Trading Up

Interesting article on the transition of power...tensions and blurring lines between traders, salesmen and investment bankers

When Hank Paulson took joint charge of Goldman Sachs in 1994, the investment bank was enduring one of the worst years in its recent history.

Sudden swings in the financial markets had left the private partnership nursing heavy losses on its proprietary trading portfolio. The deficit wiped out income from Goldman's corporate finance operations and the firm narrowly avoided slipping into the red.

Twelve years later, as Paulson prepares to pass the baton to Lloyd Blankfein, the bank's president, the picture could hardly be more different. Now a public company, Goldman last Tuesday reported post-tax earnings of $2.29 billion for the three months to May its second-highest quarterly profit.

As striking as the turnround itself was the reason behind it. The big money had been made from trading in bonds, currencies, commodities and equities. Despite near-perfect market conditions, Goldman's traditional investment banking business which includes underwriting debt and equity issues as well as advising on mergers and acquisitions generated just 15 per cent of net revenues.

Read on.

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