By Dan Wilchins
NEW YORK | Wed Jan 12, 2011 4:22am EST
NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) pledged to be
more open about how it makes money and to put the interests of
clients ahead of its own in an effort to rebut criticism it acted
more like a hedge fund than a bank during the credit boom and misled
investors.
Goldman revealed for the first time how much it made from trading and
investing on its own behalf, which many investors have suspected is a
key source of the bank's profits, during the first three quarters of
the year.
The bank also made structural changes to its divisions, but there was
no major management shake-up, leaving in place Chief Executive Lloyd
Blankfein.
Blankfein and his firm came under siege last April after U.S.
securities regulators sued Goldman and bond trader Fabrice Tourre for
selling repackaged mortgage bonds to investors without disclosing key
information about the securities.
Tourre referred to himself as "fabulous Fab" and to a collateralized
debt obligation product he helped create as "a little like
Frankenstein turning against his own inventor." To many critics of
Goldman, he embodied the firm's willingness to put its own interests
ahead of clients.
Soon after the SEC lawsuit, Goldman commissioned a report to
determine how it should change the way it does business.
The report, released on Tuesday, recommends creating at least three
internal committees and focuses mainly on disclosure and oversight.
It makes few recommendations for how Goldman will change the way it
does business day to day and some observers questioned how much will
change.
"I'm not terribly convinced it produces a new culture," said
Cornelius Hurley, a professor and director of Boston University's
Morin Center for Banking and Financial Law. "It seems to be part of
their concerted public relations effort."
Still, Goldman did shed new light on the heretofore murky realm of
proprietary trading profits, revealing that its investment and
lending group -- which includes the bank's bets with its own money --
accounted for nearly 30 percent of pre-tax earnings in the first
three quarters of 2010.
And Goldman's disclosure overhaul could boost pressure on rivals to
follow suit, especially after the sweeping Dodd Frank financial
reform bill shone a spotlight on the propensity of big Wall Street
firms to make risky bets with their own capital.
"I think other banks will follow Goldman on this," said Brad Hintz,
investment banking analyst at Sanford C. Bernstein in New York. "They
may not want to admit it, but this kind of disclosure puts pressure
on other boards to act."
The report came even as other major banks express eagerness to put
the financial meltdown of 2008 behind them. Barclays Plc's (BARC.L)
new boss, Bob Diamond, said on Tuesday that banks should stop
apologizing for the mistakes that helped cause the crisis.
The 63-page report prepared by a committee led by executive and
former Federal Reserve Bank of New York president Gerald Corrigan and
by Michael Evans, a vice chairman of the company, details 39 plans
for how it will change after years of investor accusations its
financial statements are opaque and client complaints about conflicts
of interest.
