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