In recent weeks Goldman has either walked away from or been rebuffed on four high-profile takeover bids. Mr Paulson is worried the failed bids for ITV and Associated British Ports have damaged the bank's reputation.
Goldman withdrew its support for an unsolicited takeover approach from the property tycoon Robert Tchenguiz to the pubs group Mitchells & Butlers late last week. The decision to back away came directly from the top, it is understood.
At the weekend BAA, the UK airports group, also revealed that it had turned down an unsolicited takeover offer.
Senior sources at Goldman indicate Mr Paulson has expressed severe unhappiness at the way some of his top bankers are behaving. One banker who was on the receiving end of the rebuke said: "He doesn't like that we are being seen to bear-hug public companies. His concern is we are allowing ourselves, unwittingly, to be used. There is a high degree of excitement among some people in London to do deals."
Goldman declined to discuss what Mr Paulson has said to his leading investment bankers. A spokesman said only: "We take our responsibilities very seriously and expect our people to conduct themselves accordingly."
It is thought the blunt message to some of the leading deal-makers in London was, roughly, "stick to banking". Mr Paulson fears Goldman is risking its reputation for discretion and could alienate clients by pursuing too many deals that go nowhere. On some recent bids, Goldman has acted as adviser, underwriter and investor, raising questions about potential conflicts of interest.
There is a growing feeling in the City that so-called "virtual bids", where the bidder makes a tentative approach rather than a formal offer, are potentially damaging to public companies. Private equity houses in particular are accused of putting pressure on boards to reveal sensitive financial information on the vague promise that a bid may follow at a premium to the share price.
Boards have so far been largely successful in dismissing the offers, though there still appear to be many in the pipeline.
Over the weekend it emerged Goldman had recently made a "white knight" approach to BAA, which runs airports including Heathrow and Gatwick.
BAA is the target of an 810p-a-share hostile bid from a consortium led by Spain's Ferrovial. The company is fending off the bid. Goldman made an approach to BAA three weeks ago, offering itself as a "friendly" alternative to the Spanish group.
BAA confirmed in a statement on Sunday it "did receive a preliminary highly conditional and confidential approach from a consortium including Goldman Sachs ... to make a cash offer at a price of 870p a share". BAA rejected the proposal, arguing it "clearly fails to reflect the true value of the company". At 870p a share, Goldman's friendly bid is worth £9.4bn.
The consortium it heads is thought to include two Canadian pension funds, the Ontario Teachers' Pension Plan and Borealis.
One report said yesterday that General Electric was also a surprise participant in the battle to buy BAA. Neither GE nor Goldman would confirm if GE was part of the consortium.
Goldman could yet return with a formal offer in excess of £10bn for BAA, but bankers may approach the situation with caution given the warnings from the chairman.Reuse content