Goldman Girds for War
As the firm’s CEO prepares to testify tomorrow, Goldman Sachs enjoys “Kool-Aid” level unity, reports John Carney—and at least one banker there even thinks the SEC suit will help business.
If the Securities and Exchange Commission hoped its lawsuit against Goldman Sachs would humble the firm, it may be sorely disappointed.
The charges against the firm haven’t left Goldman’s employees feeling humiliated, or seething at the derivatives specialists who brought the black mark of official fraud accusations, or plotting against the traders who have ruled the firm since the departure of Hank Paulson and the rise of Lloyd Blankfein.
“To tell you the truth, I’m not sure it doesn’t help,” says one Goldman banker about the fraud charges. “Sure does make us look smart, right?”
Instead, Goldman’s employees have unified, developing an “us against them” siege mentality. In conversations with over a half-dozen people familiar with a wide swath of Goldman, including several current and former employees, I never encountered anything but support for Goldman’s management and derision for the SEC’s lawsuit they view as fatally flawed.
“If they served Kool-Aid inside of Goldman, it’s safe to say everyone would be drinking it,” says one senior New York attorney whose practice brings him into contact with many Goldman employees.
Internally, Goldman has long been divided between the investment bankers who once controlled the firm and the traders whose control arose with the rising profits from proprietary trading. Current CEO Lloyd Blankfein comes from the trading side of the firm. Instead of breathing new life into those old rivalries, the SEC’s lawsuit seems to have stifled them. “The general consensus is that, of course, Goldman has become a hedge fund rather than an investment bank and as such trading will bask in the limelight as well as the lowlights,” says one former employee.
• Charlie Gasparino: Will Goldman Dump Blankfein?• Jeffrey E. Garten: Wall Street Will Reform WashingtonThis being Goldman, the lack of dissension stems from a single word: money. One investment banker at the firm says he expects the impact of the suit on Goldman’s investment banking business to be negligible—at worst. “To tell you the truth, I’m not sure it doesn’t help,” he says. “Sure does make us look smart, right?”
Perhaps the key reason for internal unity: The firm’s external lifeblood—its clients’ money—seems locked down for now. Often the earliest sounds of dissatisfaction at a Wall Street firm following a public scandal are heard from the most public facing businesses, such as financial advisers. Goldman Sachs Private Wealth Management, however, remains a sea of contentment toward management and contempt for the SEC’s lawsuit.
“Private wealth hasn’t heard any serious worries from clients,” says a person familiar with the business, who added that no big clients have bolted in the wake of the lawsuit.
Goldman’s prime brokerage business also seems not to have suffered, although a few hedge-fund managers have questioned the ethics of the trades at the heart of the SEC’s lawsuit.
“Maybe it was legal. But it was wholly unethical to Goldman's other clients,” says the hedge-fund manager. Tellingly, however, he’s not withdrawing his business from Goldman’s prime brokerage, however. And inside of Goldman, few recognize anything unethical in Goldman’s trades. If anything, they question the ethics of the SEC for bringing the suit.
“Everyone internal thinks it's a big joke,” says one former Goldman employee, “and are actually quite pissed that the SEC had the audacity to bring these charges and in an unprecedented manner.”
An informal dinner of current and former Goldman executives late last week echoed that thread. “There is no dissention within the company and the blame isn't going on anyone,” shrugs one person who attended the dinner.
“Fabrice and some of the other guys are out because they had to be for perception,” the dinner attendee adds, referring to Fabrice Toure, the Goldman vice president named in the SEC’s lawsuit. “No one seems to think that Lloyd will be the fall guy.”
Goldman’s solidarity in the face of its legal and public-relations challenges is surprising. At other firms, challenging times have given rise to internal dissent. Merrill Lynch, for instance, saw its executives waging something close to open warfare through press leaks as losses at the firm mounted in 2007 and 2008.
“It’s like the firm is full of Stepford bankers,” says one Goldman vice president, adding that the solidarity was “almost spooky.”
Perhaps things will change as Goldman’s CEO, Lloyd Blankfein, is dragged to Capitol Hill this week to testify about his firm’s trading practices. But for now, Goldman is a fortress, with its employees mounting the parapets to defend the firm against the slings and arrows of outraged outsiders.