KEY POINTS:
Credit crunch? Not at Goldman Sachs. Markets are embroiled in a major global financial crisis, but the money machine keeps on going. Even as central bankers around the world co-ordinated an emergency campaign last week to restore confidence to the money markets, dealmakers at Goldman had other financial
matters on their minds: their personal bonus payouts.
The denizens of the bank's HQ at Peterborough Court on Fleet St, in the heart of London's old newspaper district, have the luxury of viewing the turmoil with detachment - something largely happening to other people.
Their bonus pool is likely to be around £9 billion ($24 billion), an average of £300,000 per person if it were evenly shared. Naturally, it will not be: individuals such as Michael Sherwood, co-chief executive in Europe, senior dealmaker Simon Dingemans, and investment banker Karen Cook, one of a handful of very senior women, are likely to receive several million apiece; lesser mortals will get relatively lowly sums.
Goldman has always inspired respect and loathing in equal measure in the City - London's financial district - for its potent mix of ruthless workaholism tinged with self-righteousness. The bankers in Peterborough Court today are a far cry from the boozy, shambolic hacks of yesteryear; a typical Goldman employee works a 12-to-16-hour day, nibbles on free fruit and hones his or her physique at the in-house gym, in the hope of ascending to the top.
Philanthropy is more or less compulsory, conspicuous consumption a no-no and the bank insists on a collegiate approach; prima donnas are given short shrift.
This cocktail has paid off in the current crisis, which has knocked over titans of Wall St like ninepins. Merrill Lynch chief executive Stan O'Neal resigned, Chuck Prince, CEO of Citigroup, has been chucked and Zoe Cruz of Morgan Stanley, the foremost female financial power broker in Manhattan, has cruised out of the building.
But Lloyd Blankfein, the punchy 1.72m chief executive of Goldman Sachs, is in line for a US$70 million ($92.8 million) pay packet, comfortably exceeding the US$54 million he took home last time.
Rivals will learn exactly how Goldman has performed this week when it reports full-year results. There is likely to be some red ink at the asset management division, where three hedge funds suffered large falls. The bank had to put in US$2 billion of its own money and US$1 billion from its friends to shore up its Global Equity Opportunities Fund.
Blankfein, however, has already said he does not expect any big write-downs related to the credit crunch. Goldman has avoided the worst of the mortgage mayhem in the US by making an inspired bet that there would be a huge rise in loan defaults among higher-risk homebuyers in the US.
Last year, when the mortgage markets were still riding high, chief financial officer David Viniar gathered senior executives to a secret summit in New York where he expressed his nervousness about the housing market. They decided to reduce their holdings and take out hedges against losses, going directly against most of their rivals, who continued to fill their boots.
By the time credit markets dried up in the summer, Goldman had offloaded most of its toxic loan products. Blankfein had also been building up the bank's pleasingly named "liquidity cushion" - which is, as one insider put it, a treasure chest to fall back on "when everyone gets really scared".
Big, heavily-leveraged private equity transactions have dried up, but corporate takeovers are still on the menu: Goldman is acting as an adviser to BHP Billiton on its proposed takeover of rival miner Rio Tinto, as well as counselling the UK Treasury on the possible sale of Northern Rock.
Blankfein, 53, who took the top job in June 2006, does not conform to the preppy American banker stereotype.
The son of a postal worker, he was brought up in the housing projects of New York and needed financial assistance to get through Harvard. (He now sits on a committee there offering cash help to students.) When he first applied for a job at Goldman in the 1980s, they turned him down; he got in only when the bank took over the firm where he was working as a gold salesman.
A BlackBerry addict who fires off emails into the small hours, he is said to have become a much more groomed figure, shedding several stone in weight and no longer carrying around his cream-cheese bagels in a plastic carrier bag.
He's come a long way from the projects. According to US property-gossip blog The Real Estalker, which tracks the house dealings of the rich and famous, Blankfein and wife Laura, a corporate lawyer, put their seven-bedroom house in Sagaponack, New York, with swimming pool and sunken tennis court, on the market this year for US$14 million.
Perhaps because of his background, Blankfein is sensitive to the need to be seen to contribute to society. The bank recently set up a new philanthropic fund called Goldman Gives, which aims to raise US$1 billion for charity from partners, who will be "strongly encouraged" to donate a set percentage of their rewards.
"We know we make a lot of money and have a responsibility to give something back," he has said. This generosity is unlikely, however, to deflect criticism from the bankers' bloated bonuses, earned as poorer Americans face eviction from their heavily mortgaged homes.
Others - notably smaller bank Lehman Brothers - have managed to come through the credit squeeze in good shape, but Goldman will attract the most attention and the most flak.
There have already been mutterings on Wall St suggesting that analysts have been "selling fear" to bolster their employer's short positions, and about US Treasury Secretary and former Goldmanite Hank Paulson talking to banks, possibly including his old firm, about market conditions.
These accusations may well be incorrect, but Goldman is frequently to be found steering a delicate course, partly because its tentacles of influence extend so widely: its alumni run the Italian and Canadian central banks, the World Bank and the New York Stock Exchange, to name but a few.
Another perennial gripe is over conflicts of interest. The best known example in the UK was when it was called in to advise airports operator BAA about defending itself from a takeover - then tabled an offer itself.
The bank's apparent infallibility will serve only to further incense the critics who deplore its wealth and power.
But the past 12 months have been a miraculous escape for Goldman - and Blankfein deserves some credit for that.
- Observer
