I don’t know Harvey Schwartz but I feel some obscure loyalty to all the weird subcultures that I’ve been a part of, and Goldman’s Americas Financing Group was one of the weirdest.1 As Harvey lived there in his early days at Goldman, I salute him and wish him the best as Goldman CFO. But that’s no reason not to armchair psychologize his – surprising-ish? – choice as Goldman’s new CFO, so let’s do that quickly.
I suppose there are two overlapping jobs for a CFO, particularly a financial institution CFO:
- smoke cigars and pal around with shareholders, bondholders, and analysts; and
- chain-smoke and freak out about liquidity.
Bones’s merits on the first front were obvious, but the main impression he gave off was an obsession with the second; he never missed an opportunity – including on his last-ish call as CFO this afternoon – to remind people that his list of concerns consisted of “liquidity, liquidity, liquidity.” Now it happens that he lived in interesting times, in which markets and analysts turned out to be a lot fonder of the liquidity obsessives than the misplaced bankers.
So let’s ponder this:
Prior to becoming global co-head of the Securities Division, Schwartz was global head of Securities Division Sales, where he helped oversee the Division’s relationships with clients including corporations, asset managers and institutions. Before that, he was co-head of the Americas Financing Group within Investment Banking, which centralizes financing-related advice, origination and execution for clients.
You might make of it what one analyst asked on the call: “so, Harvey, you are a client and sales guy, huh?”2 Running sales, and previously running the business that helped companies sell securities to investors, seems to be the sort of background that trains you up in, um, selling securities to investors. This is a good skill to have if you are selling securities to investors, or otherwise managing corporate relationships with pesky stockholders, bondholders, and their self-appointed sell-side representatives. It is a far from negligible skill if you are, say, convincing unwilling repo investors to take your name. But it is not necessarily where you learn to obsess about liquidity risk management. Of course, running the securities division – Schwartz’s current job – is where you learn that, and he was quick to point out that in that role he runs a (huge) balance sheet and manages the division’s liquidity, but as a background it’s definitely more salesy than treasury-y.3
From this you might move on to what another analyst said on the call, which is basically: “so, David, did you decide to retire now, after 32 years, because you expect things to be calm and boring for a while?”4 Viniar’s answer was of the calm-but-not-boring variety, but you can see the guy’s point, right? You’d prefer, all else being equal, to do a CFO transition during a relatively quiet period. And in the last few years Viniar steered Goldman’s balance sheet through a rough time – an existentially rough time, the sort of rough time where you come in in the morning worrying about whether you’ll make it through the day, not the sort of rough time where you complain about your stock price moving sideways.
That worked out well, existentially! But as Mike Mayo pointed out on the call, the stock price is the one blemish, or at least meh, on Viniar’s record; it’s still stuck below where it was in 2005. So in picking a successor to Viniar, is your first choice to get someone who obsesses single-mindedly over liquidity, or someone who can leave that obsession to his staff – mentioned repeatedly on the transition call – and add a bit of salesmanship and pizzazz?
It depends, right? If you think that the next few years are going to be full of drama, and that banks will be distinguished by their balance-sheet acumen and knife-edge liquidity risk management, then perhaps you go with option A. If you think – due to, say, changes in the industry and/or regulatory climate – that banking is going to be boring, well, then, you might want prefer that your CFO spend some time spicing things up.
Harvey M. Schwartz to Become Chief Financial Officer at the End of January 2013; David Viniar to Retire and Join Board of Directors [GS]
1. The name alone! You want an apostrophe, but there’s no apostrophe! It’s PLURAL. Mind-blowing.
2. Paraphrased of course. Do I look like a reporter?
3. Or what you might call, if you knew Goldman or, I guess, Star Trek, “Federation-y,” meaning dealing with operational and reputational risk as well as the risk of, like, accounting fraud. This is a good article from 2011 on the CFO succession race; they note that “The CFO role at Goldman Sachs is already broader than at some other companies. The entire administrative side of the firm — known as operations, technology and finance or by its nickname ‘The Federation’ – all report to Viniar.” And they picked two obvious successor candidates, controller Sarah Smith and treasurer Liz Beshel Robinson, who you can think of as Viniar’s deputies for Federation risk and liquidity risk, respectively. And now it’s neither of them. Incidentally we hear that neither of them knew until today that Viniar was stepping down, so there’s that.