Goldman Sachs was fighting a new firestorm of public criticism last night, one that threatened to hit it where it hurts most – in its profits. Hours after a London executive published an extraordinary resignation letter in the New York Times, saying its bankers routinely brag about "ripping off" clients, Goldman was in full-scale damage limitation mode, trying to reassure its clients that the portrait of a "toxic" internal culture was a fiction peddled by a disgruntled employee.
Greg Smith, who ran US equity derivatives trading for Goldman, said the atmosphere at the world's most powerful investment bank was "toxic and destructive" and that the company had to be reined in or it would destabilise the financial system. In his 12 years at the firm, Mr Smith said, he had witnessed a collapse in moral standards. "It makes me ill how callously people talk about ripping their clients off," he wrote, adding that it was common to laughingly call even sophisticated investors "muppets".
Mr Smith's letter proved a social media sensation, read and debated across Wall Street and the City of London yesterday. For Goldman, it represented a serious assault on its self-image as an honest broker bringing together the buyers and sellers of important investment products. Lloyd Blankfein, the chief executive, has argued that the bank can weather the storm as long as it keeps the trust of its clients.
While politicians raged about the size of bankers' bonuses – Goldman itself was memorably dubbed "a giant vampire squid" by one commentator – the bank nonetheless rebounded strongly from its near-death experience during the financial crisis.
Yesterday, its shares fell 3.5 per cent by lunchtime in New York, and in an attempt to quell the furore, Mr Blankfein and his deputy, Gary Cohn, circulated a memo to the bank's employees emphasising its "commitment to [clients'] long-term interests". He ordered it to be distributed publicly so that clients would read it.