On a very loud swan song at Goldman…

March 14, 2012

Normally, we tend to stick pretty close to what’s being disclosed in the filings. But we felt that too many people were talking — really, buzzing — about the op-ed piece that Goldman Sachs (GS) trader Greg Smith wrote for the New York Times this morning that we couldn’t ignore it. We’ve heard it called “the letter heard ’round the world” and DealBook is live blogging reaction to the piece. Earlier this morning, the BBC’s Business Editor, Robert Peston, tweeted to his 129,000+ followers that “the damage to the firm could be pretty serious”. Business Insider has already located one of Smith’s former interns, who described him as a stand-up guy.

We couldn’t find any mention of Smith in Goldman’s filings, so it’s pretty clear he wasn’t one of the truly elite at Goldman, the 440-some “partners” who vote as a bloc and held 11.76 of the company’s stock (62.4 million shares) as of February 1. But that group’s influence has been waning over the years, as their stake has dwindled from majority ownership before its 1999 IPO. The op-ed piece identifies Smith as an executive director and head of the equity derivatives business in Europe, the Middle East and Africa. Keep in mind that titles at Goldman (and most other Wall Street firms) tend to be pretty fancy, but it’s safe to say that he was high enough (and there long enough) to see all sorts of things.

Smith’s description that Goldman executives describe clients as “Muppets” is particularly damaging and likely to require a significant amount of massaging by the folks who actually interact with those clients on a daily basis. But our favorite line from Smith’s piece is this: “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.”

On a somewhat parallel track, our colleagues at Morningstar have put out a note lowering their target price on Goldman to $147 a share from $180. Analyst Michael Wong didn’t focus on the negative publicity from today’s article, but rather the fundamentals.

Meanwhile, it will be interesting to see how, or if, Goldman responds to Smith’s article in its filings. DealBook quotes an unnamed company spokesman as saying, —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. Goldman did file an 8-K this morning, but it’s unrelated to the news of the day.

As we footnoted nearly a year ago, when Goldman’s slick 2011 proxy filing came out, the company has been spending a lot more time burnishing its image. Just two weeks ago, we footnoted how the scrutiny meme was growing at some of the financial giants, including Goldman which seemed to be using the word scrutiny more frequently in their filings. In its 10-K, Goldman noted that “Our ability to—retain and motivate our existing employees and to continue to compensate employees competitively amid intense public and regulatory scrutiny on the compensation practices of large financial institutions.

We expect that scrutiny to be a lot more intense now.

Image source: Goldman Sachs via Shutterstock

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Over at footnotedPro, we comb through SEC filings to find what other investors miss. Last year, we called four M&A targets weeks or months ahead of an announcement. For more information about subscribing to footnotedPro, or to inquire about our 2012 M&A report, contact us.

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