A BLISTERING attack on Goldman Sachs by one of its own bankers has hit a raw nerve inside the firm that is seen to symbolise the excesses of Wall Street and stoked bitter memories of the financial crisis among some former clients.
Greg Smith, a former Goldman executive in London, took aim at the "morally bankrupt" culture of the investment bank. The searing attack, through a resignation letter that ran in The New York Times, came just two years after Goldman was damaged by another of its own bankers, Fabrice Tourre, who described creating "Frankenstein" products that badly burnt clients.
Mr Smith said the Tourre incident had not taught the firm any humility or integrity. "It makes me ill how callously people [at the bank] talk about ripping their clients off," he wrote.
"Over the last 12 months, I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal email."
Mr Smith said the fast-track to a promotion involved persuading clients to invest in stocks or other products "that we are trying to get rid of because they are not seen as having a lot of potential profit". "Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence," he wrote.
The culture of Goldman today was all about raking in the bucks from clients, he said, and he saw "virtually no trace of the culture that made me love working for this firm for many years".
Goldman rejected Mr Smith's comments, with the chief executive, Lloyd Blankfein, and the president, Gary Cohn, insisting the firm was focused on the client.
"We disagree with the views expressed, which we don't think reflect the way we run our business ... We will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves," the two said in a memo to the firm's 35,000 staff.
Some inside the bank claimed Mr Smith's sincerity wasn't all that pure, amid suggestions the former trader was disgruntled after not getting a promotion, while in the US it was reported that he had been passed over for a bonus.
Mr Smith's clients at Goldman are said to have included two of the world's largest hedge funds and three major sovereign wealth funds in the Middle East and Asia with combined assets of more than $US1 trillion.
Mr Smith's central claim in his resignation letter - that Goldman pursues its own profit at the expense of its customers - is common among the bank's critics, many of whom see the firm as a symbol of Wall Street's excesses and a culture of greed which has wreaked havoc on US business and global economy.
Former Goldman Sachs customers are likely to take close interest in Mr Smith's comments.
One is the Australian hedge fund Basis Capital which last year filed a lawsuit worth $US1 billion against Goldman Sachs in a New York court.
One of the funds operated by Basis claims it was misled by the Wall Street giant, which allegedly sold it a toxic package of subprime mortgages that subsequently collapsed.
"The matter is still very much alive," a Basis spokesman said yesterday. Goldman Sachs has said it will vigorously defend the Basis claim.
Richard Ackland Page 11
Frequently Asked Questions about this Article…
What did Greg Smith say in his resignation letter about Goldman Sachs' culture?
In a resignation letter published in The New York Times, Greg Smith called Goldman Sachs 'morally bankrupt', accused staff of talking about 'ripping their clients off', said some managing directors referred to clients as 'muppets', and argued promotions reward making money for the firm even when it hurts clients.
How did Goldman Sachs' leadership respond to the 'morally bankrupt' accusations?
Goldman Sachs' CEO Lloyd Blankfein and president Gary Cohn issued a memo to the firm's 35,000 staff rejecting Smith's accusations. They said they 'disagree with the views expressed' and insisted the firm is focused on client success, calling client outcomes 'the fundamental truth' of how they operate.
Did the article mention any prior incidents that support Greg Smith's claims?
Yes. The article references an earlier controversy involving Goldman banker Fabrice Tourre, who described creating 'Frankenstein' products that harmed clients. Smith said the Tourre incident had not taught the firm humility or integrity.
Are there suggestions about Greg Smith's motives for going public?
The article reports that some inside Goldman questioned Smith's sincerity, suggesting he was disgruntled after missing out on a promotion. U.S. reports also said he may have been passed over for a bonus.
Which clients of Goldman Sachs did Greg Smith work with and who might be affected?
The article says Smith's clients included two of the world's largest hedge funds and three major sovereign wealth funds in the Middle East and Asia, with combined assets of more than US$1 trillion. It notes former Goldman customers are likely to take close interest in his comments.
What is the Basis Capital lawsuit mentioned in the article and how does it relate?
Australian hedge fund Basis Capital filed a US$1 billion lawsuit in New York against Goldman Sachs, claiming it was misled into buying a toxic package of subprime mortgages that later collapsed. The article says the matter is 'still very much alive' and Goldman has vowed to vigorously defend the claim.
How do critics frame Goldman Sachs in light of these accusations?
Critics, as described in the article, view Goldman Sachs as a symbol of Wall Street excesses and a culture of greed that has harmed US businesses and the global economy. Smith's letter echoes these wider criticisms that the firm pursues profit at clients' expense.
What should everyday investors take away from this coverage about Goldman Sachs?
The article suggests investors should be aware that public accusations and legal disputes can raise questions about a firm's client culture and reputation. While Goldman’s leadership insists it focuses on client success, the controversy and the Basis Capital lawsuit are examples of issues that could concern clients and observers.
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