Changes at Goldman (from left): Richard Gnodde makes way for the promoted Marc Nachmann and Gregg Lemkau © FT montage

By its own standards, Goldman Sachs had a rough 2016.

In trading the bank struggled to recover from a rocky first quarter. In Europe it was beaten up over its advice to BHS and the Libyan Investment Authority. In Asia, the stench from the 1MDB scandal proved hard to shake off.

The bank’s main scorecard for the year — its return on equity — came in at 9.3 per cent: the second year in a row of single-digit returns, well short of the mid-teens target pursued by Lloyd Blankfein, chairman and chief executive. Annual revenues have stalled in the $30bn-$35bn range, prompting Goldman to assign its best minds to finding new business lines to enter.

That is why much is riding on a reshuffle in the investment banking division, the biggest in at least a decade, which the bank announced this week. Goldman promoted Gregg Lemkau and Marc Nachmann as two new co-heads of investment banking — moving Mr Nachmann to London — and relieved another co-head, Richard Gnodde, of the title.

Mr Gnodde, one of two vice-chairmen of the firm, will continue to run the bank’s European arm from London, while François-Xavier de Mallmann, one of the bank’s more dependable European rainmakers, steps up to chairman of the investment banking division, alongside Karen Cook. The other investment banking co-head, John Waldron, stays put.

Goldman insiders describe a routine rejig triggered by the departure of Gary Cohn, former president and chief operating officer, to become President Donald Trump’s consigliere on economic policy. David Solomon, a former co-head of investment banking, was one of two executives moved up to replace him.

But analysts and former partners say they can sense a determined effort to shore up the core. Goldman’s advisory business was its second biggest last year, accounting for almost $6.3bn of net revenues. And the bank remains a fee machine. In US mergers and acquisitions, for example, the bank has picked up almost $2bn in fees by acting for sellers over the past three years, according to an FT analysis of Dealogic data covering deals of more than $500m.

That gives Goldman a wallet share of almost 22 per cent — well clear of Morgan Stanley with 14 per cent or JPMorgan Chase with 10 per cent.

In raising debt and equity, too, Goldman is rarely out of the top three, swapping places on a quarterly basis with JPMorgan Chase and Morgan Stanley, notes Guy Moszkowski, analyst at Autonomous Research in New York.

Other lines of business are looking shakier. Goldman’s trading division, for example, has been hit by moves to electronic markets and patchy activity among big clients such as hedge funds. The bond-trading part of it, traditionally a big driver of profits, has seen net revenues collapse from $23.3bn in 2009 to $7.6bn last year.

Meanwhile, fees in the asset management division have been squeezed by the big shift from active management to passive. The investing and lending segment, which is a ragbag of bets with the bank’s own capital, has also been pegged back by new rules on risk-taking.

In investment banking, too, things have been better for Goldman: revenues last year slipped 11 per cent, worse than the 9 per cent group-wide fall.

But such is the upheaval elsewhere, the platform seems solid.

“Investment banking for the first time in years is carrying the firm,” says one former partner. “[Solomon] is on his way to becoming CEO, or at least he thinks he is . . . John, Marc and Gregg are his people, the people he trusts and he listens to.”

The co-head structure is nothing new for Goldman, which has a tradition of making up two or three people at a time.

Goldman people say it is part of the partnership ethos: the sense that management is a chore to be shared around. One senior executive adds that the structure tends to get the best out of a varied collection of people. He cites the quartet running the securities business from 2008, when Harvey Schwartz (sales), Pablo Salame (credit), Ed Eisler (macro) and David Heller (equities) brought different skills to the table. 

“The co-head thing is a very good thing,” said one former partner. “You develop a firm view rather than an individual view.”

It is also a good way to see who sinks and who swims. By 2012 Mr Eisler and Mr Heller had left the firm; Mr Schwartz, who stepped up to chief financial officer in 2014, is now co-president and co-chief operating officer, and considered the frontrunner to succeed Mr Blankfein.

The first former Goldman partner said that within the old structure Mr Solomon had in effect been in charge of investment banking, so Mr Gnodde’s change in title would have limited practical impact. “Richard was a peer only in name,” he said. “The reality is he wasn’t running investment banking before and he isn’t running investment banking now.”

Is it a demotion for Mr Gnodde? “If there were no Brexit, maybe,” said the second Goldman partner, adding that Mr Gnodde had “too much on his plate” when the departure of Michael Sherwood left him as sole head of Goldman in Europe, the Middle East and Africa, and co-head of investment banking.

Mr Sherwood’s resignation in November came at a time of internal unease over his links to the collapse of BHS, a British retailer, according to several people familiar with the situation.

“No one at Goldman Sachs likes to relinquish anything, but the practical process overrides that. Richard will be getting unique kudos as the guy who runs Europe,” said another Goldman insider. He added that there was precedent for handing back some responsibility — Mr Sherwood, a former fixed-income trader, was co-head of Goldman’s securities division until 2008.

Mr Blankfein said in a statement: “Richard Gnodde and Michael Sherwood shared the important job of steering our franchise throughout Europe, Africa, and the Middle East. With Michael’s retirement, Richard is taking on full responsibility for running our business in those regions while maintaining his deep client relationships.”

Mr Lemkau’s star has been on the rise for years. A partner since 2002, he has held a series of high-level jobs at Goldman, including co-head of its global technology, media and telecom group and chief operating officer of investment banking.

Mr Nachmann, former head of the global financial group and head of Latin America, is a risk-management expert, known for helping investment banking clients set up commodities hedges. The newly promoted German national, who made partner in 2004, will now be the “most senior guy on the ground” in London, one ex-Goldman partner said. “He (Mr Gnodde) will be totally disenfranchised.”

Mr Blankfein, the longest serving big-bank chief on Wall Street, has let it be known internally that he is ready to stand aside once he restores return on equity to the mid-teens. 

But to get there, he needs the old engine of investment banking to start firing again.

Additional reporting by James Fontanella-Khan and Sujeet Indap

* This article has been amended from the original to add a statement from Mr Blankfein

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