Goldman Sachs’ Public Image
There’s a very good piece in the Financial Times today about Goldman Sachs by Francesco Guerrera and Tom Braithwaite. It’s available online at http://www.ft.com/cms/s/0/1eb0ea18-d497-11de-a935-00144feabdc0.html?nclick_check=1
The authors explain how competitive Goldman is and how profits and risk management drive the firm. They go on to explain how difficult it will be for Goldman to handle the backlash of paying out huge bonuses in an environment of double digit unemployment rates.
For a long time, Goldman was by far the gold standard of investment firms. Much of the financial crisis stems from every other firm trying to be like Goldman and making huge, leveraged bets with proprietary capital. The difference has been that Goldman has always one stop ahead of the rest of the Street. Partly due to the “market color” it receives as an investment bank, prime broker, clearing firm, counter party, and trader, Goldman somehow is nimble enough to know when to stop on a dime and bet the other way. Merrill, Citi, Morgan and the rest could never do that. Merrill, especially, was three steps behind and was late to the CDO game just like it was late to the prop trading game and the internet craze.
Goldman is now in a bind. It’s entire business model is based upon paying employees who generate profits for the firm. It has generated huge profits using cheap money. Did the world really expect Goldman not to take advantage of the low cost of borrowing and two less competitors in the market place (Lehman and Bear)? Now, the press will hammer Goldman if the firm follows its normal course of business. But if the Goldman trader who’s P&L is up $20 million for the year gets stiffed on his bonus, he’s leaving for a hedge fund. It’s that simple.
Have no fear though, Goldman is smart enough to figure a way out that no other firm has thought of. And haters can continue to hate Goldman just like baseball fans outside of New York hate the Yankees.