Monday was only the opening day of the trial of Rajat Gupta, the former head of McKinsey and board member of Goldman Sachs, on charges of conspiracy and insider trading. But one thing is already clear: he is not a crowd-pleaser.
Compared with some other recent trials of Wall Street figures, such as Bernie Madoff and Raj Rajaratnam, the turnout was modest. The man that Reed Brodsky, the prosecutor, described as “the ultimate corporate insider” was mainly surrounded by friends and family.
Judge Jed Rakoff’s courtroom on the 14th floor of the court building filled up sufficiently to require some of the press and lawyers to decamp to an 11th floor overflow room (in which the sound quality was abysmal).
In general, however, it felt like a private affair in relation to other landmark Wall Street cases. Given the status of Mr Gupta – the most senior figure from the US corporate establishment to face charges since the 2008 crisis – that is odd.
Occupy Wall Street protestors rally in front of the New York Stock Exchange on March 30, 2012. Image by Getty
Perception tends to lag events, a phenomenon from which a lot of Wall Street bankers are suffering at the moment. While the general public believes they are still living it up on borrowed money, the reality – for many of them at least – is different.
The squeeze on investment banks, which took some time to occur following the 2008 financial crisis, is now kicking in. As Tony Jackson writes in his FT column, the glory days of easy money for bankers are over (for the time being, at least):
Across the western world, the public rhetoric about bankers is proving oddly durable. They caused our troubles, but are not sharing them. We suffer privations, they get bonuses.
That is somewhat behind events. Investment banking, at least, is in a slow-motion train wreck. The fact that some bankers are still in the buffet car squabbling over the last bottles of champagne is a distraction.
It is hard to believe now but there was a time before the credit crisis that the culture of investment banks had not always been linked to reckless greed and buccaneering.
Yes their darker dealings, regulatory failings and rising conflicts of interest were apparent to anyone with a passing familiarity with Wall Street or even the film of the same name. But there was also a positive side.
To misquote from the work of Hanns Johst, the Nazi playwright: “When I hear the words corporate culture, I reach for my pistol.”
Few other management themes encourage as much cant and hypocrisy from companies, and as much waffle from those who study them. Yet a healthy corporate culture is vital to the well-being of most organisations. I’d go further and say that given the complexity of the largest multinationals – and the impossibility that their chief executives know what is happening in every corner of the companies they purport to run – the right culture is indispensable.
This is why Wednesday’s New York Times op-ed, in which Goldman Sachs’ Greg Smith resigns in spectacular fashion as executive director and head of the firm’s US equity derivatives business in Europe, the Middle East and Africa, is so interesting and – for Goldman – so potentially damaging.
The idea that Lloyd Blankfein could be convicted of a criminal offence over Goldman Sachs’ activities leading up to the 2008 financial crisis still seems far-fetched to me, although it clearly worries Goldman’s investors.
The fact that Goldman’s chairman and chief executive has hired a prominent defence lawyer to deal with a US Justice Department investigation into the bank led to its shares falling nearly 5 per cent on Monday.
The most plausible charge – although none has been brought – would be perjury over Mr Blankfein’s evidence to a Senate committee. Senator Carl Levin has accused Goldman executives of being misleading by denying they had “a big short” on mortgage-backed securities.
Deutsche Bank’s procrastination over who should take over from Josef Ackermann as chief executive – and its readiness to consider co-chiefs to replace him – smacks of indecision, poor succession planning and compromise at the top. But could it work?
I’ve never played “dogpile” but I think Peter Henning is right to argue that Goldman Sachs has become the target for every US prosecutor to pile on top of, in the hope of finding a civil or criminal charge.
In a column last month I wrote that I doubted whether anything in the report, or in the evidence given by Goldman executives to the committee, amounted to criminal misconduct. Matt Taibbi of Rolling Stone differs with me on this.
But my sympathy with Goldman is limited since I argued before its problems blew up so dramatically that a business model based on “managing” conflicts of interest rather than avoiding them made it vulnerable.
It is rare to hear the senior management of a company insisting so forthrightly that it has little control over its own destiny, but that was the message emerging from Goldman Sachs today.
David Viniar, Goldman’s chief financial officer, was at pains to hammer home this point on the investor conference call following its poor second quarter results:
“Our mix of business in not driven by management and the board . . . it is really driven by what our clients are demanding from us . . . It was very, very largely reduced client activity [that caused a sharp fall in revenues]“
Mr Viniar was trying to counter the suggestion that Goldman’s results were due to poor risk-taking or trading with its own capital. Instead, he wanted everyone to believe that Goldman’s fate was largely out of its hands, since it rises and falls on the financial tide.
Joe Cassano has been invisible for so long – since the 2008 crisis, the former head of AIG’s now-notorious financial products division has not given a media interview and is only rarely photographed – that it was a revelation to watch his appearance on Capitol Hill.
Mr Cassano’s mystique was such, and the expectations of him so low, that my first impression was that he was a good witness. His co-operative, friendly, somewhat geeky demeanour in front of the Financial Crisis Inquiry Commission was unlike that of a brash master of the universe.
This helped him in his striking assertion that AIGFP, which made multi-billion dollar mark-to-market losses on its portfolio of credit default swaps and turned AIG into the dark heart of the financial crisis, did not make any mistakes in credit risk management.
Luke Johnson has a great column in the FT – written from experience – on why large companies are more prone to infighting and less enjoyable places to work.
Goldman Sachs‘ attempt to settle with the Securities and Exchange Commission in the Abacus case on a lesser charge than fraud, which I and Francesco Guerrera wrote about today, is a reminder of the peculiar way in which US civil securities cases are often resolved.
The standard settlement involves a defendant being fined by the SEC, and disciplined in individual cases, but “neither admitting nor denying” the allegations. The SEC thus gets a scalp and avoids a court case, while the defendant avoids a conviction.
The shareholders of Berkshire Hathaway were disappointed by Warren Buffett’s defence of Goldman Sachs at their annual meeting in Omaha, Nebraska this weekend, and I admit to being disappointed too.
Despite the doubts expressed by Charlie Munger, Mr Buffett’s business partner, about Goldman’s conduct in the synthetic CDO market, the Sage of Omaha threw his considerable weight behind the bank.
The Oracle of Omaha has spoken and Lloyd Blankfein must be breathing a sigh of relief.
As I noted in my post below, a lot was riding on what Warren Buffett had to say about Goldman Sachs at the annual meeting of Berkshire Hathaway shareholders this weekend. As it turns out, Mr Buffett has come out strongly in Goldman’s defence.
What will Warren Buffett say about Goldman Sachs?
It was a marathon day in the Senate subcommittee for Goldman Sachs’ executives, and it was a pretty long one for anyone watching.
A lot of the proceedings were taken up with senators and Goldman executives speaking at cross-purposes, and with the Quixotic determination of Carl Levin, the subcommittee’s chairman, to show that Goldman was hugely short of subprime mortgage securities.