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REAL WORLD EVENT DISCUSSIONS
Goldman Sachs' debacle
Thursday, March 15, 2012 11:07 AM
Gettin' old, but still a hippie at heart...
Quote: Goldman Sachs Group Inc. saw $2.15 billion of its market value wiped out after an employee assailed Chief Executive Officer Lloyd C. Blankfein’s management and the firm’s treatment of clients, sparking debate across Wall Street.
The shares dropped 3.4 percent in New York trading yesterday, the third-biggest decline in the 81-company Standard & Poor’s 500 Financials Index, after London-based Greg Smith made the accusations in a New York Times op-ed piece.
Executives at Goldman Sachs haven’t changed their behavior even after the firm paid $550 million to settle a fraud lawsuit with the Securities and Exchange Commission and was accused by the U.S. Senate’s Permanent Subcommittee on Investigations of misleading clients, Smith wrote. The company published a report in January 2011 with 39 recommendations on how to improve its business practices and client focus.
“Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail,” Smith wrote. “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.”
“The argument that Goldman has become increasingly profit- driven, sometimes at the expense of clients’ best interests, and that some employees use vulgar and disrespectful language, is hardly news,” Whitney Tilson, founder of hedge fund T2 Partners LLC, wrote in an e-mailed commentary. “What’s the next ‘shocking’ headline: ‘Prostitution in Vegas!?’”
Seven former Goldman Sachs partners and managing directors, positions that are more senior than vice president, said in interviews that Smith shouldn’t be taken seriously because he was a junior employee and may have been disgruntled about his pay or career. All asked not to be identified because they didn’t want to risk ruining their relationship with the firm.
Still, six of the seven said they agreed with Smith’s criticism of how the firm has treated clients under Blankfein and Cohn’s management and that current members of the management committee would, too. Even so, they said they don’t expect the board of directors to take action or that anything will change because the firm has made money and outperformed most rivals.
Smith’s opinion piece “seems to be symptomatic of many, if not most, of the banks around the world,” said Tom Kirchmaier, a fellow in the financial-markets group at the London School of Economics. “It might be that Goldman, as one of the most successful ones, is also one of the most extreme.” http://www.washingtonpost.com/business/goldman-sachs-loses-market-value-after-searing-greg-smith-essay/2012/03/15/gIQAn686DS_story_1.html
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