Goldman Sachs is out $2.15 billion after a former employee slammed CEO Lloyd C. Blankfein Tuesday in a New York Times op-ed for corrupting GS culture.
Hours after former executive director Greg Smith's op-ed hit the Web, the firm's shares dropped 3.4 percent, the third-highest decline in the S&P, according to Bloomberg.
Smith, who resigned Tuesday after spending almost 12 years at the firm, blamed Blankfein and President Gary D. Cohn for a "decline in the firm's moral fiber" and loss of "culture." Writing that Goldman Sachs was once a place that "revolved around teamwork, integrity, a spirit of humility, and always doing right by [their] clients."
"I can honestly say that the environment now is as toxic and destructive as I have ever seen it," Smith wrote.
He added that it made him "ill how callously people talk about ripping their clients off" and how indifferent the bank had become toward the client interests.
The piece sparked a less radical response from Blankfein and Cohn.
"We were disappointed to read the assertions made by this individual that do not reflect our value, our culture and how the vast majority of people at Goldman Sachs think about the firm and the work it does on behalf of our clients," they wrote in an internal memo.
Several former Goldman partners and managing directors said in interviews with Bloomberg that Smith was a junior employee – equivalent to a vice president, of which Goldman has 12,000 – and may have been dissatisfied with his pay, so the op-ed should not be taken too seriously.
The piece also struck a chord with Former Federal Reserve Chairman Paul Volcker, the man responsible for the "Volcker Rule" in the Dodd-Frank Wall Street Reform and Consumer Protection Act that limits banks from making bets using their own money.
Volcker called the piece "radical" and "strong," adding, "I'm afraid it's a business that leads to a lot of conflicts of interest."
The article made the rounds on Wall Street, sparking comments from Goldman competitors Bank of America Corp.'s Merill Lynch division, Veni Partners and T2 Partners LLC.
"The argument that Goldman has become increasingly profit-driven, sometimes at the expense of clients' best interests, and that some employees us vulgar and disrespectful language is hardly news. What’s the next ‘shocking’ headline: ‘Prostitution in Vegas!?’" said Whitney Tilson, founder of the hedge fund T2 Partners LLC, in an e-mail to Bloomberg.
Smith – who noted that one of his "proudest" moments in life was winning a bronze medal in Ping Pong at the Maccabiah Games in Israel – claims to have written the piece as a "wake-up call to the board of directors" to bring the client's interest to the forefront once more.
"Weed out the morally bankrupt people," he said. "Get the culture right again, so people want to work her for the right reasons."
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