Senior Goldman bond executive retires: memo

Fri Jan 20, 2012 4:39pm EST

(Reuters) - Donald Mullen, a senior bond executive at Goldman Sachs (GS.N) who oversaw controversial subprime mortgage trades leading up to the financial crisis, has retired, according to an internal memo distributed on Friday and obtained by Reuters.

His is the latest in a string of high-profile departures from the Wall Street bank, which has been struggling to maintain profits by cutting staff and bonuses in a weak business environment.

Mullen, a veteran bond trader who was most recently head of the credit and mortgage business inside Goldman's securities division, joined the bank as a partner in July 2001 to head leveraged finance.

He previously held senior positions at Bear Stearns, Salomon Brothers, Drexel Burnham Lambert and First Boston and leaves Goldman as a member of several influential internal groups, including the management committee and firmwide risk committee.

A spokesman confirmed the contents of the memo, which was signed by Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn.

As a senior mortgage executive at Goldman, Mullen was actively engaged in derivative trades that became known as "the big short." Goldman constructed those collateralized debt obligations in 2007 to profit from declines in the value of subprime mortgage bonds.

Mullen was one of a handful of senior Goldman executives whose emails were publicly released by a Senate committee that investigated Goldman's actions leading up to the financial crisis.

"Sounds like we will make some serious money," Mullen said when a ratings agency downgraded a group of mortgage-backed securities Goldman was betting against.

Such trades allowed Goldman to avoid major losses from the collapse of the mortgage market, but also brought much public scrutiny after the U.S. Securities and Exchange Commission accused Goldman of fraud related to one of its subprime CDOs. The bank paid $550 million to settle the charges in 2010 without admitting or denying wrongdoing.

Dozens of top Goldman executives have departed over the last year, as Wall Street faces difficult market conditions and new financial reform regulations that have already started to curb profitability. Last week, two co-heads of the securities division that housed Mullen's group also stepped down.

Goldman 2011 earnings of $2.5 billion were the weakest since 2008 and down 47 percent from the previous year. In response, the bank cut its payroll by 2,400 employees, or 7 percent, and reduced compensation expenses by 21 percent. The average Goldman employee received $367,057 in 2011, down from $430,700 the previous year.

Mullen's retirement announcement came the day after Goldman employees were informed of their 2011 bonuses, and few were spared from the bank's newfound frugality.

Some employees in weak-performing areas received no bonus at all, according to one source in the bank's fixed-income trading division. Compensation consultants have estimated that senior Wall Street executives, particularly in fixed-income divisions, were sure to see bonus cuts of 30 percent or more.

Mullen's departure may also reflect a change in the type of businesses that will drive earnings for Wall Street banks going forward. Morgan Stanley (MS.N), which also reported muted 2011 profitability this week, has cut staff from divisions that will be treated less favorably under new capital regulations, such as subprime debt securitization.

On a conference call with analysts to discuss Goldman's results on Wednesday, Chief Financial Officer David Viniar said the recent string of high-profile departures have occurred because senior executives stayed longer than usual to help Goldman cope with the financial crisis and its aftermath.

"Through both what I would call a financial crisis and reputational issues, the senior people at Goldman Sachs did not leave," he said.

The normal tenure of a Goldman partner is about eight years, Viniar said, with 15 to 20 percent of partners retiring bi-annually to make room for new arrivals. But there was "far less" turnover during the past four years, Viniar said.

(Reporting By Lauren Tara LaCapra; Additional reporting by Katya Wachtel; Editing by Paritosh Bansal and Gary Hill)

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