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Financial

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Categorized | Banks, Financial

Michael Sherwood, the man who led Goldman’s growth in Europe


Posted on November 21, 2016

Michael Sherwood, the 31-year veteran of Goldman Sachs who has announced his departure as co-head of its international bank, describes himself as “the most senior non-American in the firm, maybe even on Wall Street”.

His biggest boast about his contribution to the US bank is the significant growth of Goldman Sachs International (GSI) since he joined in 1986. Then, “there were 150 of us here”; now, GSI employs almost 6,200 people and makes about a third of Goldman Sachs’ group profits.

The 51-year-old Briton says the “best thing” for Goldman’s European business was “the advent of the euro” in 1999, which meant that instead of competing in many markets with lots of national champions, Goldman could attack “one big transparent market”.

The common currency is not something Mr Sherwood can take credit for. Instead, he highlights his role in “developing people”, growing the “client franchise” and supporting innovation and other ideas to help get Goldman ahead of the curve in a fast-changing industry.

He was also hands on for the bank at important times, such as a stint in Moscow in 1998 during the Russian debt crisis. And the securities business, where he cut his teeth and which he continues to oversee, avoided the European rate-rigging scandals that hurt the reputations and profits of many rivals.

Certainly Goldman saw great things in him from an early age. By the age of 28, eight years after he joined the bank, Mr Sherwood was earning multi-million dollar bonuses. He landed a coveted partnership before his 30th birthday and he has even been known to out-earn his boss, Lloyd Blankfein: in 2013, the Briton received a $15.8m bonus while Mr Blankfein was awarded $13.6m. It is not a bad run for a man who says he was “always too candid and too straightforward”, and whose bluntness is at odds with the stereotypical polished Goldman banker.

Outside Goldman’s compensation committee, opinions on Mr Sherwood have been more divided. His large salary, and predilection for Porsche cars and houses with swimming pools, earned him the moniker “Fat Mike” and tabloid fame while still in his twenties.

More recently, his division has spent much of this year embroiled in a hail of bad publicity over a lawsuit filed by the Libyan Investment Authority and the bank’s tangential involvement in the collapse of British retailer BHS. The bank was also a prominent supporter of the losing Remain campaign in the UK’s referendum on EU membership.

Mr Sherwood is adamant that none of the tumult of the last 12 months contributed to his decision to go and he says Mr Blankfein asked him to stay.

On Libya, he says he is “very happy” that the bank was exonerated of claims its employees duped Libyan officials into investments that lost them $1.2bn.

The BHS affair, on which Mr Sherwood had to give evidence to a UK parliamentary committee, cuts him deeper. “I wish we hadn’t been involved in it but I really think we didn’t do much wrong,” he says, describing it as “one blip in a 30-year career”.

News: Sherwood quits as co-head of Europe
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Goldman insisted it had no formal role in the disastrous sale of BHS by Mr Sherwood’s friend and long-time client Sir Philip Green to the thrice bankrupt Dominic Chappell. BHS eventually collapsed, taking with it 11,000 jobs and leaving a £571m hole in the retailer’s pension fund.

Mr Sherwood says the bank had received very little money from Mr Green since they advised him on his failed bid for Marks and Spencer in 2004, and suffered reputationally from the BHS association.

Back in the summer, it was clear that some senior Goldman executives were extremely concerned about Mr Sherwood’s entanglement with Mr Green. Executives were highly critical of the email traffic between Goldman bankers and Sir Philip’s team, which Goldman described as “informal”. A parliamentary inquiry published a log of 95 calls, meetings and emails between the two sides as Sir Philip prepared to offload BHS.

$15.8m

Bonus received by Michael Sherwood in 2013

Goldman was no stranger to controversy earlier during Mr Sherwood’s 11-year tenure as co-chief executive of GSI. In 2010, the bank was fined £17.5m for failing to disclose to the UK regulator that it was under investigation by US authorities, where regulators were investigating London-based rogue trader Fabrice Tourre.

At the height of the Greek debt crisis, Goldman was accused of having previously helped the country’s government to hide billions of debts which later contributed to the country’s economic implosion. Mr Sherwood says the Greek deal — which allowed Greece to reduce its debt by swapping the currency of some of its bonds — was “done in the late 1990s, it was a totally different world” and that the transactions were “tiny” in the overall context of the Greek crisis.

Ultimately, the bank recovered its swagger after both the Tourre and Greek scandals. The crises of 2016 were a blow for Mr Sherwood and the banker will have a hard time exorcising them from a legacy that he says includes only five bad years and 26 good ones.

Additional reporting by Patrick Jenkins

Goldman’s explosive growth during the tenure of its departing European boss Michael Sherwood was anything but an anomaly in a region that has become dominated by the big Wall Street banks, writes Laura Noonan.

London-headquartered Goldman Sachs International, known as GSI, grew from the 150 staff Mr Sherwood joined to a 3,578-strong business by the time he became its co-chief executive in 2005.

Now, it has about 6,200 staff and posted earnings of $2.3bn last year, despite the fixed income trading storm that hit the world’s biggest markets banks at the end of 2015.

Mr Sherwood cited the adoption of the euro in 1999 as a key point in the bank’s history, giving them a single scalable business instead of having to tough it out against national champions across the euro zone.

The other more recent enabler has been the steady decline of Europe’s investment banks, in the aftermath of the 2008-2009 financial crisis.

Deutsche Bank is the only European operator that features in the top five European investment banks by fees as calculated by industry monitor Coalition. Goldman is in third place for overall investment bank fees during the first half of 2016, below both Deutsche and JPMorgan.

The Europeans have lost ground in the pure investment banking business of offering advice to companies, because their balance sheets have left them unable to accompany advice with hard cash to lend to companies.

In the markets area, European banks are facing severe capital constraints and several, including Credit Suisse and Deutsche, are reducing their trading activities so they use less capital.