GS Goldman Sachs Group Inc

By Liz Hoffman 

Goldman Sachs Group Inc. is shaking up the leadership of its powerful trading arm, which was once the envy of Wall Street but has struggled in recent years.

Pablo Salame and Isabelle Ealet, two of three executives who oversee the division, will leave the firm next month, according to an internal memo reviewed by The Wall Street Journal.

Monday's shake-up leaves Ashok Varadhan as the sole head of the division and could tee up an effective split of the firm's fixed-income and equities arms, an idea that has gotten some discussion among executives, according to people familiar with the matter.

The two executives couldn't be reached for comment.

Goldman's securities division employs thousands of traders, who manage positions in assets ranging from blue-chip stocks to global currencies, and salespeople, who pitch the firm's products and investment ideas to clients.

The business has struggled to regain its footing since the financial crisis, leading Goldman to branch out into other areas such as consumer banking and asset management.

New regulations have crimped trading profits and a long period of market calm has sapped demand for the complex products that are Goldman's specialty.

Last year was the firm's worst for trading since 2008. Revenue fell 18% overall from the prior year and 30% in its fixed-income unit, which includes bonds, currencies, commodities and products tied to interest rates.

The fixed-income and equities businesses have been jointly managed since the early 2000s, though power has tended to rest with executives from fixed-income, a one-time profit machine that launched the career of Goldman's chief executive, Lloyd Blankfein. Messrs. Salame and Varadhan and Ms. Ealet each got their starts there, too.

The departures thin the ranks of experienced trading executives at a time when David Solomon, an investment banker, is poised to succeed Mr. Blankfein as CEO.

Top executives weighed a shake-up of the trading division's leadership late last year, a person familiar with the matter said at the time. They sought to balance the need for a steady hand atop the unit -- which is a minefield of risk, even years after the financial crisis -- with the hope that changes would boost morale and show clients and shareholders that Goldman was taking its slump seriously.

They opted instead for a smaller reorganization lower down the ranks, promoting Justin Gmelich and Jim Esposito to be co-chief operating officers of the fixed-income unit. That replicated a chain of command already in place in Goldman's stock-trading arm. Those two men will remain in their roles, as will equities co-COOs Michael Daffey and Paul Russo, according to Monday's memo.

Mr. Salame, a 52-year-old Ecuador native, is a powerful presence inside Goldman, sitting on the committee that selects new partners. Brainy and blunt, he is known more for his intellectual horsepower and guru-style beard than his rapport with clients, though he spearheaded a customer charm offensive last year designed to showcase a friendlier Goldman.

He joined the firm's New York office in 1996 in emerging-markets trading and made partner in 2000. Mr. Salame has held his current job since 2008. He was considered for the role of chief financial officer in 2013 but declined, according to people familiar with the matter.

Ms. Ealet, French-born and based in London, joined Goldman in 1991 as a commodities trader and later ran that business. A partner since 2000, she is the only woman running a major division at Goldman, but has kept a low profile, both inside and outside the firm. Ms. Ealet was awarded the French government's highest civilian honor in 2015.

The firm's commodities arm, which is viewed as being in Ms. Ealet's domain, struggled acutely last year, l osing money on natural gas and power bets. Goldman's head of commodities, Greg Agran, left last year.

Mr. Varadhan, who is for now the sole head of the securities division, rose as a superstar swaps trader and became one of the youngest partners in Goldman history, at age 29. He was one of the firm's highest-paid employees in the 2000s trading boom, in some years outearning Mr. Blankfein, his then neighbor at 15 Central Park West.

Mr. Varadhan eventually oversaw trading of interest rates, currencies and emerging-market debt and became a division head in 2014. A year later, he was transferred to London, a move at Goldman that is meant to round out future leaders of the firm.

But his star had dimmed in recent years, according to people familiar with the matter. The so-called "macro" trading businesses he is most closely associated with struggled, and at times he struck colleagues and clients as less attentive and enthusiastic.

Last year, Mr. Varadhan considered taking a job with hedge-fund firm Millennium Management, a major Goldman client, people familiar with the matter said. The talks didn't ultimately lead to a job, but they became known inside Goldman, raising questions internally about his commitment to the firm, the people added.

Write to Liz Hoffman at liz.hoffman@wsj.com

(END) Dow Jones Newswires

May 14, 2018 13:42 ET (17:42 GMT)

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