Harvey M. Schwartz, who will succeed David A. Viniar as Goldman Sachs Group Inc.'s chief financial officer in January, learned early in his career about tough times on Wall Street.

The 6-foot-4 Rutgers University graduate watched tears stream down the face of a middle-aged colleague as the stock market crashed on Oct. 19, 1987. Two years later, he was working at Citicorp when the bank cut thousands of jobs.

Schwartz wasn't deterred. After 15 years at Goldman Sachs, most recently as co-head of global securities, he was tapped to replace the longest-serving CFO of any major Wall Street firm. The job will make Schwartz, 48, one of the most visible executives at the fifth-biggest U.S. bank by assets as it cuts costs and grapples with weak economic growth and regulatory changes that pushed first-half revenue to the lowest since 2005.

“Whenever we were in a situation where things were either tough or difficult, and you were looking to see who was around to work on it, Harvey was always there,” said Jon Winkelried, co-president of Goldman Sachs when he left in 2009 after 27 years at the firm. “He doesn't run from difficulty, it kind of attracts him. That's a pretty darn good feature to have.”

Following Viniar as CFO would be a challenge at any time. For Schwartz, the task is compounded because Goldman Sachs's business model is in doubt. The company's shares, like those of some competitors, trade below liquidation value as investors question whether banks will be able to generate a return on equity, a measure of how well a firm reinvests their money, sufficient to compensate them for the risks they're taking.

To improve returns, the New York-based bank cut $1.4 billion of costs beginning last year and said in July that it's trimming an additional $500 million, mostly from compensation.

Schwartz, who declined to comment for this story, has seen the good, bad and ugly of Wall Street since his inauspicious start 25 years ago at J.B. Hanauer & Co. in Parsippany, New Jersey. He arrived at that firm's trading floor just in time to witness the Dow Jones Industrial Average plunge 22.6 percent on what was later dubbed “Black Monday,” according to people who have heard him recount his career.

He spent six months in 1988 and 1989 at First Interregional Equity Corp., according to Financial Industry Regulatory Authority records. About a decade later that firm's president, controller and data-processing supervisor pleaded guilty to criminal charges that they defrauded more than 1,700 investors of about $115 million in a Ponzi scheme.

Blankfein, Cohn

In 1989, Schwartz took a job at Citicorp, then the largest U.S. bank, where his early roles included consolidating contracts with vendors as the firm scaled back operations, said the people who have heard him describe his career.

Schwartz eventually joined the bank's credit-training program and developed a specialty structuring derivatives for companies in the petroleum, metals and mining industries, the people said. After obtaining a master's degree in business administration from Columbia University in 1996, he landed a job in 1997 as a vice president of J. Aron, the currency and commodities-trading unit of Goldman Sachs.

J. Aron, managed at the time by Lloyd C. Blankfein, was in the process of merging with Goldman Sachs's fixed-income unit into a business called fixed income, currencies and commodities, or FICC. Blankfein had named Gary D. Cohn as global head of commodities a year earlier.

As the FICC division's contribution to revenue surged over the next decade, so did the careers of Blankfein, Cohn, and other J. Aron alumni, including Schwartz. Blankfein, 58, is now chairman and chief executive officer of Goldman Sachs, and Cohn, 52, is president and chief operating officer. Seven of the 30 members of the firm's management committee worked at J. Aron.

Three former employees interviewed for this story who spoke anonymously because they feared they would jeopardize relationships at the company attributed Schwartz's promotion, in part, to his close relationships with Cohn and Blankfein.

Others who have worked with Schwartz dispute that and point to his relationships with colleagues across the firm.

“Obviously, Gary and Lloyd wouldn't put him in that job unless they felt comfortable and respected him,” said Michael Troy, who later helped run fixed-income sales with Schwartz and served as his deputy before retiring in 2011 after 27 years at the company. “But I think that they're also smart enough to know that he needs to have relationships, which he does, with many different constituents throughout the firm.”

'Step Back'

One of them is Susan J. “Susie” Scher, a New York-based partner in the investment-banking division.

Scher first met Schwartz in the late 1990s, when they were both vice presidents, a mid-level position, and were attending a meeting with a Canadian commodity-producing company, she said in a phone interview. While Schwartz's role was in sales and trading, he seemed to know the firm better than the investment bankers responsible for the relationship, Scher said. He proposed a complex derivatives instrument to help manage the client's risks and displayed a better understanding of the products than a more senior executive at the meeting, she said.

In 2004, Scher found herself working for Schwartz when he moved into the investment-banking division to become co-head of a new financing group responsible for helping clients issue debt and equity. Schwartz was quick to learn the business, versatile in adapting to different types of clients and became a mentor who helped Scher win election to partner in 2006, she said.

“He's the kind of guy who will say to you, 'You're thinking about it the wrong way, you're worrying too much about this little teeny aspect of it, step back, think big picture,'” said Scher, 47. “Even today, sometimes when I'm facing some sort of situation, I think, 'What would Harvey do?'”

Schwartz's experience in the investment-banking division, though shorter than two years, is a crucial background for a CFO, Winkelried said in a phone interview.

“If you look at the history of the firm, there are not a lot of people who have actually lived and functioned at a kind of a high management level in both the sales and trading world and the investment-banking world, and Harvey has,” said Winkelried, who was co-president and co-COO with Cohn. “Harvey is extremely well-prepared.”

Colleagues and investors credit Viniar, 57, who joined Goldman Sachs 17 years before Schwartz, with building the administrative side of the firm, known internally as “the federation,” which includes technology, treasury, controllers and risk management. All will be Schwartz's responsibility.

CFO Salary

Viniar, as the only CFO Goldman Sachs has had in 13 years as a public company, helped manage the transition from a partnership and played a key role in navigating the financial crisis. The CFO, not the CEO, speaks to investors and analysts on quarterly earnings calls, making him one of the bank's most public figures.

He's also one of the few executives whose pay is disclosed. Viniar was awarded a salary of $1.85 million last year, a $3 million cash bonus and $7 million in restricted stock units. Schwartz, whose pay hasn't been made public previously, will receive the same salary as Viniar and be eligible for a bonus, according to a company filing.

Some employees and analysts said they expected Treasurer Elizabeth Beshel Robinson, 43, or Sarah E. Smith, 53, the chief accounting officer, to succeed Viniar. One former partner, who requested anonymity to protect his relationship with the firm, said he and people he knows within the company expected Pablo J. Salame, 46, a co-head of sales and trading with Schwartz, to get the job after he relocated to New York from London last year.

David Wells, a spokesman for the bank, declined to comment about the selection process.

Compared with Viniar, “Harvey has less experience at the broad-based risk-management role, but David built him a team, so it's only that last 5 percent that Harvey has to make the difference,” said James Kennedy, CEO of Baltimore-based asset manager T. Rowe Price Group Inc., a client of Goldman Sachs and a shareholder in the company.

To be as successful as Viniar, a CFO must be able to say no to traders and bankers who want to make loans or execute trades that could reap significant profits while putting the firm's capital at risk, said Brad Hintz, a Sanford C. Bernstein & Co. analyst in New York who previously worked as CFO at Lehman Brothers Holdings Inc.

“To survive in a job that by definition is going to make you unpopular requires an incredible skill set,” Hintz said. “Your entire job is to say no when what is career-enhancing is to say yes.”

Senate Investigation

One Viniar action that received particular notice was his Dec. 16, 2006, instruction to the firm's mortgage division to reduce its holding of assets tied to home loans. The decision proved fateful: In 2007, as competitors including Bear Stearns Cos., Citigroup Inc. and Merrill Lynch & Co. racked up losses related to subprime home loans, Goldman Sachs posted its biggest profit ever and paid record bonuses.

The move later backfired. The Securities and Exchange Commission and a Senate subcommittee accused the firm of selling mortgage-linked securities to clients at the same time Goldman Sachs traders were betting their value would fall. Documents released by the Senate Permanent Subcommittee on Investigations included a May 11, 2007, e-mail that Schwartz, then overseeing sales in the securities division, sent to senior colleagues about collateralized debt obligations.

“[D]on't think we can trade this with our clients andf [sic] then mark them down dramatically the next day,” Schwartz wrote in the e-mail, according to the subcommittee's report.

As asset prices began to swoon in 2007, Schwartz emphasized to his sales staff the importance of staying in touch with both clients and the firm's traders.

“Harvey always encouraged conversation, dialogue, picking up the phone, having the tough conversations, whether it's with clients or whether it's with your people,” Stacy Bash-Polley, 43, who now runs Goldman Sachs sales for all U.S. macro and emerging-market products, said in an interview. “He made you feel like an owner, and you took ownership of the business and the franchise. And, no, they weren't easy conversations, they were very difficult conversations to have.”

Schwartz became one of four co-heads of global sales and trading in February 2008 as the financial world was about to fall apart. Bear Stearns, then the fifth-biggest U.S. securities firm, collapsed two weeks later and was sold to JPMorgan Chase & Co. The Lehman Brothers bankruptcy that September ended creditors' confidence in Wall Street companies that relied on borrowed money, leading Goldman Sachs and Morgan Stanley to raise capital and convert to banks, putting them under the oversight and protection of the Federal Reserve.

'Harvey's Desk'

As one of two co-heads in the U.S. and a member of the firm's risk committee since April 2008, Schwartz was forced to wrestle with decisions about how to protect Goldman Sachs and allocate capital as the crisis led the firm to sell assets and hold more cash and other liquid securities.

“All of those things basically landed on Harvey's desk,” said Winkelried, 53.

Schwartz's client skills were put to the test when the SEC sued the firm in 2010, alleging the bank had misled investors in a 2007 mortgage-linked instrument known as Abacus. Schwartz and David B. Heller, the other New York-based co-head of sales and trading, convened a meeting to find out everything they could about the transaction, one Goldman Sachs partner said.

The lawsuit, and a Senate subcommittee hearing that included testimony from executives including Blankfein and Viniar, highlighted a tension at the center of Wall Street trading firms like Goldman Sachs: Because the bank often takes the other side of a customer's trade, its interest can be directly opposed to the client's.

Schwartz was appointed to the business-standards committee created to review practices in the wake of the SEC charge, which was settled for $550 million. The committee reiterated Goldman Sachs's business principles, drafted in the late 1970s, which start with “our clients' interests always come first.” As CFO, Schwartz will be responsible for protecting the company's interests, even as he enables it to serve clients.

“Harvey is going to put the firm first, but he does not do this to the detriment of the firm's clients,” Kevin Ulrich, a former Goldman Sachs partner who runs Anchorage Capital Group LLC, a $10 billion New York-based hedge-fund, said in a phone interview. “He is neither an overly aggressive, nor overly cautious individual.”

Schwartz also has helped lead Goldman Sachs's response to financial regulation, including serving as co-chairman of a committee that holds phone meetings at 8:30 on Sunday nights, according to a person familiar with the matter. He has been an advocate for the bank with the U.S. Treasury Department in discussions about the Volcker rule, which limits proprietary trading, the person said.

'Lackluster Student'

A native of Morristown, New Jersey, Schwartz has donated more than $1.5 million to provide financial aid to students attending Rutgers, according to Douglas Greenberg, a history professor at the university who was dean of the school of arts and sciences when he met Schwartz about four years ago. Schwartz also established a network of Rutgers alumni at Wall Street firms who help provide students and graduates with internships and jobs, Greenberg said.

“He told me that he had been sort of a lackluster student in high school,” Greenberg recalled in an interview. “He came to Rutgers not quite sure what he wanted to do, but he was very good with numbers. He had to borrow money to finish school. And he expressed his gratitude that somebody had been willing to help him out.”

Schwartz, twice divorced with a 24-year-old daughter, lives with Annie Hubbard, whom he met in 2003, a year after she was shot helping subdue a hostage-taker at an East Village bar.

Schwartz and Hubbard make an appearance in the best-seller “Eat, Pray, Love,” where they're credited with helping author Elizabeth Gilbert buy a house for a friend in Indonesia.

“I sent out this e-mail to everybody that I knew, and I got an e-mail back from Annie saying that her boyfriend, Harvey, would like to contribute $10,000 to the cause,” Gilbert said in an interview. “So my first experience with him was hopping on my bicycle and flying down the road to my friend Wayan's and telling her that we'd done it, that we could buy her house and that she was going to have a place to live in.”

Schwartz himself likes to get up early to cycle in Manhattan's Central Park, according to colleagues. He's also an enthusiastic and mediocre golfer, said Jim Rothenberg, who runs Los Angeles-based Capital Group Cos., a Goldman Sachs client and its second-biggest shareholder, after the bank's own employees.

Rothenberg, who plays with Schwartz about three times a year, said Schwartz's high-teens golf handicap is a reassuring sign he's not playing too much.

“I wouldn't say Harvey's a good golfer, which is a good thing if he's going to be CFO of Goldman Sachs,” he said.

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