Our toxic bank: It's morally bankrupt and calls clients 'muppets' says disgusted British-based Goldman Sachs executive as he walks out
- Executive director Greg Smith quits in open letter in the New York Times
- Firm 'more interested in making money than the clients' interests'
- Claims colleagues called clients 'muppets' and talked of 'ripping eyeballs out'
- CEO and president say they were 'disappointed' to read the claims
- Commentators suggest the conditions are commonplace on Wall Street
- Friends describe South African-born Smith as 'an exceptional person'
Resignation: Executive director Greg Smith has quit Goldman Sachs in a letter in the New York Times, claiming it cares more about money than clients
Goldman Sachs was subjected to a scathing attack by one of its own senior executives yesterday for its ‘toxic and destructive’ culture and ‘morally bankrupt’ staff.
In a deeply embarrassing blow to the controversial investment bank, the London-based manager said he was quitting after 12 years because he could no longer work there ‘in good conscience’.
Greg Smith claimed clients were branded ‘muppets’ and sidelined by senior directors who were more interested in making money for themselves.
The disgruntled banker said: ‘I attend . . . meetings where not one single minute is spent asking how we can help clients. It’s purely how we can make the most possible money off them. It makes me ill how callously people talk about ripping off their clients.’
Writing in the New York Times, he added: ‘If you make enough money for the firm, and are not currently an axe murderer, you will be promoted into a position of influence.’
The open letter of resignation sent shockwaves through the world of finance.
Last night Mr Smith, who was born in South Africa and won a scholarship to Stanford University in the United States, was being described as a ‘legend’ by friends on Facebook.
One wrote: ‘Wow – courageous stuff Smithers!’ Another said: ‘I am very proud of you, Greg. You are showing the world their higher selves.’ But many comments on Twitter were less supportive with some tweeting: ‘Greg Smith isn’t a whistleblower, he’s just a Goldman Sachs executive having a midlife crisis.’
Mr Smith’s letter triggered a robust defence from Goldman chairman and chief executive Lloyd Blankfein, who once claimed that the bank did ‘God’s work’.
In a joint memo to employees with Goldman president Gary Cohn, he expressed ‘disappointment’ with the comments.
Goldman, which was founded in 1869 and employs more than 30,000 bankers worldwide including 5,000 in London, is renowned for the pay and bonuses it lavishes on its staff.
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'Greedy': In the letter, Smith claims the money-obsessed attitude will be the downfall of the investment bank
City headhunters estimated that Mr Smith, who is in his early 30s, earned a basic salary of £175,000 as executive director and head of Goldman’s U.S. equity derivatives business in Europe, the Middle East and Africa. His pay package could have headed towards the £1million mark with bonuses.
Mr Smith was chosen to mentor applicants through the gruelling interview process and even appeared on Goldman recruitment videos.
He said in his letter: ‘I knew it was time to leave when I realised I could no longer look students in the eye and tell them what a great place this was to work.’ He said that in the last 12 months alone, ‘I have seen five different managing directors refer to their own clients as “muppets”, including in internal emails’.
Blame: Smith writes in the resignation letter that Goldman Sachs CEO Lloyd C. Blankfein (pictured left) and president Gary Cohn (right) 'lost hold of the firm's culture on their watch'
Powerhouse: Smith, a Stanford graduate who worked at the New York City headquarters (pictured) before moving to the London office, claims staff call their clients 'muppets'
He went on: ‘After almost 12 years at the firm I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity.
‘And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.’
Success: Stanford graduate Smith had worked for the company for 12 years and was based in London
He accused the bank of lacking humility even after a spate of scandals and said that integrity at the firm is ‘eroding’. He hoped his open letter would provide ‘a wake-up call to the board of directors’.
In a statement, Goldman said: ‘We disagree with the views expressed, which we don’t think reflect the way we run our business.
‘In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves.’
A Goldman insider pointed out that after a decade at the bank Mr Smith was ‘only’ a vice-president – a mid-ranking banker – and ‘the only employee in the derivatives business that he heads’.
The memo from Mr Blankfein and Mr Cohn said: ‘In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people.
‘We are far from perfect, but where the firm has seen a problem, we’ve responded to it seriously and substantively.
‘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.’
But friends of Mr Smith continued to defend him last night. One said of his letter: ‘Reminded me of the mission statement scene from Jerry Maguire [a reference to the 1996 film starring Tom Cruise about a disillusioned sports agent].’
NO MORALITY, NO INTEGRITY... NO FUTURE? THE FULL RESIGNATION LETTER
Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
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. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.
But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.
When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.
How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. 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.
It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.
When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.
My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.
I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.
Source: The New York Times
Reeling: People walk past the Goldman Sachs headquarters in New York. Commentators have suggested that the self interested attitude described by Smith's letter is commonplace on Wall Street
Mr Smith grew up in a middle-class family in Johannesburg. His father was a pharmacist and his mother is thought to have been a housewife.
Smith went to King David School in the Linksfield area of Johannesburg, which is a private school for Jewish families.
As a teenager, he played for the South African Maccabi junior and senior table tennis teams in 1993 and 1997, and won a bronze medal for table tennis at the Maccabiah Games in Israel.
Jed Margolis, executive director of Maccabi USA, said: 'I’ve spoken to one of Greg’s good friends who volunteers with us and he said Greg is an exceptional person.
'He is very ethical and ethical issues are often something that he thinks about. He would not have done this lightly and would have given it considerable thought.'
Mr Smith’s former table tennis coach Rainer Sztab added: ‘He was a great guy and was clearly going somewhere.
'He came from a pretty ordinary family but really wanted to make something of himself and had said for some time he wanted to move to America. I’m surprised he has done what he’s done and I hope he is OK.'
Smith studied economics for four years at Stanford University and graduated in 2001. The college confirmed he was given a scholarship but was not able to disclose how much it was for.
After graduating, he applied for the prestigious Rhodes Scholarship which counts Chelsea Clinton among its alumni and would have allowed him to study at Oxford University in England for a year.
Smith was one of 10 finalists but only four got a place - and he missed out.
A person familiar with the Rhodes application process said: ‘If he got that far academically he was brilliant.
‘It is not usual for people in such a position to take a job with a company like Goldman Sachs for a year or so between university and going on the Rhodes scholarship. Firms like Goldman seek them out as they are the best.’
Despite his successful career, in his letter Mr Smith said the ‘proudest moments in his life’ were getting the Stanford scholarship, being selected as a Rhodes Scholar national finalist and winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics.
He said that was because those achievements ‘came through hard work, with no short cuts.’
On his Facebook page he had got 18 ‘likes’ from friends for posting the New York Times article about him quitting Goldman Sachs.
Friend Ahsan Malik wrote on his wall: ‘Ballsy stuff. I would expect nothing less from you.’
Another friend called Daryn Saretzki wrote: ‘Wow - courageous stuff Smithers! Reminded me of the mission statement scene in Jerry Maguire.’
Friends said that he was aged around 33 and that even though he had been working at Goldman Sachs for 12 years, his future was far from certain.
A male friend, who declined to be named, said: ‘I’m guessing he’s got some money saved up but not millions. I can’t imagine he is going to get a job working for any of the big banks after this either.
Influential: Investment bank Goldman Sachs, founded in 1869, employs more than 30,000 people
‘He’s thrown his career away for his principles. I admire the man and I admire his courage, but there is no way I’d do it myself’.
Since the letter was published on Wednesday morning, Goldman Sachs shares are down by 3.35 per cent to $120.37 a share in afternoon trading.
It is not the first time Goldman Sachs, which was set up in 1869, has been described in a less-than-favourable light.
REACTIONS FROM EMPLOYEES
DealBook has collated reactions from former employees. They include:
- 'I think blaming the top alone is unfair. It’s largely conjecture, but I think Lloyd and Gary care very much about the firm, its people and its culture. The firm is their lives, identity, and legacy, right?'
- 'He has some really good points, and a lot of people feel this way. Maybe this will be a catalyst – him quitting truly validates [my leaving].'
- 'If Greg Smith had his eyes truly open, he would have had the same issues six years ago as he had last week. He just didn’t want to leave yet.'
- 'He took the words right out of my mouth. To add to one thing, I had never heard the term "rip someone’s face off" until I started working at Goldman Sachs. Unfortunately, that phrase was all too often used in the context of client transactions.'
- 'Maybe if he’d gotten the Rhodes, or won a gold medal for regular tennis at the Jewish Olympics, he’d have made MD and would still have a job.'
Joshua Brown, a New York City-based investment adviser, pointed out on his blog on Wednesday: 'The "culture" of Goldman Sachs was, is and always will be about making money, often at the expense of a client.'
In Rolling Stone magazine in 2009, writer Matt Taibbi famously described it as 'a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money'.
In December last year, Occupy Wall Street protesters dressed up like giant squids and marched on the bank's New York headquarters, bearing signs reading: 'Goldman Sachs consumes'.
It has also been at the centre of numerous controversies, including accusations of misleading investors, profiting from the 2007 sub-prime mortgage crisis and handing out eye-watering bonuses.
In 2010, it had to pay a record $550 million in a civil lawsuit brought by the Securities and Exchange Commission, which accused Goldman Sachs of fraud.
The SEC accused Goldman of selling clients sub-prime mortgage backed securities that later soured - and failed to mention it had bet against them.
London-based trader Fabrice Tourre, the self-proclaimed 'Fabulous Fab', was accused by the SEC of selling the product, Abacus. A Michigan Democrat, Carl Levin, led the Congressional investigation.
Smith refers to the scandals in his letter: 'Even after the S.E.C., Fabulous Fab, Abacus, God's work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding.'
The 'God's work' comment is a reference to Blankfein's claim in a 2009 interview with The Times in London that he was a banker just 'doing God's work'.
