Goldman's Litzenberger retires

Bob Litzenberger, head of firm-wide risk management for Goldman Sachs, retired last week. Noel Donohoe, chief operating officer for the firm-wide risk management group, has replaced him.

Litzenberger, who won Risk magazine’s risk manager of the year award in 2001, was appointed head of firm-wide risk management at Goldman in 1998 with a mandate to change the culture of risk at the bank after it suffered trading losses of almost $1 billion that year.

Under Litzenberger’s leadership, Goldman’s market risk models were revised to better incorporate the liquidity risk of different trading positions and to allow for the possibility of crises linking seemingly unrelated markets. Litzenberger also oversaw improvements to the bank’s credit spread scenario analysis by taking a unified view of the bank’s derivatives and cash businesses. These changes led to the use of total return swaps by the firm’s fixed income traders to hedge the systematic part of their credit spread exposures.

Litzenberger also worked closely with the US Securities Exchange Commission to reduce the capital reserve requirements for Goldman’s equity derivatives business. The resulting new risk-based capital rules not only incorporated volatility but also allowed offsets between market and credit risk.

Litzenberger was unavailable for comment.