At the end of last year, I went to a charity breakfast do where I sat next to a young South African guy who worked for Goldman Sachs. Quiet and thoughtful, he was a good deal less cocky than the typical employee of the world’s most successful investment bank, particularly those on the sales side. Recently arrived from New York, he said he was still finding his feet in London. We talked a bit about equity derivatives (as you do) and a bit about Goldman, but mostly about other stuff.
Boy, did I miss the story. This week, Greg Smith was splashed across the world media after writing a devastating attack on Goldman published in The New York Times. He had resigned because of the “toxic and destructive” culture of the bank, where executives referred to clients as “muppets” and were largely focused on how to rip them off.
How much of this disgust did I pick up over breakfast? None at all. But then, his outburst seems to have come as a complete shock to close colleagues too.
Some City observers, though not Goldman itself, have questioned the motives of this middle-ranking employee. Perhaps he was indeed frustrated at his lack of promotion or a disappointing bonus. For what it’s worth, he didn’t seem the bitter and twisted type to me.
The important thing is that Goldman’s top brass seem to be taking this seriously, both officially and in private. And they are right. Internal polls may show that 89 per cent of staff believe the bank provides “exceptional service” to clients. But plenty of former executives don’t agree, and neither do lots of clients. A good many are consenting adults who simply resent being outsmarted by Goldman. But too many of the clients Goldman is supposed to be advising use the bank because they feel they have to, given its power, not because they want to or because they trust it. This is dangerous for Goldman, which is struggling to shake off its “vampire squid” reputation. Regulatory changes are making it harder for banks to make money where they are not directly serving a client’s interests. The balance of power is shifting towards the muppets, and at some point the muppets may rebel.
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This is not just a worry for Goldman. It is also a concern for Britain. The majority of people who work for Goldman in London are serving clients outside the UK. That makes it one of the UK’s most successful exporters. It is very committed to London and is a big contributor to the economy.
Goldman needs to work harder to ensure that all its talk about its client-focused culture matches the experience of staff and customers. If Mr Smith’s tirade helps that process he will have done us all a favour.
When the Tory Party deputy chairman declares that he has “deep reservations” about your getting a new job, it would give you pause. When that job is head of the new body that will supervise Britain’s banks and your critic is a senior member of the committee that will scrutinise your appointment, it might well convince you to call it a day.
It is unclear what prompted Hector Sants to decide to step down as chief executive of the Financial Services Authority and prospective head of its successor, the Prudential Regulatory Authority. But it will not have helped that Michael Fallon declared his reservations about Mr Sants two weeks ago and said that other members of the Commons Treasury Select Committee agreed. At the very least, he could have expected a bumpy ride from the committee over the next few months.
Some conspiracy theorists may see the hand of Sir Mervyn King, the Governor of the Bank of England, in Mr Sants’ decision. After all, Andrew Bailey, a Bank lifer who became deputy chief executive designate of the PRA last year, will now take over from Mr Sants, leaving the top jobs in the hands of the King’s men. But, in the past, Sir Mervyn has got on quite well with Mr Sants, at least better than he has on occasion with Lord Turner, the FSA chairman, who will now add the chief executive role until the FSA is finally wound down.
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When Mr Sants declared in February 2010 that he would be stepping down, Sir Mervyn is said to have been alarmed. He had just had a falling out with Lord Turner and was very anxious that Mr Sants should stay. After the election, he urged the new Government to get Mr Sants to change his mind — even, it is alleged, threatening to resign if he went. In the end, David Cameron persuaded Mr Sants to stay.
Mr Sants is widely seen to have done a good job clearing up the immediate mess after the financial crisis. But, more recently, senior City figures have been bitterly critical of what they believe is the FSA’s overreaction to the mistakes of the past. They say the FSA is going from one extreme to the other and that Mr Sants is being ultra-tough in an attempt to restore the damage to his reputation.
The City is much happier at the prospect of Mr Bailey. But that is not to say it would begrudge Mr Sants the knighthood he is said to have been promised for doing a very tough job in extremely difficult circumstances.
The fact that a cut in the 50p top rate of tax was back in Budget discussions yesterday was a surprise. It was even more unexpected that a trim to 45p has apparently been agreed. When this idea was raised by senior Tories a few weeks ago, people close to the Budget process were dismissive. They said it would satisfy nobody. It would be seen as a sop to the rich but would still leave the top rate higher than most other countries. It might even push the return to 40p even further into the future.
Yet there are arguments in favour. A 45p rate would raise almost as much as 50p and would bring tax on income below the psychologically important 50 per cent level. It would certainly be a signal that the Government is determined to reward enterprise. But let’s hope it is accompanied by measures with broader scope, such as the proposed scheme to help young people set up businesses.
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This column strives to offer readers an exclusive insight into the state of the economy and I am delighted to be able to reveal the results of our latest research. This involved polling a not entirely randomly selected sample of black cab drivers operating in the east central area of London over the past few weeks.
There were two key findings. The first is that most of the sample reported a marked increase in the number of passengers asking for receipts. This is viewed by the cabbies as a bullish sign that companies are easing the squeeze on employee expenses. Historically, an increase in receipts has apparently been followed by an upturn in cab business and growth in economic activity in general.
And the second finding of the survey? If you are hoping for a few quiet minutes doing your e-mails in the back of the cab don’t, whatever you do, ask the driver what business will be like during the Olympics.