Some 2,000 miles away from the hustle and bustle of Wall Street, Goldman Sachs Group Inc has found an unlikely second home: Mormon country. Low taxes and a cheap but well-educated workforce persuaded Goldman to go on a hiring binge in Salt Lake City. The bank now employs 1,300 people here, putting Utah's capital city on a path to become Goldman's fourth-largest global operation, behind only New York, New Jersey and London.
At a time when the Wall Street firm has cut thousands of jobs elsewhere, Goldman plans to grow in Salt Lake City. Already, Salt Lake City accounts for just under 4 percent of the global investment bank's total headcount, double the staff it had in Salt Lake City only two years ago, and that figure continues to climb.
During a February 28 visit to Goldman's office on Main Street, just a few blocks from the headquarters of the Mormon Church, Chief Executive Lloyd Blankfein told employees of plans to hire an additional 300 workers by year's end.
Goldman's image as a Wall Street powerhouse dominated by hard-charging traders and swaggering bankers might seem at odds with Salt Lake City's reputation as a family-oriented town where the bars close early and the Church of Jesus Christ of Latter-Day Saints is the most powerful local institution. But by bulking up in Utah, which boasts one of the lowest corporate tax rates in the United States, the bank is taking advantage of a series of lucrative tax breaks offered by the state to woo its business.
Several former and current employees say that dozens of technicians, developers, accountants and research analysts on the East Coast have been replaced by less expensive staff in Utah. A Goldman spokesman would not comment on that, or on how Utah affects the bank's overall tax bill. He and others at Goldman acknowledge that cost-cutting was initially the driving force behind its Utah expansion, but they say the local talent pool has been more impressive than the money saved.
"The cost savings have become less interesting than the quality of people we can retain," says David Lang, a managing director who heads Goldman's Salt Lake City operation. "We would expect that one day we can export the talent from here. We have groups and teams here who interact with our global operations abroad every day." Goldman's move out West underscores how for major investment banks, proximity to Wall Street means less and less when it comes to support staff, trade processing and even research.
Many of those functions "can be performed just about anywhere with a computer connection," says Charles Geisst, a Wall Street historian and professor at Manhattan College. "They just simply go where the costs are cheapest." The tax advantage is nonetheless important. State taxes have become a big concern for corporate America, as some cash-strapped states have leaned heavily on higher corporate taxes to plug widening budget gaps.
Goldman set aside $392 million for U.S. state and local taxes last year, 21 percent more than in 2010, even as the bank's profit plunged 67 percent. By comparison, its federal tax provision fell 77 percent to $405 million, and its foreign tax bill shrank by 81 percent to $204 million over the same period.
Utah Gov. Gary Herbert has pledged not to raise taxes, and has made corporate tax breaks a focal point of his economic development plan. Goldman Sachs ranks as the second-biggest beneficiary behind Procter & Gamble Co of Utah's tax-break program, having inked a deal in 2009 to receive an estimated $47.3 million worth of rebates over 20 years. In exchange, the bank committed to investing $51 million in Utah, maintaining at least 1,065 employees and paying them at least 50 percent above the average Salt Lake County wage.
The deal built upon a previous $20 million tax break deal Goldman received two years earlier under Herbert's predecessor, Jon Huntsman.
Goldman agreed to the sweetened package after an entourage of Utah public officials, including Gov. Herbert, Salt Lake City Mayor Ralph Becker and local business leaders, came to the bank's headquarters in lower Manhattan to make a personal sales pitch to senior executives. The Utah officials came bearing not only the tax break, but also a promise that Goldman Sachs would like the state's much lower cost-of-living and friendly regulatory environment. They also touted the state's reputation for having a highly educated workforce that speaks multiple languages.
Utah officials continue to give Goldman the star treatment. When Goldman Chief Financial Officer David Viniar, a former college basketball player, visited the Salt Lake office in October, he was invited to shoot hoops with players from the local NBA team, the Utah Jazz. "Goldman Sachs being here is a big deal," said Gov. Herbert, a Republican and former real-estate agent who makes no secret of his contempt for high taxes and what he calls "nonsensical" regulation.
Utah's tax breaks are rebates spread out over a number of years and are only granted as long as companies meet agreed-upon targets for investing, hiring and wages, says Jerold Oldroyd, a partner at law firm Ballard Spahr who structures the tax incentive deals for the state. Even without the rebate, Utah's corporate tax rate of 5 percent is among the lowest in the nation, according to data from the Tax Foundation, a nonpartisan policy group. State tax rates range from zero to 12 percent, with a median rate of 7 percent. And just as wages and office space are less expensive in Salt Lake than in metropolises like New York, payroll and property taxes tend to be lower as well.
"Utah is sort of like a U.S. tax haven," says Robert Willens, a tax expert who teaches at Columbia University. "Utah may be offering incentives, but the corporate tax rate is incredibly low and an even bigger element of the tax savings is that Goldman can attribute more of its taxable income to the state. I'm sure that $47.3 million is just the tip of the iceberg." Goldman wouldn't comment on that.
Beyond the tax benefits, Utah offers Goldman talent for less than a fifth of what it is accustomed to paying. The average Salt Lake County worker made $43,398 a year in 2011, meaning Goldman only needed to pay its workers an annual salary of about $65,000 apiece, on average, to meet its tax-break criteria. State officials say the bank exceeds that goal by paying local workers $80,000 a year, on average. While that may be good news for Salt Lake residents, it's a far cry from the $400,000 paycheck all Goldman Sachs employees have taken home each year, on average, since 2008.
In addition to recruiting new employees from local universities such as Brigham Young, Goldman has transferred from the East Coast some junior-level workers who agreed to take pay cuts to keep their jobs, says a former Goldman vice president who worked in Utah. The bank also convinced some managers that a move to Salt Lake would help their careers, offering promotions and stable pay if they agreed to transfer for a year or two, the former vice president says.
For believers in Utah, the appeal is broader than costs. Due in large part to the influence of the Mormon church, whose members serve as missionaries in foreign countries, many Utahans are multilingual and well-traveled. State officials boast that an overwhelming majority of Utah residents are fluent in at least one language other than English.
"Everyone's vision of Utah is, 'Oh it's just a bunch of Mormons out there,'" says Lane Beattie, CEO of the Salt Lake City Chamber of Commerce, who helped make the sales pitch to Goldman in 2009. "Then they think it's just a bunch of beards and hats because they confuse us with the Amish. But when companies actually come here, then they realize what we're really all about."
Leading the Way West
Goldman Sachs first arrived in Utah over a decade ago, and in 2004 received an industrial loan company charter from the state. It allows companies that aren't traditional banks to take deposits and make loans. Back then, its presence was much smaller, with just a few hundred employees performing back-office functions for its wealth-management arm.
Four years later, during the financial crisis, Goldman converted to a bank holding company in order to access loans from the Federal Reserve and other protections afforded to banks. That forced it to give up its industrial loan charter. Soon after that, state and local officials began their charm offensive to get Goldman to stay and boost its presence. By the time Goldman signed the 2009 tax agreement, the bank had 650 employees there. Its recent hiring spree includes quantitative whizzes who engineer Goldman's trading technology, accountants for its corporate finance division, and analysts to crunch numbers in asset management and global investment research.
While Goldman does not yet have any investment bankers stationed in Utah, the presence of potential corporate clients nearby has made expanding there more attractive, Goldman officials said. Pre-IPO web darling Twitter has a large operation in Utah, which has a homegrown tech start-up community that stems from local universities. "The Goldman guys who are here are more on the operations side, but the investment bankers leverage that to know what companies they need to pay attention to," said Blake Modersitzki, managing director at Pelion Venture Partners, a Salt Lake venture-capital firm.
Goldman may soon have company. Morgan Stanley and the Royal Bank of Scotland Group PLC recently received tax breaks to hire more workers in Utah, and state officials say they received inquiries from Morgan Stanley and JPMorgan Chase & Co after they noticed their rival's Salt Lake City buildup. JPMorgan and Morgan Stanley representatives declined to comment on the matter.
"No one has yet matched what Goldman is doing here," said Kim Smith, former global co-head of training for Goldman's fixed income, currency and commodities division and a finance professor at Brigham Young University. "But one thing about Wall Street is, as soon as one firm finds something that's interesting, they all follow."
A few years ago, at the height of the financial crisis, Goldman came to symbolize for some Americans an every-man-for-himself ethos. Blankfein didn't help matters when he quipped that Goldman was doing "God's work." But in Salt Lake City, the locals appear to be cutting Goldman a lot more slack. "Whether it's our distance from New York or our distance from Washington, D.C., where the antagonism has grown around Goldman Sachs, it's not happening here," says Becker, Salt Lake's mayor. "There isn't the kind of friction with Goldman Sachs that there is in different cities."