Goldman executive: we call our clients muppets

 
“God’s work”: Lloyd Blankfein, head of Goldman Sachs with his wife, Laura

The world’s most powerful investment bank came under devastating attack for its “toxic and destructive” culture today from one of its London-based executives.

Greg Smith said he had quit Wall Street giant Goldman Sachs because of a collapse of its “moral fibre”. He described how bankers at Goldman Sachs referred to their clients, who include the British and Greek governments, as “muppets”.

Mr Smith, an equities expert in his 30s, said: “It makes me ill how callously people talk about ripping their clients off.” Other clients include HSBC, BP, Tesco and Ocado. He said the bank had “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”.

In his resignation letter published in the New York Times, he added: “Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets’, sometimes over internal email.” The executive, who advised clients with funds worth more than $1 trillion, said the bank’s culture had been poisoned by greed.

Mr Smith was head of its Goldman Sachs’s US equity derivatives business in Europe, the Middle East and Africa for 12 years. The banker, in his thirties, was chosen to mentor applicants through the bank’s famously gruelling interview process.

The letter said: “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.” Mr Smith blamed chief executive Lloyd Blankfein, and president, Gary D. Cohn, for losing “hold of the firm’s culture on their watch”.

He added: “How did we get here? 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 an axe murderer) you will be promoted.”

He said meetings are all about how much money the bank can make off clients rather than how to help them, adding: “If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.”

A statement from Goldman Sachs said: “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.”

Investment banks such as Goldman Sachs finance and advise major companies and trade shares, bonds and complex “derivative” instruments such as futures and options.

The letter is a devastating blow for the investment banking industries of the City and Wall Street and will intensify pressure to tighten regulation.

Former Liberal Democrat Treasury spokesman Lord Oakeshott said: “We all know in the City that Goldman help themselves before they help their clients — here is the proof. Greg Smith says you get promoted there if you are not an ‘axe murderer’, and the people of Greece and the rest of the eurozone are paying the price.”

Labour MP John Mann, a member of the Treasury select committee, said: “At last somebody has come out and exposed what has been really going on. There is a real challenge to the Government to sort this out and make sure the banking industry is properly focused on its customers.”

Time for a culture change at the ‘great vampire squid’

Commentary: Jonathan Prynn

Today’s open letter in the New York Times is the latest in a series of PR calamities for a firm once seen as untouchable. It is perhaps the most devastating of all because it has come from within.

The image of the Wall Street giant, which boasts “integrity and honesty are at the heart of our business”, has never recovered from another attack in a US publication during the banking crisis.

A 2009 article in Rolling Stone magazine described Goldman Sachs as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”. The image has stuck and inspired many of the campaigners against global capitalism who sometimes dress in squid outfits. A comment from chairman and chief executive Lloyd Blankfein to a British journalist later that year that “we do God’s work” added to the sense that Goldman Sachs saw itself as existing beyond the standards applied to mere banking mortals.

But in 2010 it was accused of defrauding investors by the US Securities and Exchange Commission. It settled for about £350 million. Today’s revelations mark the first time that a senior named executive has expressed so forcefully disillusion with a culture that was seen as the embodiment of excellence just a few years ago.

On its website Goldman states: “We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives.” Only a wholesale overhaul of a culture that stood it in good stead for decades will prevent that claim sounding hollow.

"A wake-up call to weed out the morally bankrupt"

An edited version of the resignation letter issued by Goldman Sachs executive director Greg Smith

Today is my last day at Goldman Sachs after almost 12 years at the firm... And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

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.

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.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

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.

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 axe murderer) you will be promoted into a position of influence.

If you were an alien from Mars and sat in on one of these (sales) meetings, you would believe that a client’s success or progress was not part of the thought process at all.

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.

I don’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 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.

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.

I hope this can be a wake-up call to the board of directors ... 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.

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