A secretive bank thrust into the limelight by its success

Money-making is no problem for Goldman Sachs. Protecting its reputation is more difficult, says James Moore
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The Independent Online

You won't get any sleep tonight. Tough. Wedding anniversary? Don't even raise it. Child's birthday? Sorry.

If a company chief executive calls Goldman Sachs for advice at 5pm, the best brains in the business will work through the night to produce a range of carefully worked-out solutions for him by the time he arrives at his desk at 7am the next morning.

It is this level of service, combined with an extraordinary unity of purpose, that characterises the firm. Barely a year after an uncharacteristic wobble, Goldman Sachs once again occupies the position to which it has become accustomed: Number One.

But standing atop the financial podium is no longer the comfortable place it used to be. Now that "the world has changed", back-slapping and congratulations have been replaced by sharp criticism. Goldman has been shifting uncomfortably in the harsh glare of the spotlight. But what really matters for this New York-based investment bank is to maintain its position at the top of the list for any firm seeking counsel on mergers, acquisitions or any corporate action you might care to mention.

In contrast to rivals, there are no stars at Goldman. Nearly everyone they hire is exceptional, but it is made quite clear at the start that they are required to submerge what makes them special within the team. If they can't do that, they will be cast out – although it is still far more likely that they will be fired for failing to meet the bank's lofty standards. Goldman goes to extraordinary lengths to ensure that the people it hires have the right "fit". While investment banking is a cut-throat business, Goldman wants pirates who can play nicely, at least with each other. So it is not unusual for candidates for jobs at the firm to undergo 30 interviews.

Once through the doors, they find that the corporate ethos is still much like that of the partnership before Goldman Sachs's flotation in 1999. The move on to the stock market provoked much debate within the firm, and unusually saw disagreements at the top washing over into the public sphere. Significantly, though, they were never allowed to fester. Disagreements in public are not the done thing at Goldman, in contrast to the Wall Street firm that has most often posed as the pretender to Goldman's throne, Morgan Stanley, which has repeatedly indulged in the sort of unsavoury bouts of boardroom bloodletting endemic to Wall Street.

Another factor that makes Goldman stand out is that while it is regularly ranked as the world's top advisor on mergers and acquisitions, the firm has only rarely indulged in deal-making on its own account. In the last 20 years it has bought a couple of smaller businesses, but that's about it.

Its biggest rivals are typically agglomerations of several firms and so are challenged by culture clashes. An employee might work for one firm in theory, but in practice sees him or herself as a Morgan Stanley or a Dean Witter person (two parts of Morgan Stanley's empire).

Not a problem at Goldman.

Many staff go on to hugely influential jobs after leaving Goldman. Among their number: multiple US Treasury Secretaries, including most recently George W Bush's appointment, Hank Paulson; Romano Prodi (twice Italian Prime Minister, once European Commission President); Robert Zoellick (World Bank president); Guy Hands (boss of private equity giant Terra Firma); Jon Corzine (New Jersey Governor); numerous national bank governors... the list goes on.

Recent years have seen Goldman make much more use of the clever ideas its hyper-intelligent staff dream up.

Several years ago Goldman came to the conclusion that clients just don't pay enough for its services. So behind the public façade of an advisory investment bank lies what has been likened to an enormous hedge fund: a fund that makes a variety of sophisticated bets on financial markets around the world.

Casino capitalism? If that's what it is, the dice and the tables are loaded in Goldman's favour. Its market intelligence, instincts and the skills of its staff are second to none. Unfortunately, those skills have plunged the bank into a huge controversy.

Two of its traders suggested betting against some of the mortgage-backed securities – the financial instruments that ultimately caused the credit crunch and the resultant global recession – that the firm had been marketing. This was likened to "selling a car with faulty brakes, then buying an insurance policy on the buyer of those cars" by Phil Angelides, head of the Financial Crisis Inquiry Commission in the US.

After the bonus payments announced yesterday, the controversy surrounding the firm can only intensify. And unhappily for Goldman Sachs, which has never before had to deal with this sort of thing, its public relations skills have not come close to matching its market skills.