26 Apr 2012

Goldman Sachs chairman: ‘Shame on us’

Two years after claiming Goldman Sachs does ‘God’s work’ – or at least God’s banking – Lloyd Blankfein breaks his vow of silence to spread a new message: the bankers are ashamed… No, really.

“Shame on us,” Blankfein said within 10 seconds of sitting down to chat with Bloomberg TV. Bankers, it seems, have discovered it is bad public relations to be known as the “giant vampire squid wrapped around the face of humanity.”

“The average American probably had no contact and had never had heard of Goldman Sachs before three years ago – shame on us, in a way, in not anticipating how important that would be.” said Blankfein, who has an estimated net worth of $450m.

Shame, indeed. Two years ago, around the time of Blankfein’s last live TV appearance, the U.S. Securities and Exchange Commission was considering civil fraud charges over Goldman Sachs’ role in selling a mortgage derivative called “Abacus.” Goldman settled the case for $550m, the largest-ever payment to the SEC by a Wall Street firm. The UK Financial Services Authority added its own £17.5m fine, one of the heaviest ever levied by the FSA.

Goldman took another PR hit this year when one of its London-based bankers resigned in an open letter to the New York Times, noting how greedy staff referred to Goldman’s clients as “muppets.” (In a separate interview with CNBC, Blankfein said an internal inquiry found no “substantiation” of the alleged muppet-mocking culture at the bank.)

Blankfein sings from a new song sheet

While profit at Goldman Sachs improved from the end of 2011, last week the bank reported first-quarter net income fell 23 per cent from a year earlier as revenue from trading bonds, currencies and commodities lagged behind rivals

The 12.2 per cent return on equity in the first quarter was a result of muted economic growth and client demand, which Blankfein translated into banker-speak as a “lower third-quartile opportunity set.”

So, perhaps it wasn’t surprising to see the newly reformed, contrite Blankfein embarking on his new mission – this one decidedly more damage-control than religious.

Attack of the vampire squid

“Are you still the vampire squid?” Bloomberg’s reporter asked.

“That is kind of hyperbole,” Blankfein responded, before admitting “It possibly is (the public’s opinion.) We are going to have to do a better job – we’re going to have to do a job – in getting out there and telling people how important this industry is, what it does, when we advise companies on their growth plans when we help finance those growth plans, when we manage their assets for them and how important this is for the economy, the markets and society at large.”

The words were repentant, but the strategy Blankfein outlined next was reassuringly the same: world domination.

“There’s a chance to be what Goldman Sachs is in the U.S., over a much larger swath of the world, and that is very good,” Blankfein said, noting the 140-year-old investment bank has only sold shares to the public for the last 12 years so there’s plenty of growth opportunity ahead.

Suits you, sir

“Our fortunes hinge on growth around the world, a lot of the growth is occurring overseas and in the BRIC countries (Brazil, Russian, India and China). We really should be, frankly, and intend to, build out our footprint a little more and we’ve been conservative with that,” he added.

“One of the biggest risks going forward is that things may actually go right,” he said, because while Europe remains in the doldrums, there are plenty of other markets to make money in: “Look, we have a big slowdown in Europe but there’s China. Even China at its lowest growth is growing – just its growth is the equivalent of half of a UK economy every year.”

So Blankfein may be contrite, just not when it comes to making money. Goldman Sachs’ business model – which has been described as a giant hedge fund with an investment bank attached – “suits us just fine,” Blankfein said.

One could almost hear the trading floor choirboys break into a chorus of “Hallelujah.”