A manager at US bank Goldman Sachs has published his resignation letter in the New York Times, condemning the company for “ripping off its clients” and accusing colleagues of “moral bankruptcy”.
London-based Greg Smith, who was an executive director of its equity derivatives business in Europe, the Middle East and Africa, quit the investment firm after 12 years.
He wrote: “Today is my last day at Goldman Sachs…I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
“… The interests of the client continue to be sidelined in the way the firm operates and thinks about making money…
“…Culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients…it wasn’t just about making money; this alone will not sustain a firm for so long … 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 …
“When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fibre represents the single most serious threat to its long-run survival.
“How did we get here? … 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.
“What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients – some of whom are sophisticated, and some of whom aren’t – to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
“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 e-mail.
“I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. 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. People who care only about making money will not sustain this firm – or the trust of its clients – for very much longer.”
Goldman Sachs disagreed with Mr Smith’s comments, saying: “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.”
In the letter, Smith accuses the company of failing to mend its reputation in the wake of a series of scandals in recent years.
He alludes to Fabrice Tourre, the disgraced former Goldman Sachs vice president who referred to himself as the “Fabulous Fab,” who was sued in 2010 for fraud after it was alleged he had failed to disclose to investors that the company was betting against subprime mortgage investments it pushed on clients.
It was alleged that Goldman pushed a product, called Abacus, that was designed to fail.
Tourre (pictured) became the object of public vitriol after several emails he had written were leaked.
“Just made it to the country of your favourite clients [Belgians]!!! I’m managed to sell a few abacus bonds to widows and orphans that I ran into at the airport,” he wrote in one.
In another, he wrote: “More and more leverage in the system, The whole building is about to collapse anytime now! Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”
In 2009, Goldman Sachs boss Lloyd Blankfein claimed that bankers were doing “God’s work,” in an interview that sparked acerbic criticism.
He told the Sunday Times he believed that banks serve a “social purpose” and argued that the return of big profits and bonuses should be welcomed as proof the economy is recovering. On Wednesday the online edition of Forbes magazine called for Mr Blankfein to go in order to save Goldman Sachs.
In his letter Smith also refers to a damning indictment of Goldman Sachs by Senator Carl Levin who headed a Senate panel investigating whether they profited from dealing investors toxic mortgage securities.
Sen Levin was widely commended for his grilling of an executives over an internal e-mail describing an investment the company sold to a client as “one sh***y deal.”
Last year, he called Goldman Sachs “a financial snake pit rife with greed, conflicts of interest, and wrongdoing,” adding that Blankfein should possibly face perjury charges.