Goldman Sachs

Andrew Hill

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. Read more

John Gapper

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. Read more

Andrew Hill

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? Read more

John Gapper

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. Read more

John Gapper

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. Read more

John Gapper

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. Read more

John Gapper

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.

He writes: Read more

John Gapper

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. Read more

John Gapper

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. Read more

John Gapper

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. Read more

John Gapper

What will Warren Buffett say about Goldman Sachs? Read more

John Gapper

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. Read more

Times are given in US EST.

By Alan Rappeport

8:42pm – And nearly 11 hours after the hearings began, that’s a wrap.

8:35pm – The audience appears to be thinning in the meeting room. Mr Levin is giving his closing statement, giving one last run down of how the entire financial crisis ensued, for the record. Mr Blankfein’s face is locked in a squint and he is clutching his water glass. “I happen to be one that believes in a free market, but if it’s going to be free…it’s got to be free of deception. It needs a cop on the beat of Wall Street.” Read more

Refresh this page for the latest updates. Times are given in US EST

By Alan Rappeport

3:13pm – The committee has excused the witnesses after an exhaustive array of questioning. The Goldman witnesses appeared to hold their own, often frustrating the Senators who probed aggressively. There will be a 10 minute recess before David Viniar, CFO, and Craig Broderick, chief risk officer, take the stage. We’ll return for the third panel featuring Lloyd Blankfein.

3:03pm – Mr Levin is returning to the bigger question of conflicts of interest. “For heavens sake, clients should know that when you are selling securities, that you are betting against those securities. I think it is intolerable and it needs to be addressed,” he said. Read more

John Gapper

As I noted in my earlier post, I don’t think the fact that Goldman Sachs was short of the residential mortgage securities market in 2007 (to the degree that it was) was, as the Senate investigations subcommittee seems to think, a scandal.

Politicians and regulators tend to be biased against short sellers, believing that going short is somehow wrong or unpatriotic. But the fact that Goldman protected itself better than other banks such as Lehman Brothers from the downturn was neither illegal nor wrong in itself. Read more

John Gapper

The oddity of the competing releases this weekend of internal Goldman Sachs emails is that the prosecution case is less embarrassing for Goldman than the bank’s defence.

The initial release came from the Senate subcommittee on investigations, which on Tuesday is due to quiz Lloyd Blankfein, Goldman’s chief executive, and Fabrice Tourre, a structured credit salesman accused of fraud for his role in the Abacus 2007 deal. Read more

John Gapper

Was it Goldman’s fault that IKB, the German bank, lost $150m on the controversial Abacus deal, or should IKB take all the blame itself?

My column in today’s FT argues that Goldman had an ethical, even if not a legal, responsibility to warn IKB that it thought the subprime mortgage market was in trouble when it executed the CDO in early 2007. The SEC has accused Goldman of securities fraud. Read more

John Gapper

My FT column this week is on Wall Street:

There are various ways to describe the synthetic collateralised debt obligation that Goldman Sachs constructed for John Paulson, the hedge fund manager who bet on the collapse of the mortgage bubble. Read more

John Gapper

Before the Abacus synthetic CDO that led to Goldman Sachs being accused of securities fraud came the CDO deals associated with Magnetar, the Illinois-based hedge fund.

Now Magnetar has come out fighting against accusations from ProPublica, the online news group, that it helped to stoke the US housing bubble in order to short its CDOs with astronomy titles such as Libra and Norma. Read more

John Gapper

One side effect of the SEC fraud case against Goldman Sachs is that it draws attention to one of the most flawed initial public offerings of recent years.

ACA Capital, which was the “portfolio selection agent” for the controversial Abacus deal and invested in the deal, as well as insuring the most senior tranches, went public in November 2006 just as the US mortgage market was about to crater. Read more