Friday, March 16, 2012

Behind Closed Doors at Goldman Sachs!

Revealed: Toxic bank Goldman Sachs' web of global pals
The investment bank was rocked by the scathing resignation letter of executive Greg Smith, who accused colleagues of revelling in ripping off clients
By James Lyons
16 Mar 2012
The astonishing power, insidious influence and extensive reach of shamed Goldman Sachs is today revealed by the Mirror.
The toxic investment bank was this week rocked by the scathing resignation letter of executive Greg Smith, published in the New York Times, who accused colleagues of revelling in ripping off clients they deride as “Muppets”.
It wiped more than $2billion – almost £1.3billion – off the Wall Street giant’s share value yesterday.
But that didn’t stop David Cameron lunching with Goldman’s chief executive and chairman Lloyd Blankfein at a gathering of billionaire financiers and bank chiefs in New York yesterday.
Neither did the massive loss panic the self-styled Masters of the Universe at the firm – once likened to a “vampire squid wrapped around the face of humanity”, which has tentacles everywhere.
They have been here before. Greg Smith’s letter is just the latest in a series of scandals to engulf the bank – none of which has halted the rise of its impeccably connected serving and former executives.
The eurozone crisis has seen Goldman “old boys” and their allies drafted in to head governments and the European Central Bank, after they judged elected politicians wanting in the battle to save the single currency.
Goldman Sachs has even been accused of helping create the debt crisis by helping Greece mask its shaky finances so that it could join the euro in the first place.
European Central Bank boss Mario Draghi, the man heading efforts to save the single currency, is a former high-ranking Goldman Sachs executive.
Fellow “technocrat” Mario Monti was a senior adviser to Goldman Sachs before taking over as Italian PM from Silvio Berlusconi.
And Greece’s debt chief Petros Christodoulou also worked for the bank in the UK and Canada from 1987.
Meanwhile Lucas Papademos, who was head of the Central Bank of Greece as it joined the euro, was installed as the country’s new Prime Minister in November.
Such appointments are the high water mark in the firm’s campaign to conquer Europe that began in 1986 when it opened an office in London after Margaret Thatcher deregulated the UK banking industry.
Now former Goldman executive Michael Hintze is a key backer of the Conservative Party.
The millionaire hedge fund baron has given at least £1.2million to the Tories, plus a further £2.5million in loans, since 2005.
He has also made personal donations and gifts to senior Cabinet ministers.
Former Goldman partner Sebastian Gregg is a confidant of the Prime Minister – they have known each other since their Eton schooldays and joined Oxford University’s infamous Bullingdon Club together.
Ex-Goldman chairman Richard Sharp was one of four City figures recruited by Chancellor George Osborne to “question the unquestionable” as part of the Treasury’s brutal austerity drive.
Even Samantha Cameron has links. She worked with executive Mike Sherwood after he led a consortium that bought stationers Smythson for £16million in 2005.
The tycoon, worth an estimated £225million, was at Westminster private school with Deputy Premier Nick Clegg and is seen as close to London Mayor Boris Johnson.
On the Labour side, donor Gavyn Davies was chief economist at the bank before quitting both the party and Goldman to work for the BBC.
His wife Sue Nye was Gordon Brown’s “gatekeeper” at the Treasury and No 10.
Goldman has rejected Greg Smith’s accusations – but his resignation letter has sparked fresh demands for

Mr Osborne to end the Government’s “cosy” relationship with the firm.
Goldman Sachs has a ‘licence to print money’ as one of an exclusive group of City firms granted privileged access to the Government bond market, worth £178.9billion this year.
Now Labour and Lib Dem MPs are demanding Goldman be stripped of its status as one of the Treasury’s hand-picked Gilt-Edged Market Makers.
Labour MP John Mann, of the Treasury select committee, said they should be “absolutely” thrown out of the
GEMMs circle.
Mr Mann said: “These cosy relationships are part of the problem with the banks. Goldman Sachs are making money out of the taxpayer through the profits they make on the bond sales.
They are feathering their nest and making Muppets of the Government.
“If they are ripping off customers why are they being given this special privilege? There is no good reason for it.”
Ex-Lib Dem Treasury spokesman Lord Oakeshott said: “We must sack Goldman from their insider track to £170billion a year in Government bond sales.”
A Downing Street spokesman said: “It would be inappropriate for me to comment on an individual business.”
The Brit lined up as next Goldman Sachs chief
Goldman Sachs could have its first British chief if Lloyd Blankfein leaves in the wake of the current crisis.
Bank “lifer” Michael Sherwood, 46, joined after graduating in economics from Manchester University in 1986.
Before that he attended the £9,000-a- year Westminister School. By the age of 28, he was said to have pulled in a bonus of around £3million.
Known by his nickname “Woody”, Mr Sherwood now heads up the bank’s UK arm.
He is said to have a formidable contacts book and helped Sir Philip Green when the Topshop tycoon bid for Marks & Spencer.
The stockily built, married dad of two – who enjoys playing table tennis – has a personal wealth estimated several years ago at £225million, making him one of Goldman’s “have and have yachts”.
He is a Spurs fan but, according to reports, was a director of Watford at the same time as Elton John.
In a rare interview which he gave in 2008, he said: “When I was a young guy it was like a game.
"Now I’m older I feel very responsible for our people, their families and their livelihoods.
In another, he said: “I never thought we were swashbuckling. Goldman Sachs trades in a measured way.”
Who's who of the global pals
Lucas Papademos, 65
Took over as Greek PM last year. He previously had a top job at the European Central Bank and helped get Greece into the euro
Michael Hintze, 58
Billionaire hedge fund boss and big Tory donor. He worked at Goldman Sachs between 1984 and 1996 in a number of senior roles.
Mario Monti , 68
Now Prime Minister of Italy, 68-year-old Mario Monti was an international adviser to Goldman Sachs from 2005 until 2011.
Mario Draghi, 64
President of the European Central Bank. He was the vice chairman for Europe at Goldman Sachs International from 2002 to 2005.
Samantha Cameron, 40
PM David Cameron’s wife worked for Goldman Sachs executive Mike Sherwood after he led a buyout consortium in 2005.
Gavyn Davies, 61
He was head of global economics at Goldman Sachs from 1986 to 2001. The former chief UK economist is now in the City.
Goldman’s response to employee rant ‘too little too late’: clients
By Sinead Cruise, Reuters
Mar 16, 2012
LONDON — Joining a growing chorus of criticism, one of Europe’s largest asset managers lashed out at Goldman Sachs Group Inc for not communicating quickly enough with clients after ex-banker Greg Smith publicly condemned the way the bank treats clients.
APG, a Dutch investment advisor that runs 300 billion euros of assets for more than 4.5 million people in the Netherlands, said it was surprised it took the Wall Street bank more than a day to offer APG any reassurance on points raised in Greg Smith’s resignation letter.
“We would have expected that a company that faces such a big media backlash over something so core to their business such as client trust would have instantly reached out to those clients to say something,” APG spokesman Harmen Geers told Reuters.
Smith’s scathing remarks, published in the New York Times on Wednesday, have prompted an outpouring of criticism, ridicule – and defence – of Goldman, the storied Wall Street firm that has become a lightning rod for anti-bank sentiment.
After the piece appeared, Goldman Chief Executive Lloyd Blankfein and Chief Operating Officer Gary Cohn issued a memo to staff describing the views and observations of the former vice president as “foreign” to most of his 12,000 peers.
Blankfein also sent Goldman Sachs employees a voicemail on Wednesday urging them to reach out to clients and saying they had support from CEOs all over the world, a person familiar with the situation said.
On the voicemail, Blankfein read out two examples of support from clients, the source added.
Geers said the bank contacted APG late on Thursday offering a copy of the staff memo and telephone explanation of its message, a gesture he described as “too little, too late.”
Goldman Sachs made no immediate comment when asked how it was communicating with clients.
Support for Goldman
While the criticism has sparked numerous “me too” responses, at least one client using Goldman’s investment banking advisory services said it respected the firm’s knowledge and experience.
“We’ve had a love-hate relationship with Goldman for a number of years,” United Technologies Corp Chief Financial Officer Greg Hayes told reporters in New York on Thursday.
“For us it’s about what these banks bring to the table. I think Goldman has the intellectual capital, they’ve got the know-how to do these transactions. There’s other banks out there, but Goldman is still the preeminent investment bank and they give solid advice.”
The diversified U.S. manufacturer has hired Goldman to sell some of the industrial units of its Hamilton Sundstrand arm.
Hayes said Smith’s resignation letter would not change his opinion of the firm.
“There’s bad apples and there’s bad actors at every one of these companies. Banks have a bad reputation anyway,” Hayes said. “But I think Goldman can add value.”
Yet, Goldman recently drew criticism from a prominent Delaware judge for serving as both an advisor to and beneficiary of El Paso Corp’s $23 billion sale to Kinder Morgan.
And among investment managers, faith in Goldman’s reputation appeared more tattered.
“One of the more important messages (Smith) gave was the need for the bank to refocus attention on clients and attend more closely to their needs … but even now, Goldman, as well as some media, seem to be overlooking that,” Geers of APG said.
The lack of quick, direct communication with APG underlined how much work Goldman needs to do to prove it puts its customers first, the Dutch group said.
“I have seen the internal memo from Goldman to its employees which says ‘we all know this isn’t true,’ but perception is reality and a service provider lives or dies by whether they have happy clients,” Geers said.
“What about trying to re-win trust?” he said. “Goldman’s clients are now being forced to explain to their clients why they are doing business with Goldman. We are now obliged to answer questions because of their company culture. From the bank’s point of view, that is very bad.”
Goldman has bounced back from several dents to its image in recent years, but industry insiders say the unprecedented attack from a former employee could start to push much larger volumes of prospective business to rivals. And it stirred a wide range of reactions.
Jamie Dimon, CEO of rival bank JPMorgan Chase & Co, cautioned employees against trying to “seek advantage from a competitor’s alleged issues.”
Impact on Bank Reforms?
At least one wasted no time in saying it put clients first. “In my experience … client success and firm success can peacefully coexist; in fact thrive,” Harris Private Bank Chief Investment Officer Jack Ablin said in an open letter. He oversees $60 billion of investments for individuals and families.
Congressman Barney Frank, an architect of the 2010 Dodd-Frank financial reform law, said Smith’s piece would have “a big impact” on the banking industry’s efforts to push back against financial reform.
“It puts the burden on Goldman Sachs and others to show us how what they do benefits the clients and therefore the broader economy,” he told Reuters.
One London-based former hedge fund client of the bank, who declined to be named, said some asset managers and family offices were thinking twice about doing business with the bank before Greg Smith’s remarks.
“We took them off our system some months back … I used to know a few guys there, there were a few good ones in that bunch and I have noticed that just about all of them have left in the last year,” the manager said.
“They used to tell me that they loved the firm; that it looked after its people and that it had a really good ‘code.’ And now those people are leaving, so it reflects what (Smith) is saying.”
Goldman shares ended 2.2% higher on Thursday amid gains for the broader banking sector.
In Visit, Bloomberg Defends Goldman Sachs
By Michael M. Grynbaum
March 16, 2012
Mayor Michael R. Bloomberg thinks Goldman Sachs could use a friend.
The billionaire mayor, who earned his fortune on Wall Street and has a reputation as a staunch defender of corporate culture, dropped by the investment bank’s Manhattan headquarters on Thursday in an unannounced show of solidarity that included handshakes on the trading floor and burgers with the chief executive.
Mr. Bloomberg’s visit, first disclosed on Thursday by the mayor’s eponymous news agency, came as Goldman struggled to cope with an onslaught of negative publicity after a former executive’s scathing Op-Ed article in The New York Times that accused the firm of wanton greed and excess.
Executives at Goldman issued a fierce rejoinder to the Op-Ed on Thursday, circulating a memorandum that defended the company’s devotion to its clients and corporate ethics. The author of the Op-Ed, a 33-year-old executive named Greg Smith, resigned on Wednesday from his post in the firm’s London office and has not commented beyond his piece.
During his weekly radio interview on Friday morning, Mr. Bloomberg castigated the news media for “piling on” the global bank, saying “ridiculous isn’t even the right word” to describe the coverage. And the mayor said he initiated the visit as a way to stand by a company that he considers a critical contributor to the city’s economy.
“It’s my job to stand up and support companies that are here in this city that bring us a tax base and that employ our people, and I’m going to do that,” Mr. Bloomberg told John Gambling, his regular interlocutor.
“I’ve never worked at Goldman, but there’s an awful lot of people there that work very hard,” the mayor said. “Goldman Sachs is a firm that’s been around for well over a hundred years, and it’s a great firm, and the people that work there are happy.”
Not every New York politician, however, shares Mr. Bloomberg’s sympathetic impulse. Gov. Andrew M. Cuomo, asked about the Goldman fracas in an interview on Thursday, conceded he had not yet read Mr. Smith’s Op-Ed. But, he said, “If you accept at face value everything he said, it’s clearly disturbing on many levels, to the extent it’s personal to Goldman Sachs, but then just as a commentary on the industry.”
“Any employee can write a letter, so I just don’t know enough,” Mr. Cuomo added.
Mr. Bloomberg moved to New York in the 1960s to work at Salomon Brothers, the now-defunct investment firm, and his Bloomberg financial terminals are now required hardware for professional financiers. (Goldman, for instance, leases thousands of the machines.)
On his Friday radio show, Mr. Bloomberg appeared particularly aggrieved by the idea of a former employee lashing out at a former firm, behavior that is considered sacrilege in the financial industry.
“You know, you go to work for a company, it seems to me, they have an obligation to never diss you,” the mayor said. “They can part company with you, but they should never do that, nor should an employee ever walk away after being there for so long.”
Mr. Bloomberg has little sympathy for employees who leave a corporation, even if they keep their grievances to themselves. In his 1997 autobiography, “Bloomberg by Bloomberg,” he wrote of his distaste for “going away” parties for departing colleagues.
“When someone departs, those of us who stay are hurt,” Mr. Bloomberg wrote. “They’ve become bad people. Period. We have a loyalty to us. Leave, and you’re them.”
Goldman Insider Exposes Struggle for Jewish Soul
by Henry Makow
March 15, 2012
Greg Smith, an Executive Director of Goldman Sachs in London, quit publicly Thursday due to the firm's culture of "ripping off" their own clients.
"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."
Goldman Sachs, a part-owner of the Federal Reserve, played a key role in the 2008 credit crunch. This letter shows nothing has changed. In fact, things are worse. The bank is still marketing questionable products no matter the consequences to clients or society.
The letter also illustrates that there are two kinds of Jews: those who have a strong moral sense and those who have none. Put another way, some Jews believe in serving the world, and others believe in exploiting it.
Greg Smith, 33, is a Jew who demands the bank " Weed out the morally bankrupt people, no matter how much money they make for the firm." He blames CEO, Lloyd C. Blankfein, and the President, Gary D. Cohn, for despoiling the firm's culture.
We need more people like Smith who are willing to stand up for what's right despite career consequences. Here is a slightly abridged version of Smith's letter:
By Greg Smith
New York Times
TODAY is my last day at Goldman Sachs. After almost 12 years at the firm -- first as a summer intern while at Stanford, then in New York for 10 years, and now in London -- I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world's largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs's success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years. It wasn't just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.... When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, (right) and the president, Gary D. Cohn, lost hold of the firm's culture on their watch. I truly believe that this decline in the firm's moral fiber represents the single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
"Ripping Off Clients"
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. 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.
(Left. Gary Cohn, President. These guys all look alike!)
What are three quick ways to become a leader?
a) Execute on the firm's "axes," which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.
b) "Hunt Elephants." In English: get your clients -- some of whom are sophisticated, and some of whom aren't -- to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don't like selling my clients a product that is wrong for them.
c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It's purely about how we can make the most possible money off of them...
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as "muppets," sometimes over internal e-mail.
Even after the S.E.C., Fabulous Fab, Abacus, God's work, Carl Levin, Vampire Squids?[References to criticism of GS's role in credit crisis. -hm] No humility? I mean, come on. Integrity? It is eroding. I don't know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client's goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don't trust you they will eventually stop doing business with you. It doesn't matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, "How much money did we make off the client?" It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about "muppets," "ripping eyeballs out" and "getting paid" doesn't exactly turn into a model citizen.
When I was a first-year analyst I didn't know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.
My proudest moments in life -- getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics -- have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn't feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist.
Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm -- or the trust of its clients -- for very much longer.
Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm's United States equity derivatives business in Europe, the Middle East and Africa.
Greg Smith had 'high principles,' ex-teacher says
By Reuters
JOHANNESBURG, South Africa -- Greg Smith was a principled and competitive student, the kind of person whose strong sense of right and wrong probably pushed him to resign from Goldman Sachs in a scathing letter to an international newspaper, his former teacher and coach said.
A quiet, unassuming child, the South African first attended the private Jewish King David's High School in suburban Johannesburg before winning a scholarship to Stanford University in the United States.
Smith then joined Goldman Sachs, a workplace he once loved but described in his resignation letter in The New York Times on Wednesday as having developed an environment "as toxic and destructive as I have ever seen it".
"He was a remarkable young man, exceptionally intelligent with an integrity that is probably unequalled," Elliot Wolf, the school's retired headmaster, told Reuters in an interview.
"An absolutely remarkable man with high principles. He was an asset to the school in every possible way."
Wolf, who is now retired after 34 years at the school including 28 as headmaster, said he remembered Smith well from teaching him Latin and that he was loved by all because he was polite, unassuming and decent.
The Goldman Sachs banker sat a total of eight exams in his final year of secondary school in 1996, winning a distinction in every subject, Wolf said. According to school records, Smith's subjects included math, advanced math, Hebrew, English, Afrikaans and accounting.
"He was a wonderful young man with the highest principles. That was already part of his character when he was very, very young," Wolf said.
Goldman Sachs resignation letter an Internet sensation
He said he was amazed Smith would take such a stand, suggesting others would probably bend their ethics to suit a company that was rewarding them handsomely.
Smith, who worked in equity derivatives, said it had made him ill at Goldman to hear his colleagues joke about cheating clients.
"Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets'," Smith said.
In Britain, "muppet" is slang for a stupid person.
'Always did what was right'
Wolf also recalled Smith as a skilled table tennis player. Smith, in his 30s, said in his letter one of the
proudest moments of his life was winning the bronze medal at the Maccabiah Games in Israel for table tennis.
Rainer Sztab, chair of the Gauteng Maccabi Table Tennis Club, where Smith played in South Africa regularly in the 1990s when he was a teenager, remembered him as an "outstanding kid".
"He was a stand-up kid, he always did what was right," Sztab told Reuters, saying Smith twice played for the South African Maccabi team at the Maccabiah Games in Israel, as a junior in 1993 and as a senior in 1997.
But he said Smith was never a member of the South African national table tennis team, contrary to what was stated in his Goldman Sachs biography.
Sztab said Smith was "very bright and really well-liked and behaved".
Wall Street's toxic culture is alive and well, observers say
"He was very competitive. He was just starting to get the edge on the top players in Gauteng province," he added.
Sztab said he was not surprised by the manner of Smith's dramatic public resignation from Goldman Sachs. "He did well to come from South Africa to become a Wall Street banker."
He said Smith had called him two years ago to say hello while on a visit to South Africa.
"He said it was going great."