Lloyd Blankfein, the CEO of Goldman Sachs Group (NYSE: GS) is not going anywhere.

The 56-year-old banker has run the firm since May 31, 2006. During that time, the bank’s stock has done no better than the DJIA. But from the price trough most banks reached late in 2009, Goldman’s shares have recovered 250% – that is until the shares traded down Friday. Conversely, the Dow is up only 50% over that same period.

Stock performance will not aid his cause if the SEC pressure on Goldman grows as a result of additional charges. Further, the European authorities could begin to probe the bank’s practices, and the Justice Department might bring criminal charges. Prime Minister Gordon Brown asked the U.K. Financial Services Authority to begin a probe of Goldman’s activities. He said that he was stunned by the “moral bankruptcy” he says he saw in Goldman’s action, which are, of course no more than allegations.

Blankfein has a lot of allies on his board, many with old school corporate ties, and a number who have run tough businesses.  Firing Blankfein would reflect poorly on the board as a group.  The board has backed the CEO through a number of scandals, which already include accusations about the firm’s role in hiding Greece’s indebtedness and that it took advantage of  the government’s bailout of AIG’s (NYSE: AIG) to receive full payment for insurance counterparty transactions. In both cases, nothing came of the accusations, which is a very important point, and the board may believe that it will take a lot more than the current SEC charges to get them to dump Blankfein. In short, he has taken them through some choppy waters relative unscathed.  Behind closed doors major corporate executives on the Goldman board, including John H. Bryan, Retired Chairman and Chief Executive Officer of Sara Lee Corporation ,Lois D. Juliber, Former Vice Chairman and Chief Operating Officer of Colgate-Palmolive Company, and Lakshmi N. Mittal, Chairman and Chief Executive Officer of ArcelorMittal, are not going to want their decision to keep the CEO questioned.

Should the board choose to fire anyone, Gary D. Cohn, President and Chief Operating Officer of Goldman would be much better candidate to be thrown under the bus. According to recent press reports, he was directly involved in overseeing the mortgage trading operation when there was a pitched debate among Goldman executives about the direction of the housing market. He has a lower profile than Blankfein, and the board can say that they have cleaned up the mess internally by firing Cohn and the line of management that went from him to the mortgage trading floor.

Another reason Blankfein will stay is that the company and board do not want to admit that Goldman has done anything wrong. Goldman has certainly hired the best legal minds in the country and one if not more crisis management teams. Their advice will most likely be to back Blankfein unless the government comes up with more serious charges or traces the current ones to the CEO. Anything that looks like an admission of guilt only puts Goldman more on the defensive than it already is. Goldman mounted yet another defence of its action today when its said “Were there ever to emerge credible evidence that such behavior indeed occurred here, we would be the first to condemn it and to take all appropriate actions.” No exactly the sign of a company in retreat

The SEC case is hardly air tight. John Paulson, who effectively helped structure the ABACUS deals that built pools of mortgage-backed derivatives, has not been charged.  For now, this suggests that there is insufficient evidence to charge Paulson and Goldman with conspiracy to defraud investors – despite the fact that Goldman solicited clients into buying securities  based on Paulson’s structure, and then shorted the other side of the trade. Goldman will almost certainly claim the buyers of the derivatives where highly sophisticated. This is completely different from the charges that arose from the sales of auction rate securities which were brokered to many individuals and small companies. If ABN Amro and IKB, which bought the Goldman paper, do not sue the investment bank, it will be a tacit sign that they cannot make the case that they were duped.

Blankfein’s greatest advantage in holding his position at Goldman is that there has not been any proof that he was aware of the ABACUS deals. The SEC has not charged him. It certainly would have if it could. He would be as high a profile catch as Goldman itself. So far, his role seems to be well outside the blast zone.

Blankfein will stay CEO as long as the charges end where they are now. For the time being, the Goldman CEO is not holding a smoking gun.

Douglas A. McIntyre

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