"I landed in New York at JFK International close to midnight on the day the op-ed was published. My picture had been all over the place, and I wasn't sure if people would recognize me, so-- perhaps stupidly-- I wore a makeshift disguise: a dark brown straw fedora and an unshaven beard. I headed straight for Phil's place on Seventy-Ninth Street and Third Avenue. Phil had arranged a blow-up mattress for me to sleep on, and said I should come straight over when I landed." --Why I Left Goldman Sachs, Afterward
Let's Help Greg Smith Name His Book
Earlier today, the Times reported that former Goldman Sachs employee Greg Smith-- he of third place Maccabiah Games finishes and very public breakup letters fame--, along with his newly acquired agent (Paul Fedorko), have been making the rounds at various publishing houses for the last week, pitching a book CNBC's Kate Kelly saysmay go for more than $1 million at auction. It’s still in the early stages, though, and most likey untitled. So! Let’s do him a solid and come up with some options. The tome is being pitched as a "coming-of-age story, the tale of someone who came into the business with good intentions and sky-high ideals that were ultimately pierced by Goldman’s obsessive focus on making money." So far all we've got are "Why They Don't Hug Anymore At Goldman Sachs," "Sixth-Balling Your Clients-- A Story Of Goldman Sachs," and "Den of Thieves: Tripping Over Ethics And My Shoe-Laces At Goldman Sachs." Surely you can do better.
FYI, Whitney Tilson's Investment Thesis On Goldman Sachs Has Not Changed In Light Of Times Op-Ed (Update)
Having said that, T2 Partners will be "monitoring" the situation. The op ed in today’s New York Times by retiring Goldman Sachs Executive Director Greg Smith is the talk of Wall Street. We think we know Goldman well, as the company has been our prime broker for the past seven years and Goldman (both stock and call options) is one of our largest positions, so we wanted to add our comments. Our direct experience as a client of Goldman has been universally positive. The many people we have dealt with there have all been exceptionally talented and high-grade, and never once have we had a negative experience in which we felt that they took advantage of us or didn’t do what they said they would do. That said, we are not naïve. In all of our dealings with Wall Street firms, we assume that they are looking out for their own bottom lines, not ours. And we are certainly aware that the old, gentlemanly culture in which integrity and a customer-first attitude generally prevailed is long gone – not just at Goldman, but across all of Wall Street – and, in fact, across the entire financial industry (the reasons for this and what should be done about it are the subject for another day). When we think about investing in any company – especially a financial one, which is heavily regulated, leveraged, and particularly difficult for an outsider to analyze – we factor into our investment equation our assessment of the company’s culture and values, and, if we have any concerns, what the potential associated risks are, such as unexpected losses and regulatory action. In light of our view of the moral decay across the U.S. financial sector, we aggressively haircut our estimates of intrinsic value in the sector – some companies more so than others. But at some price, of course, any stock is a buy, and last August and September we felt that the negativity surrounding the financial sector was way overdone and hence made a big – and, so far, very profitable – bet on Goldman and a number of other U.S. financial firms. With the run-up in Goldman’s stock – after falling below $90 as recently as December, it’s now over $120, just above tangible book value of $119.72 as of 12/31/11 – we’ve been debating whether to trim or exit our position, so today’s op ed is timely. But is it relevant to our investment thesis? We think probably not, for two reasons: 1) 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. What’s the next “shocking” headline: “Prostitution in Vegas!”? 2) We highly doubt that Goldman is as truly corrupt as Smith makes it out to be. Goldman has more than 30,000 employees (including nearly 12,000 vice presidents, of which Mr. Smith is one) and has gone through wrenching changes in the past year, including savage cuts to bonuses and extensive layoffs, so it doesn’t surprise us that there are many disgruntled employees, especially those who are leaving. Is Smith one of them? It’s hard to tell, but here’s an email sent to me this morning by a former partner at Goldman (who generally agrees that the firm’s culture is not what it once was): There are a couple of things out of place. 1) This guy has been at firm for 12 years and is only a VP…a piss ant of sorts. He should have been an MD-light by now, so clearly he has been running in place for some time. 2) He was in U.S. equity derivatives in London…sort of like equities in Dallas…more confirmation he is a lightweight. Somewhere along the line he has had sand kicked in his face…and is not as good as he thinks he is. That happens to a lot of high achievers there. In summary, we think it’s likely that Goldman does the right thing for its clients the vast majority of the time – but not as certainly as it used to in the old days. Times have changed and the trend is unfortunate, but it is not unique to Goldman. In fact, we believe that Goldman still has a better culture and is more ethical than most of its competitors – though this is a very low bar to be sure. Our investment thesis on Goldman is simple: when all the dust settles, it will remain the premier investment banking franchise in the world – and, if so, will be worth a substantial premium to tangible book value. Smith’s column is a warning flag that we’ll be monitoring closely, but we believe our investment thesis remains intact and the stock is still cheap, so we’re not selling.
What Else Does Goldman Sachs Have In Store For Greg Smith?
As you may have heard, eleven short days from now Grand Central Publishing will release Why I Left Goldman Sachs: A Wall Street Story. The book is the memoir of former Goldman employee Greg Smith, who in March of last year penned an op-ed for the New York Times called "Why I Am Leaving Goldman Sachs," a resignation letter of sorts in which Smith detailed the ways the firm had disappointed, sickened, and ultimately failed him, from opting for "shortcuts" over "achievement" to becoming, in the twelve years he worked there, a place that only cares about one thing and one thing only: "making money." While perhaps another person would have turned a blind eye and said nothing, Greg had an obligation, as a Rhodes Scholar national finalist and a Maccabiah Games bronze medal finisher in ping-pong, to say ENOUGH. To violate his employer in the most gruesome fashion possible (that is, publicly), in front of clients and other interested parties. To let the world know this place he worked at for over a decade could continue to be a criminal enterprise but that he was moving on. The piece, as you might have imagined, did not please many people at Goldman Sachs nor did the $1.5 million deal Smith scored shortly thereafter to write the book. In September, a spokesman for the firm issued a delightfully bitchy, exceptionally underminey comment to the press re: Smith's tale being no more interesting than that of a disgruntled first-year analyst who thinks he's got a story to tell and yesterday, amazingly and almost unbelievably but you must believe it because here it is, leaked details of Greg's performance reviews to the Financial Times which, spoiler alert, are less than flattering. Two people who managed Mr Smith said he was a solid performer but did not merit promotion to managing director, a distinction he apparently sought in 2009 and 2010. They also said he reacted badly to his bonus award in January this year. At the time one of his managers wrote in an email: “Greg Smith off the charts unrealistic, thinks he shld trade at multiples. We told him there’s v little tolerance for reactions like that and he needs to tone it down.” Ignoring for a moment that the manager quoted sounds like one of those horrible people who oh so cleverly discusses humans as financial assets, and has probably told people "I'm short Greg Smith" in the past, is this strategic attack on a former employee not the most wonderful thing to come out of GS since Hank Paulson used voicemail to apologize for telling 80 percent of the firm they were worthless pieces of crap not worthy of cleaning the lining of his birds' cages? Particularly because they maintain he is so insignificant they've barely given him or his book any thought at all? And does it not get you excited for what's to come in the run-up to October 22, i.e. what other ways Goldman has planned to humiliate and discredit Mr. Smith? Some ideas we assume they have already thought of include: * Revealing the nickname he gave himself in firm emails (Agent Smith) * Getting eyewitnesses to tell reporters that after getting shafted on his bonus, he was seen flying into a fit of mad rage, whipping his ping-pong paddle out of his holster, and screaming obscenities at passersby on the trading floor before he was restrained by Gary Cohn * Leaking the original draft of his book he was working on circa 2009, entitled Why I Became A Managing Director At Goldman Sachs: A Success Story Goldman's 'Muppet Hunt' Draws A Blank [FT] Earlier: Goldman Sachs Unimpressed By Sophomoric Writing Efforts Of Former Employee; Resignation Letter Reveals Goldman Sachs Is In The Business Of Making Money, Hires People Who Don’t Know How To Tie Their Shoes; Jewish Ping-Pong Tournament Participant / Sixth-Year Goldman Sachs Vice President Is Looking For His Next Challenge; Goldman Sachs Accuser Greg Smith (Might Have) Lied About That Which He Holds Most Sacred
Greg Smith: Goldman Sachs Interns Taught Harsh But Important Lessons By Demanding But Affable Managing Directors
Lesson 1, according the first chapter of Why I Left Goldman Sachs to leak online: the difference between a sandwich and a salad. You needed to be very entrepreneurial and creative. Adding value as an intern often began with getting coffee for the desk every day; frequently, interns also did breakfast and lunch runs. You would literally take a pen and pad and go around to the ten or fifteen people on the desk and take everyone's order. It's a strange concept, but Wall Street looks at attention to detail as an indicator of how people are going to do in their job. If a kid keeps messing up the lunch order, he's probably going to mess up something else down the line. I remember one managing director-- a few years after I'd started working at the firm-- who was very sensitive about his lunch orders. He didn't eat onion or certain other things. One day he asked an intern for a cheddar cheese sandwich, and the kid came back with a cheddar cheese salad. The kid handed it to him so proudly: "Here's your cheddar cheese salad." I was sitting next to the MD, so I remember the incident well. He opened the container, looked at the salad, looked up at the kid, closed the container, and threw it in the trash. It was a bit harsh, but it was also a teaching moment. The managing director joked about it with the kid afterward; he didn't make a big deal about it. The lesson was learned. Chapter 1: "I Don't Know, But I'll Find Out" [PDF] Earlier: What Else Does Goldman Sachs Have In Store For Greg Smith?; Goldman Sachs Unimpressed By Sophomoric Writing Efforts Of Former Employee; Resignation Letter Reveals Goldman Sachs Is In The Business Of Making Money, Hires People Who Don’t Know How To Tie Their Shoes; Jewish Ping-Pong Tournament Participant / Sixth-Year Goldman Sachs Vice President Is Looking For His Next Challenge; Goldman Sachs Accuser Greg Smith (Might Have) Lied About That Which He Holds Most Sacred