A top Goldman Sachs executive quit his job today. But he didn’t go quietly. Instead, he let the whole world in on his resignation letter and disclosed a few possibly scathing secrets about the storied investment bank.
Greg Smith, a London-based executive director at Goldman Sachs and head of the firm’s US equity derivatives business in Europe, the Middle East, and Africa, announced his resignation in the form of an op-ed piece in today’s New York Times. The op-ed outlined Smith’s dissatisfaction with Goldman Sachs, and he took the opportunity to let readers know that one of the world’s largest investment banks isn’t exactly what it used to be.
“I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” wrote Smith, who had been with the firm for about 12 years. “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.”
Smith wrote that client interests are not a priority for the firm. Instead, Goldman Sachs is solely focused on making money even at the expense of its clients. Smith said colleagues often talk about ripping clients off and that several managing directors referred to clients as “muppets.”
Smith’s op-ed could damage the 143-year-old corporation. It’s the first time a current employee has publicly made such disparaging remarks about the traditionally secretive Goldman. It could be enough for some clients to pull their money or deter others from doing business with the company. However, some could argue that this is just another minor ding to Goldman’s reputation and not a fatal blow.
The investment firm has survived the economic meltdown. The SEC also accused Goldman of fraud. But the firm paid some $550 million to settle the case. Goldman also is often ridiculed by politicians and protestors who lambast it for greed and excess. Most recently Goldman Sachs earned the nickname, “vampire squid.”
But Goldman Sachs continues to be a major player in the investment banking industry. It attracts top talent and corporations, governments, and high-net-worth individuals are usually happy to give it business. But things aren’t exactly perfect either.
The company reported lower earnings in 2011. Sales fell by about 20% and net income was down more than 45%. The performance was mostly due to poor results in Goldman’s investing and lending business. The underwriting business was down as there was a decline in industry-wide activity. And institutional client services was hurt by the turmoil in the market.
Goldman Sachs representatives have stepped forward to dismiss Smith’s comments. Sticks and stones, right? But his words may leave lasting marks on a company that seems to be struggling.
What do you think. Is Smith’s op-ed enough to truly hurt Goldman Sachs?