Goldman Sachs stars lose their luster amid crisis

NEW YORK (Reuters) - John Thain, Bank of America's just ousted head of investment banking, securities and wealth management, is only the latest alumnus from Wall Street powerhouse Goldman Sachs to fall abruptly from grace as the legendary bank loses its aura of invincibility.

Thain -- the former chief operating officer at Merrill Lynch -- masterminded that bank's sale to Bank of America Corp (BAC.N). But he was forced to leave BofA under the shadow of a $15.31 billion fourth-quarter loss at Merrill, as well as allegations he was a lavish spender.

Thain was among the many former executives from what once was Wall Street's most profitable investment bank who went on to other top companies, as well as the upper echelons of government.

Once they were the brightest stars in the investment universe, but Goldman alumni -- including Thain, former Treasury Secretary Hank Paulson and former Citigroup Chairman Robert Rubin -- look much less brilliant now.

"The Goldman feet of clay is the way I look at it," said Nancy Bush, an analyst at NAB Research, referring to the one-time "masters of the universe."

Thain has made the biggest headlines lately. Along with a report that he spent $1.2 million redecorating his office shortly after joining Merrill Lynch in December 2007, his reputation was tarnished even more by a request for a bonus -- after Merrill racked up more than $20 billion in writedowns.

When he joined BofA, Thain brought on at least one other highly paid Goldman Sachs Group Inc (GS.N) executive -- Thomas Montag, who was paid a bonus of $39.4 million plus a $600,000 salary -- and other staff, such as former chief risk officer Noel Donohoe.

Yet they did little to reverse the crisis at the firm, although their defenders say turning around Merrill, loaded up on risk as it was under its former management, might have been too much for anyone.

Beyond Merrill, former Goldman Chief Executive Henry Paulson's reign as U.S. Treasury Secretary came to an end this month, overshadowed by increasing criticism of his expensive efforts to revive the U.S. economy.

And earlier this month, former Goldman executive and Treasury Secretary Robert Rubin left his post as senior counselor at Citigroup Inc (C.N) after coming under fire for his performance at the giant bank.

The list of Goldman executives whose names have lost their luster extends to Robert Steel, former Goldman vice chairman, who was parachuted into Wachovia Bank to save it and wound up selling it to Wells Fargo & Co (WFC.N), and Neel Kashkari, the Goldman wunderkind, who at 35 was named by Paulson to manage the government's $700 billion Troubled Asset Relief Program -- an increasingly unpopular bailout.

"The firm's reputation has taken some hits," said NAB Research's Bush.

GOLDMAN REPRICED

Current Chief Executive Lloyd Blankfein may have hoped he could rely on the bank's reputation as the financial crisis spun into a global recession. But that status looks increasingly tenuous now and Goldman Sachs' share price fell 61 percent last year.

"Lloyd Blankfein must be smacking his forehead about this," said Bush after Thain's exit from Bank of America.

Not that things have been easy for those who stayed behind. Last month, the firm posted its first quarterly loss since going public and was forced to raise more than $20 billion in capital.

And Goldman became a bank holding company regulated by the Federal Reserve in September after Merrill Lynch's sale to Bank of America and Lehman Brothers' bankruptcy left the markets reeling.

Altogether during the fourth quarter, the bank was forced to seek $21 billion in capital from the U.S. Treasury, public investors and Warren Buffett's Berkshire Hathaway Inc (BRKa.N).

To be fair, Goldman and its former stars are not the only victims of a crisis that has overwhelmed many top bankers.

In a sense, the inability of executives such as Steel and Thain to keep struggling banks independent, or the difficulties of Paulson and Kashkari in managing the sprawling TARP bailout simply triggered a repricing of Goldman's talent -- much as many other once prized assets across Wall Street have had to be repriced.

John Stein, president and co-founder of investment firm FSI Group in Cincinnati perhaps says it best: "They are not cut from a different cloth than anyone else on Wall Street."

(Editing by Andre Grenon)