Goldman’s capital stands at $10 million.
1969: Upon retiring, banking-oriented Sidney Weinberg has reservations about leaving Gus Levy, a trader, as senior partner, so he introduces an eight-man management committee with seven older banking partners to supervise Levy. Sidney Weinberg dies. Gus Levy, now senior partner, takes charge of Goldman and rebuilds its trading business. Because of the potential for direct conflicts with its large block-trading clients and because of the Goldman Sachs Trading Corporation debacle, Goldman steers clear of asset management until Gus Levy creates the investment management services (IMS) unit.
1970: The NYSE amends its rules to admit publicly traded members, prompting investment banks to consider abandoning their partnership structures and offering shares for sale to the public. Credit ratings are created for every issuer of commercial paper after the Penn Central Transportation Company goes bankrupt with more than $80 million in commercial paper outstanding, much of it issued by Goldman. The ensuing litigation threatens the firm’s existence. Goldman opens its first international office in London.
1971: Merrill Lynch goes public.
1972: Goldman starts a private wealth division and a fixed income division. Goldman pioneers a “white knight” strategy, defending Electric Storage Battery against a hostile take-over bid from International Nickel and Goldman rival Morgan Stanley.
1973: Fischer Black and Myron Scholes first describe their Black-Scholes model to price options.
1975: May 1 marks the end of fixed trading commissions in the stock market, forcing investment banks to compete in negotiations over transaction fees.
1976: After Gus Levy’s death, John L. Weinberg (Sidney’s son) and John Whitehead take over as senior partners and continue to build Goldman’s investment banking business. This is the beginning of Goldman’s tradition of having co-heads, setting a Wall Street precedent. The firm sets a record for pre-tax profits of $40 million.
1979: John Whitehead drafts a set of business principles that codifies Goldman’s core values, setting a Wall Street precedent (O).
1980: Goldman’s capital stands at $200 million.
1981: Salomon Brothers goes public (C). Goldman diversifies by absorbing the commodities trading company J. Aron & Co. Lloyd Blankfein, who worked at J. Aron before the merger, joins Goldman. J. Aron becomes Goldman’s currency and commodities trading division (C). In 1997, it is merged with the fixed income division.
1982: Goldman makes its first international acquisition, London-based First Dallas, Ltd., later renamed Goldman, Sachs, Ltd (C). Stocks in the late 1970s and early 1980s are in a bear market. The Dow Jones Industrial Average bottoms at 777 on August 12, 1982. But a steady decline in interest rates—with yields on thirteen-week treasuries having eased to 8.6 percent from nearly 13 percent in the previous month and a half—finally gets stock moving. On August 17, the Dow leaps a then-record 38.81, or 4.9 percent, to 831.24, and the equity market begins a long bull run, with some bumps. Massive wealth creation over the course of the next twenty-five years, the likes of which the United States and the world had never seen, would follow.
1983: The firm’s capital has grown to $750 million, some $500 million from the active partners themselves. In 1983, John L. Thornton co-founds Goldman’s European M & A business in London (O).
1984: Continental Illinois National Bank and Trust becomes the largest-ever bank failure in US history. Continental was at one time the seventh-largest bank in the United States as measured by deposits, with approximately $40 billion in assets. Because of the size of Continental Illinois, regulators are not willing to let it fail (R). The term “too big to fail” becomes popularized.
1985: Bear Stearns goes public (C). Whitehead leaves Goldman after thirty-eight years and later becomes deputy secretary of state to George Schultz, serving until 1989 (O). Steve Friedman, a former M&A banker, and Bob Rubin, a former equities proprietary trader, co-head Goldman’s fixed income division (O).
1986: Goldman’s capital has grown to $1 billion, almost entirely through retained earnings. Morgan Stanley, Goldman’s primary competitor, goes public (C). Goldman’s growing trading business is capital intensive (C). The management committee conducts a study, led by Steve Friedman and Bob Rubin, and recommends taking Goldman public (O, C). John L. Weinberg and Jimmy Weinberg do not support the idea, and it is not brought to a vote (O). To raise capital, Goldman accepts a $500 million private equity investment from Sumitomo Bank, as a silent partner, in exchange for 12.5 percent of Goldman’s annual profits and appreciation in equity value (O, C). One of Goldman’s largest partner classes is voted in (twice as large as any previous class), including three partners from other firms who have never worked at Goldman, as well as Goldman’s first female partner and first African American partner (O, C). Goldman takes Microsoft public and joins the London and Tokyo stock exchanges (C).
1987: In October, the Dow Jones Industrial Average drops 508 points, a stunning 22.6 percent, on “Black Monday,” raising fears that the US economy is headed for a severe recession. The Federal Reserve acts quickly to cut interest rates and pump cash into the banking system, helping end the threat. The October market crash, in part, causes Goldman to reduce overhead; several hundred employees are laid off by the end of the decade (O). It is the first time in recent memory that Goldman lays people off. Robert Freeman, Goldman’s head of arbitrage, receives a prison sentence for insider trading. As a result of the crash, Value at Risk models receive more emphasis (R, T, O). Wall Street begins to increasingly focus on hiring academically trained and quantitatively oriented traders and risk managers and increase spending on financial innovation (T, O).
1988: Leon Cooperman, head of equity research, assumes responsibilities for building the investment management business, and a new division is launched: Goldman Sachs asset management (GSAM) (O, C). Hundreds of savings and loans (S & Ls) are shut down, at a total cost of more than the reserves in the federal insurance fund. US taxpayers make up the difference.
1989: As an alternative to going public to raise capital, Goldman forms a ten-year consortium with seven insurance companies, bringing in $225 million in new capital to expand Goldman’s merchant-banking capabilities. The insurance companies receive a fixed return on their investment but do not share in profits or management and have no voting rights (O, C). The firm also creates a holding company, Goldman Sachs Group (technically not subject to NYSE capital requirements), and spins off several subsidiaries (R, C). The Berlin wall falls, igniting global expansion for American businesses (C, O).
1990: Bob Rubin and Steve Friedman take charge as co-senior partners and co-chairs of the management committee, expanding global operations and seeking other opportunities for growth, including proprietary trading (O, C). They make partners’ compensation more dependent on performance than on tenure, and they initiate the firm’s first lateral hiring initiatives (O, C). High-yield bond investors threaten to boycott Goldman after accusations that GSAM and Goldman improperly used proprietary information gained in its underwriting role (O, C); Cooperman is forced to change GSAM’s strategy to focus on mutual fund sales to individual investors rather than institutional clients. Drexel Burnham Lambert, once the fifth-largest US investment bank, is forced into bankruptcy
in February.
1991: Goldman’s management committee again studies the option of going public but drops the idea before the proposal can be put before the partnership (C, O). Warren Buffett helps save Salomon Brothers from bankruptcy (C). Goldman shuts down debt investing fund Water Street (O). Goldman creates GSCI, a benchmark for investment performance in the commodities markets (T).
1992: Bob Rubin leaves Goldman to become assistant to the president on economic policy (O). The move adds to the Goldman mystique but is unusual in that Rubin’s is one of the shortest tenures as senior partner. A Hawaiian educational trust, the Kamehameha Schools/Bishop Estate, invests $250 million in Goldman and receives a stake of more than 5 percent in the firm. It is a passive investment; the trust has no voting privileges but will participate in Goldman’s profits and losses. In an effort to further link pay to performance, and to create a new source of developmental feedback, Goldman institutes 360-degree performance reviews (meaning that even junior staff reviews senior staff). New offices are opened in Frankfurt, Milan, and Seoul (O, C).
1993: Goldman is one of the most profitable firms in the world with record profits and experiences rapid growth and global expansion. A federal appeals court rules against Goldman and prohibits investment banking firms from advising corporate clients with which they had a business relationship in bankruptcy proceedings (R, O). This limits money-making opportunities for Goldman and other investment banks (R). Goldman conducts another formal study of the possibility of taking the firm public (O). There are now approximately 160 partners. Goldman advises business tycoon Li Ka-shing and his family in selling a majority stake to Rupert Murdoch’s News Corp (C, O). Goldman’s involvement in such a high-profile deal with two major business tycoons in Asia puts Goldman on the map in Asia. It also highlights Goldman’s strategy of focusing on very important people. Credit derivatives are pioneered at J.P. Morgan (C, T). By 1996, credit derivatives would be a $40 billion market and by 2008 it would be measured in the trillions of dollars.
1994: Lehman Brothers goes public (C). Goldman suffers large losses in the bond market as interest rates rise (C, O). Goldman settles suits brought by a number of pension funds related to its involvement with media mogul Robert Maxwell after it was alleged that Maxwell stole money from Maxwell company pension plans by hiring Goldman to broker a trade between various Maxwell-controlled entities. Goldman pays out $253 million in settlements, allocated to the people who were general partners in Goldman between 1989 and 1991. A significant number of partners leave the firm (many times more than normal) to protect their capital, taking their capital with them (C, O). Steve Friedman, senior partner for only four years, retires (O). Many of the partners who stay at the firm have some resentment toward those who left, and they question the culture. Goldman names 58 new general partners (one and a half times as many as usual), the firm’s largest partner class ever (O, C). The unprecedented amount of change at the partnership level impacts the partnership network. One M&A banker who is elected partner turns down the opportunity, something exceptional in the history of the firm (O). In a power struggle after Steve Friedman’s announced retirement, Jon Corzine (from trading) becomes sole senior partner, never having rotated through other areas such as investment banking (O). Hank Paulson is named COO (O), never having co-headed a division with Corzine (O). Some partners are convinced, in part, to stay because of the possibility of an IPO (O). The partners who stay form a unique bond, supporting each other through tough times, determined to make Goldman a success, but they also see firsthand the risks of a private partnership. Goldman starts implementing risk management systems (T). Corzine and Paulson immediately reduce employee head count and costs by slashing pay and bonuses. Some people still remember the large layoffs in the late 1980s, affecting how employees think about the firm as a place to work, and it was now happening so soon again (O, C). Despite issues, the firm is still ranked first in US and foreign common stock offerings, IPOs, worldwide completed mergers and acquisitions, investment-grade debt, and US equity research. J.P. Morgan pioneers the concept of the modern credit default swap, which will play a major role in the credit crisis. Eric Mindich, who ran the equities arbitrage department that invested the firm’s own capital, becomes, at age twenty-seven, the youngest partner in the firm’s history, signaling the importance of proprietary trading (O, C). Restrictions are put on the withdrawal of partners’ capital (O). Goldman opens a Beijing office (O).
1995: Corzine replaces the twelve-member management committee with a six-member executive committee (O). Goldman opens offices in Shanghai and Mexico City and creates joint ventures in India and Indonesia (O, C). Treasury provides aid to Mexico during the peso crisis, an action that helps save Lehman Brothers, which had made a big, mistaken bet without hedging. Global Alpha, one of the earliest “quant vehicles” was founded in GSAM and would spawn a new wave of quant funds (C, T).
1996: Goldman is back on track and profits are restored to 1993 levels. Corzine and Paulson push for business diversification, increasing international, investing, and asset management business. There are media rumors of a Goldman IPO. There is a push for a partnership vote on an IPO, but it is withdrawn in the face of overwhelming opposition. An independent compensation firm concludes that the top five to ten partners would increase their compensation if Goldman were a public company but that most would be worse off. Also discussed were issues such as impact to culture, moral obligations to earlier and future generations, and the attractiveness of the business model. The most commonly stated reason for the opposition is the potential unknown impact on Goldman’s culture in losing the partnership structure. A new class of “junior partners” is created (called “partnership extension”) in an effort to prevent further defections and retirements. Partners as well as nonpartners are now referred to as “managing directors,” although internally, partners are known as “partner managing directors” (PMDs) and nonpartner managing directors are referred to as “MD-lites.” To the outside world, it is difficult to distinguish who is a partner and who is not. The title of managing director (versus partner) is the same at competitors like Morgan Stanley (C, O). Goldman also adopts a limited liability structure, limiting personal risk (R). Goldman helps take Yahoo! public, triggering the internet IPO boom. Goldman experiments with e-mail (C).
1997: Paulson says Goldman’s policy of not advising on hostile takeovers is no longer in the firm’s interest, but Corzine resists any change that might damage Goldman’s image. They compromise on an experiment with a test case outside the United States, and Goldman advises Krupp in a successful hostile take-over of Thyssen (O, C). J.P. Morgan develops a proprietary product that helps banks clean up their balance sheets using credit default swaps—the first synthetic collateralized debt obligations (CDOs) (T, C). Morgan Stanley merges with Dean Witter Reynolds, the financial services business of Sears that serves retail clients (C). The acquisition extends Morgan Stanley’s ability to sell stock offerings and makes Morgan Stanley larger. Travelers Group, run by Sandy Weill, purchases Salomon Brothers, a major bond dealer and investment bank, for $9 billion (C). Bankers Trust purchases Alex Brown for $2.1 billion (C). The Asian debt crisis presents a large opportunity for Goldman to invest its own capital in the region (O, C). Goldman’s GSAM acquires Commodities Corporation (CC) for an undisclosed amount, estimated to be more than $100 million (C). At the time of its acquisition, CC had approximately $2 billion in assets under management, primarily as a fund of hedge funds: a fund investing in a variety of hedge funds to diversify risk. It was part of GSAM’s continued push into higher-margin, more-sophisticated products for its clients. The firm merges J. Aron with fixed income to create the division known as FICC, to be run by Blankfein (O, C).
1998: Long-Term Capital Management (LTCM), a hedge fund, is about to fail. Wall Street fears that LTCM is so big that its failure would cause a chain reaction in numerous markets, causing significant losses throughout the financial system. Goldman, AIG, and Berkshire Hathaway offer to buy out t
he fund’s partners for $250 million, to inject $3.75 billion, and to operate LTCM within Goldman’s own trading division. Many of the partners worry about the risk they would assume (O). A deal is not worked out, and the Federal Reserve Bank of New York organizes a bailout (R). The Goldman executive committee discovers that Corzine has been holding talks with the CEO of Mellon Bank about merging the firms. In what some describe as a coup d’etat, Corzine is told to focus on and leave after an IPO of the firm (O). After being made co-CEO, Paulson supports the IPO (some believe it was a quid pro quo). After significant debate and letters from both John Weinberg and John Whitehead advising against it, Goldman decides to go public (C, O, R). Thain and Thornton are allegedly promised to become co-CEOs in two years for supporting paulson. The IPO, originally planned for September, is postponed because of instability in the global markets. The Russian financial crisis begins. Deutsche Bank agrees to purchase Bankers Trust for $10.1 billion (C), signaling that foreign competition is coming to the United States. Citicorp and Travelers Group merge, creating a $140 billion firm with assets of almost $700 billion (C). The deal enables Travelers to market mutual funds and insurance to Citicorp’s retail customers while giving the banking divisions access to an expanded client base of investors and insurance buyers. The remaining provisions of the Glass–Steagall Act—enacted following the Great Depression—forbid banks to merge with insurance underwriters, and this means that Citigroup has two to five years to divest any prohibited assets. However, Weill states at the time of the merger that he believes that the legislation will change over time. (On CNBC’s “Squawk Box” in July 2012, Weill calls for a return of the Glass–Steagall Act.) Under pressure from competitors taking companies public that have no revenues or profits, Goldman starts to take companies like eToys and NetZero public, which have limited operating history and little to no profits (O, C).
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