Greg Smith is a Goldman Sachs “executive director” and “head of equity derivatives” in Europe, the Middle East and Africa. And, as you may have heard, today is his last day at the firm. Greg had a speech prepared for the big announcement, which he stayed up all night writing and planned to deliver on the trading floor at noon, but assuming security has other ideas, we volunteered to relay his story. A word of advice: brace yourselves.
Why is Greg resigning from Goldman Sachs? To understand why he’s leaving, you have to know what it was like when he got here, twelve years ago.
It might sound surprising to a skeptical public, but 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. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization.
For a while, Greg loved Goldman Sachs! And the feeling was mutual, otherwise they obviously would not have bestowed him the great honor of being “selected as one of 10 people (out of a firm of more than 30,000) to appear on the recruiting video, which is played on every college campus we visit around the world.” Shortly after the cameras rolled and he got his star turn, though, things began to change. And not in a good way. Greg suddenly noticed that the culture that made him “love working for this firm” was gone. He no longer had “the pride, or the belief.” The moment of truth? When he realized he “could no longer look students in the eye and tell them what a great place this was to work.” It didn’t matter how great a performance he gave in those videos. It didn’t matter that audiences would ask if he really worked for Goldman or if they’d hired an actor, as he appeared to have been classically trained. It didn’t matter that his recruiting DVD had been nominated for several trade awards. It didn’t matter because Greg had seen too much. Read more »
As you may have heard, Goldman Sachs today released a 63-page report detailing what percentage of revenue comes from the bank’s own trading and investing, as well as other disclosures attempted to show pull the veil of secrecy back just a bit and show the world that while yes, ritual sacrifice in the basement of 200 West and a Buffalo warehouse is standard, Goldman Sachs is a friendly squid with nothing to hide. The second page of the document (via Deal Journal) kicks things off with “The Goldman Sachs Business Principles,” such as:
Our assets are our people, capital and reputation.
If any of these is ever diminished, the last is the most difficult to restore. We are dedicated to complying fully with the letter and spirit of the laws, rules and ethical principles that govern us. Our continued success depends upon unswerving adherence to this standard.
We stress creativity and imagination in everything we do.
While recognizing that the old way may still be the best way, we constantly strive to find a better solution to a client’s problems. We pride ourselves on having pioneered many of the practices and techniques that have become standard in the industry.
Our business is highly competitive, and we aggressively seek to expand our client relationships.
However, we must always be fair competitors and must never denigrate other firms.
We consider our size an asset that we try hard to preserve.
We want to be big enough to undertake the largest project that any of our clients could contemplate, yet small enough to maintain the loyalty, the intimacy and the esprit de corps that we all treasure and that contribute greatly to our success.
Another reason for the report was to show that contrary to what some people believe, Goldman Sachs loves its clients and that business about a buddy system between the prime brokerage and prop desk in order to facilitate front running of client trades? Baseless rumor at best. Sure, there were times when lines were flirted maybe occasionally crossed by accident. But that was the old Goldman Sachs. The new Goldman Sachs respects boundaries. Having said that, some clients like it when things are taken a little further than others are comfortable with and so, a formal chart has been devised so that GS can keep track of who’s down for anything and who’s not, called The Matrix. Read more »
From 2002 to 2007, Citi raised $2.8 billion from clients to invest in a couple of fund series called MAT Finance LLC, which invested in municipal bonds and was eventually leveraged 8:1 and Falcon, which invested in mortgage debt. Despite the former being marketed as “an attractive alternative to a bond index” and the latter receiving an S&P rating “equivalent to safe, medium-term government bonds,” anyone who bet on the funds lost what might be characterized as “a metric ass-ton of their money.”
For exampe, the funds a team of brokers from Smith Barney put their clients in fell an impressive 80% to 97% from May 2007 to March 2008. Though Citi claims no foul play and offered to cover approximately one-eighth of clients’ losses, the SEC still felt the need to launch an investigation into whether or not the bank’s employees adequately disclosed the funds’ risks and/or mismanaged them. And apparently investors are still pretty miffed about the whole thing, which one broker, Michael Johnston, intuited by the response he got from one when suggesting a sweet buyback deal that would’ve translated to the client only losing 72% and promising not to sue Citi. Read more »
And in case you were wondering, the answer is yes. Facilitate does translate loosely to “reach-around.” Read more »
Time was, if you were, say, a hedge fund client of Goldman Sachs, you knew not to expect much in the way of bedside manner. No coddling, no hand holding, no Shmoopy Talk. You could try getting them on the phone, but that was generally futile, as all client calls were automatically rerouted to the Rejection Line. Oh, you felt like you weren’t getting enough attention? You wondered if maybe there was a chance they were sometimes screwing you? Too bad. The way GS saw it, you were lucky if they didn’t nut in your eye. Your only recourse was to roll over and take it, or GTFO. Since the whole “SEC fraud charge,” however, things have changed. Read more »