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Executive resigns excoriating bank for callousness

NEW YORK – Goldman Sachs, arguably the most storied investment bank on Wall Street, has been compared to a money-sucking vampire squid and called the evil empire of finance. On Wednesday, it got a black eye from one of its own.

Greg Smith, an executive director at the bank, resigned with a blistering public essay that accused the bank of losing its “moral fiber,” putting profits ahead of customers’ interests and dismissing customers as “muppets.”

“It makes me ill how callously people talk about ripping their clients off,” he wrote.

The decay of Goldman’s proud culture of teamwork, integrity and humility, he wrote, threatened the survival of an investment house that weathered two world wars and the Great Depression.

The stinging essay, “Why I Am Leaving Goldman Sachs,” appeared on the Op-Ed page of the New York Times on Wednesday. It was the talk of Wall Street immediately and circulated online all day.

CNBC ran clips of the ornery balcony critics from “The Muppet Show.” Other websites quickly posted spoofs, including “Why I am Leaving the Empire,” by “Star Wars” villain Darth Vader.

The Times said the essay had received 3 million page views online by 4 p.m. The second-most-viewed story had 500,000, and that was a business section story about the essay.

Goldman CEO Lloyd Blankfein and President Gary Cohn told the bank’s employees in an open letter that Smith’s claims did not reflect the culture of the bank. They cited glowing internal reviews of the service Goldman provides to clients.

“It is unfortunate that all of you who worked so hard through a difficult environment over the last few years now have to respond to this,” they wrote.

Smith worked for Goldman in London when he resigned, but the bank did not provide further details or say how much money Smith made. He previously worked in the New York office.

Smith, identified by the Times as head of the company’s United States equity derivatives business in Europe, the Middle East and Africa, wrote that he attended sales meetings in which helping clients was not part of the discussion.

“If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all,” he wrote.

Smith wrote that Goldman had devolved from a company he was proud to work for when he started 12 years ago. Goldman became a public company in 1999, adding pressure for the bank to turn bigger profits.

On Wall Street, the essay may have been shocking in tone, but it was not surprising in content. Goldman’s peers, even some of its customers, take its pursuit of profit as ordinary business.

“I would be very surprised if it did anything more than anger the people who are already hostile to Goldman,” said Lawrence Baxter, a former executive at Wachovia.

Perhaps most surprising was that the essay was written by an insider in an industry known for protecting its own.

“In my experience, it’s unusual that somebody would talk ill of their firm,” said Maryann Bruce, the former president of Wachovia’s Evergreen Investment Services. “You don’t usually air your firm’s dirty laundry.”

In his essay, Smith said he came from South Africa to attend Stanford, was a Rhodes Scholar national finalist and won a bronze medal in table tennis in the Maccabiah Games in Israel.

Smith wrote that there are easy paths to becoming a leader at Goldman, including persuading clients to invest in products that the company wants to get rid of or that will bring the most profit to Goldman.

Another way, he said, is to “find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”

Goldman’s success has made it one of the most powerful engines of Wall Street. Goldman and Morgan Stanley were the only major investment banks to survive the financial crisis intact in 2008. The crisis crushed Bear Stearns and Lehman Brothers and almost killed Merrill Lynch.

Goldman is known for churning out leaders who run the world, earning its alumni praise for public service but also raising questions about whether bankers should oversee the industries that made them rich.

Henry Paulson, who was treasury secretary when the government devised its $700 billion bailout of the banks in 2008, is a former CEO. So is Jon Corzine, the former New Jersey governor who was at the helm of the brokerage MF Global when it collapsed.


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