Examining Larry Fink
Paul Kedrosky loves playing around with word clouds, and generated this one from the new Bloomberg Businessweek profile of Larry Fink. It’s cute, as Paul notes, that Goldman and government seem to intersect. But it’s also interesting to see how prominent Goldman Sachs is — it’s the only bank in the cloud.
That made me want to read the profile, because the tense relationship between Fink and Goldman is something I’d love to see much more written about. But weirdly, the authors seem to go out of their way not to delve. They compare the business lines of the two companies, but take Fink at face value when he downplays any rivalry:
Fink brushes off the Goldman Sachs comparison—”They’re in such a different business,” he says. “I don’t want to be in that business.” …
“Goldman Sachs is a great partner of BlackRock’s, and yet we compete bitterly against each other, too, in the asset management side. We use them as a counterparty, and we do a lot of trades with them.” But, he says, “we are very different. This is who we want to be.”
Weirdly, this passage comes right after Fink goes out of his way to compare himself favorably with former Goldman executive John Thain, who beat him out to become CEO of Merrill Lynch:
When BlackRock rearranged its offices earlier this year, expanding onto several additional floors on East 52nd Street, Fink decided not to radically redecorate his new space. “Same furniture, exactly the same maker,” he says, gesturing around the room and chuckling. No $2 million renovation? “No. I don’t believe in that.”
If you only read one profile of Fink, the best one remains last April’s piece by Suzanna Andrews in Vanity Fair, which includes all the information in the more recent profile, plus much more about Fink the man:
Fink is also one of the best gossips on Wall Street. In an industry where information is power, he is regarded as the king, someone who gives to get. “Larry’s a real yenta,” says one bank executive who has known him since the early 80s. “There’s a lot of hinting at how much he knows. It’ll be ‘Oh, Bear Stearns, that portfolio is … ’ and then he won’t say it—he’ll just hold his nose.” Or “As I told Washington,” a phrase he is known to insert into conversation. “Larry has always wanted to be important,” says this bank executive. “And now that he’s more important than he ever dreamed of, he’s loving it.”
During six hours of interviews with Fink in December and January, all of these qualities were on display. Seated at the long cherrywood table in his conference room on the seventh floor of BlackRock’s headquarters, on East 52nd Street, he spoke about his firm, Wall Street, Washington, and himself. At times coolly analytical, and surprisingly reflective, he was at other moments defensive, emotional, and startlingly blunt. He gesticulates when he speaks, in a voice that sometimes verges on shouting but can suddenly drop to a whisper as though he were talking to a child or a lover. Both trenchant and gossipy in his insights—with a mind that moves at 90 m.p.h.—it is obvious what draws people to him. He’s open and unguarded, but only up to a point. There is another side of Fink—cautious and veiled—that monitors every word that comes out of his mouth.
Andrews was willing to probe Fink’s relationship with Thain:
Asked about that, and about accounts that he was “desperate” for the job and “furious” when, in November 2007, it went to his nemesis Thain, Fink says, “I was never desperate for the Merrill job. I can say I was interested in exploring it, but I didn’t want to go into a snake trap. I said for me to even consider it I needed to have my team go in and look at the balance sheet. And I was never allowed to do that. The whole process was infuriating.” He also says that his issues with Thain—who was recently hired to run the commercial finance company C.I.T. Group—“go back a lot of years,” but he will not discuss them. Asked, too, about reports that Fink, in his disdain for Thain, calls him “John-boy,” he smiles.
She’s also much more explicit about BlackRock’s mistakes, beyond the obvious StuyTown fiasco:
Despite the perception that Fink hasn’t made any mistakes, there have been some major missteps. There was the strong backing of Lehman Brothers’ management as the bank was imploding, kicked off by BlackRock’s purchase of a large block of Lehman stock at $28 a share, three months before the firm went bankrupt. And shortly after Bear Stearns collapsed, Fink advised investors to put their money into riskier, high-yield debt, just before that market tanked. BlackRock, as Janet Tavakoli points out, also contributed its share to the toxic-asset morass—with close to $8 billion of collateralized-debt-obligation deals that defaulted in 2007 and 2008.
And Fink’s relationship with Goldman is quite explicit:
He makes no secret of his distrust of Goldman Sachs—“He hates Goldman,” says one former Goldman partner—and, indeed, although he uses the firm for trading, he does not use them for investment banking.
Both pieces ultimately tell the same story: FInk loses $100 million at First Boston, leaves under a cloud, learns his lesson, becomes determined to bring sophisticated risk-management tools to fixed-income investment, founds BlackRock in partnership with Blackstone, has a fight with Steve Schwarzman, builds BlackRock into the world’s largest fund manager, and now aspires to some kind of public office.
Both also neglect some obvious questions: if he’s so dedicated to BlackRock, why was he talking about moving to Merrill? Would Obama ever really give him some kind of plum political job? And how much of BlackRock does he own? (Answer: 1,759,603 shares, or 2.7% of the company, worth $322 million at today’s closing price.)
More generally, rather than weakly recapitulate the VF piece, I think it would have been better for Bloomberg Businessweek to delve into some wonkier questions. Can unleveraged asset-management companies in general, and/or BlackRock in particular, pose a systemic risk? Given the size and sophistication of BlackRock’s trading operation, how can it not, like Citadel, start quacking very much like a broker-dealer in its own right? And are there any concerns about the de facto Pimco/BlackRock duopoly in the fixed-income asset-management business?
One day, I would love to read a piece about the parallel rise of Bill Gross and Larry Fink, how they managed to corner the market in terms of institutional fixed-income mandates, and how Pimco and BlackRock changed the very nature of bond investing while riding the long-term secular wave of declining interest rates and, along the way, becoming dynastically wealthy. What do those two men think of each other, I wonder.