Should Blankfein Continue To Stay At Goldman Sachs? (GS)

Some executives and influential alumni of Goldman Sachs (NYSE: GS) are doubtful whether the current Chief Executive of the bank, Lloyd C. Blankfein, will be able to survive the battle of allegations against the bank, according to people familiar with the situation. So far, there are no plans for a management shake-up, as informal conversations among some partners, directors and current and former executives did not signal any changes.

According to the Wall Street Journal, some of the questions facing Goldman are whether Blankfein should resign, whether there should be broader house cleaning at the top of Goldman management or whether it should separate Chairman and CEO posts, which are currently held by Blankfein. However, informal discussions over the life of Goldman after Blankfein show that the bank is being rattled by the turmoil. According to people close to the situation, one of the possibilities discussed is to invite former Chief Executive, Henry Paulson, to take the job of Chairman. However, a person close to Paulson’s thinking said that he would never return to Goldman. Meanwhile, the bank declined to comment over this issue.

But support for Blankfein remains intact within Goldman as the bank battles a federal criminal investigation and last month's civil-fraud lawsuit filed by the Securities and Exchange Commission (SEC). The support for Blankfein was evident when he received a standing ovation at a meeting of Goldman executives, a few days after the suit was filed against the bank. Even large shareholders of the bank said that they support keeping Blankfein and President Gary D. Cohn in their current jobs.

But one large investor said that support to the bank can quickly wane if it suffers another “self-inflicted wound” that sinks its stock price. Some supporters also said that their endorsement of Blankfein could disappear if Goldman shares fall below their current book value of about $122. Since the lawsuit was filed, Goldman stock has gone down by 19%. Commenting over the erosion of stock value, one major shareholder said that that the bank needs to find a way out of this sticky situation in the next month or so. “We are very supportive of management and think the SEC case is weak, but at a certain point we can't afford not to ask for a management change,” added the same shareholder.

On Friday, it will be interesting to find out how much allegiance shareholders have towards Blankfein as they meet at the bank’s annual meeting in lower Manhattan.

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