GOLDMAN SACHS is forcing its bankers to reveal details of their personal finances as it battles to restore its tattered image.
Wall Street’s most controversial bank was rocked last week by the public resignation of Greg Smith, a London-based executive who wrote a letter to The New York Times attacking what he claimed to be a “toxic” culture at the firm.
Smith’s letter, which claimed that Goldman bankers often referred to clients as “muppets” in internal correspondence, has reopened the debate on the ethics of big banks. It has also caused rumblings among elements of Goldman’s senior management, who believe “muppetgate” could add to pressure for the resignation of the chief executive, Lloyd Blankfein.
Smith’s attack followed hard on the heels of a complaint about Goldman’s ethics from a judge in the US state of Delaware. The legal opinion on the $21 billion (£13 billion) sale of El Paso, the gas firm, to Kinder Morgan, the pipeline operator, exposed several perceived conflicts of interest inside Goldman, where bankers did not disclose personal shareholdings related to the deal.
Stephen Daniel, Goldman’s top energy banker, was acting as an adviser to El Paso on the sale — charged with helping the company get the best deal possible for its shareholders.However, Daniel owned a $340,000 stake in Kinder Morgan, which had an interest in paying as little as possible.
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Delaware is home to many of America’s biggest companies because of favourable state tax laws. Its courts are, therefore, one of America’s most influential forums for business law.
In response to the criticism, Goldman is now reviewing its internal policies. Several other banks — including Barclays Capital, Bank of America Merrill Lynch and Citigroup — are also said to be reviewing their policies in response to the case.
Goldman said: “We regret that El Paso’s board wasn’t aware of the investment and we are reviewing our policies and procedures related to bankers’ investments and disclosures with the goal of strengthening them.”
Goldman has faced claims that its ethical standards have been sliding for several years. Blankfein came under fire from several congressional committees in relation to its behaviour during the financial crisis. Senior partners at the bank have questioned whether Smith’s letter was part of an effort to destabilise the leadership and accelerate Blankfein’s departure.
A handful of clients have leapt to the bank’s defence, saying the rapacious institution portrayed in Smith’s letter is not reflective of reality.
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Euan Munro, head of multi-asset investing at Standard Life Investments, and lead manager of the multibillion-pound GARS fund, said: “I obviously do not see Goldman Sachs from the inside. I see their output, and from this perspective, as a client, I would say that, especially in recent years, GS has been very focused on helping me do what I need to do in the markets, rather than simply looking to manage their own proprietary risks.”