Thornton exit sets scene for Goldmans power struggle

Star investment banker swaps Wall Street for Great Wall to become a professor at top university in China

John Thornton, the joint number two at Goldman Sachs, might as well have said he was off back-packing in the hinterland of China, such was the surprise in investment banking circles at the announcement that the bulge bracket company's heir apparent was stepping down.

In fact Mr Thornton, Goldman's chief operating officer, is off to take on the twin roles of professor and director at one of China's most prestigious academic institutions, Qinghua University in Beijing. The institution is a training ground for China's political and business elite and can count China's former leader, Zhu Rongji, as a former student and member of its board.

Mr Thornton, who is staying in Beijing at present though he won't make the move until July, said: "My greatest satisfaction is creating and building things. That means that this kind of thing was always on the cards, I have just pulled it forward."

Mr Thornton has been globe trotting to promote Goldman for some time, and has built up close relations with China's emerging corporate elite. But his explanation for the surprise move convinced few, with friends and foes of Mr Thornton alike dumbfounded that one of their most aggressive and high-flying number had walked away from his 20-year career at the bank.

Mr Thornton, who will stay on as an adviser to Goldman, admitted that part of his decision to go was a result of the fact that Hank Paulson, the chairman and chief executive, has developed a taste for running the bank in the five years since it floated on the stock market in 1999. "When we took Goldman Sachs public Mr Paulson was not intending to stay all that long. But he has got into the job and enjoys it and is only 56. He is not going anywhere, which is great for Goldman Sachs," he said.

It is less good for 49-year-old Mr Thornton. He has spent his entire career at Goldman, joining as a graduate trainee and rapidly becoming one of the bank's most high profile partners, with a stake in the business valued at $220m when it floated.

Mr Thornton made his name as one of the City's most successful deal-makers when he was posted to the bank's mergers and acquisition desk in London in 1985. He was in the vanguard of driving the Square Mile closer to the brash, fast-moving practices of Wall Street.

Stories which emanate from the time include the young banker's willingness simply to turn up unannounced to see chief executives and wait until they gave him an audience ­ a tactic more traditional British merchant bankers would have never dreamed of employing.

There are also tales of Mr Thornton repeatedly ringing an underling on his wedding day to berate him about a deal he was working on for clients. The most colourful anecdote is that he once rounded off a client presentation with the pledge that if Goldman failed to win the mandate, "I will personally slit the throats of all my team and drink their blood".

The last story especially draws strong denials from Mr Thornton, but there is no doubt that he is an extremely tough task master. An employee of a rival bank said: "He is very aggressive, and very bright but very tough indeed to work for."

However, it may be the case that Mr Thornton has not been tough enough. In common with all of the Wall Street giants, Goldman's investment banking revenues have shrunk dramatically in the bear market of the past three years, yet it has been much slower than rivals to slash its headcount in order to bring down costs.

In contrast, Lloyd Blankfein, who is in charge of fixed income, has seen business boom, generating $1.88bn (£1.2bn) last quarter, 54 per cent more than in the previous year. Mr Blankfein is also about to take a seat on Goldman's board. The news of Mr Thornton's departure, announced late on Monday, prompted many to suggest that Mr Blankfein may be the more credible successor to Mr Paulson.

One observer said: "The investment banking business was always seen as the jewel in the crown and they ran the show. But that has slowed in the last few years and John has probably been told to get his costs down. But there are some really good, senior people there who he appointed and whom he probably doesn't want to let go."

Another banking insider said: "Goldman demands of people a level of commitment which most people do not think is sustainable for most human beings. Maybe John has just had enough and wants a change."

There may also be a slightly darker aspect to the move. One banker who has worked with Mr Thornton said: "He wanted to run the firm, now he is off lecturing in China. This is a major, major shift. Something monumentous must have happened at Goldman and it suggests this may be as much a question of being pushed as jumping at new opportunities in China."

It wouldn't be the first time Goldman had fallen victim to intrigue. In 1998 there was a well publicised coup, which saw a close clique of partners, including Mr Thornton and Mr Paulson, overthrow the bank's incumbent head, Jon Corzine. Mr Thornton was jointly awarded the role of chief operating officer with John Thain. Many thought the two would progress together in due course to split the top job.

Now it seems to be Mr Blankfein, fuelled by the success of fixed interest, who seems to be pushing his way up the ranks of Goldman's hierarchy. That could mean further ructions. As one individual familiar with the practices of investment banks remarked: "If John is going, who will be next? There are a number of people running big parts of Goldman around the world who were appointed by him. Without his support, they will look very vulnerable. This could be the start of a mass exodus."

It is a problem Mr Thornton is leaving far behind him. The American, who will retain his directorships at Ford and BSkyB, is widely thought to have ambitions beyond setting up a centre to groom Chinese leaders of the future and stimulate business between the People's Republic and the West.

He is thought to hanker after a move into politics, just as Mr Corzine found life after Goldman in becoming the senator for New Jersey. One person who knows him said: "The idea of John Thornton going native in China is ridiculous. He will be back, with some very good connections and the region under his belt, which will not go down at all badly in the world of US politics. We certainly haven't heard the last of him."

RIVALS FOR THE THRONE

LLOYD BLANKFEIN
Mr Blankfein's star has been in the ascendant for some time, on the back of the storming growth his fixed income and commodities division has seen in the last 12 months. About to step up to a position on Goldman's board, it appears that he is tipping the internal balance of power away from the corporate finance brigade within Goldman towards himself and his supporters.

JOHN THAIN
Mr Thain, who shared the chief operating officer role with Mr Thornton, is a safe pair of hands and master of detail who could steer Goldman's through the choppy waters investment banks are currently in due to tough stock markets and a spate of investigations into their questionable practices of the past. But critics say he lacks flair and, with the departure of Mr Thornton, can wave goodbye to his dreams of taking the top job.