Goldman Sachs banker slams firm as 'toxic'
Filed under: News
Greg Smith, who was Goldman's executive director of equity derivatives in Europe, the Middle East and Africa, accused senior staff of being "morally bankrupt" and focused on ripping off clients. The comments triggered a blizzard of comments on Twitter and other social media.
"The environment now is as toxic and destructive as I have ever seen it," Smith wrote in Wednesday's New York Times.
Since Rolling Stone magazine likened "the world's most powerful investment bank" to "a great vampire squid wrapped round the face of humanity, relentlessly jamming its blood funnel into anything that smells like money," that label has stuck. Chief executive Lloyd Blankfein caused more furore when he said that bankers were "doing God's work".
Goldman was bailed out by the US government along with other banks during the financial crisis and has faced a number of accusations, for example that it helped Greece hide some of its huge debts. Two years ago the Securities and Exchange Commission opened a fraud investigation into the marketing of sub-prime mortgage investments that caused the US housing crash, including the role played by Goldman. The bank later settled for $350m.
Smith's unprecedented accusations were swiftly denied by the Wall Street giant. The New York Times said his public exit "hits at a wounded Wall Street" in the aftermath of the financial crisis.
If he is right, it looks like Goldman took Gordon Gekko's s famous "Greed is good" phrase (from the film Wall Street) too far.
Detailing Goldman's cultural decline, Smith said he attended 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 email," he added.
Smith said he didn't know of any illegal behaviour, 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 wasn't always thus. "The culture was the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years," he reminisced. But he accused Blankfein and the firm's president, Gary Cohn, of having "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."
"It astounds me how little senior management doesn't get a basic truth: If clients don't trust you they will eventually stop doing business with you," he wrote. "It doesn't matter how smart you are."
Goldman reacted to the diatribe with this statement: "We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."
Bill Cohan, a former investment banker and author of a book on Goldman Sachs, said Smith would know how clients were treated in his division. But he questioned "whether or not he understands the Goldman strategy overall". "He's not on the management committee or even a partner of the firm," Cohan told Bloomberg TV. "He's toast. He is completely toast in terms of Wall Street, no question about that," he added.
The Daily Mash was quick to produce a spoof version of the letter, entitled Why I am leaving the Empire, by Darth Vader.
It translated Smith's conclusion as: "I hope this can be a wake-up call. Make killing people in terrifying and unstoppable ways the focal point of your business again. Without it you will not exist. Weed out the morally bankrupt people, no matter how much non-existent Alderaan real estate they sell. And get the culture right again, so people want to make millions of voices cry out in terror before being suddenly silenced."
Another spoof appeared on the Borowitz Report, which purported to be a letter to Goldman's clients from Blankfein.
"Dear Goldman Client:
By now, many of you have probably read the regrettable resignation letter published in today's New York Times by former Goldman executive Greg Smith, explaining why he is leaving the firm after twelve years.
In the letter, in which he excoriates Goldman and his practices, Mr. Smith comes across as a man of conscience, ideals, and high moral standards. And as you read his words, you no doubt asked yourself this troubling question: how could Goldman have hired such a person?"