Goldman exec hits culture of 'ripping off' clients

Investment banking titan Goldman Sachs has become a "toxic and destructive" firm focused on milking clients for everything it can, a resigning executive said Wednesday in the New York Times.

Executive director Greg Smith said the Wall Street giant, which paid huge penalties for double-dealing with investors in mortgage securities during the financial crisis, had dumped its old culture of helping its customers make money.

Today, instead, customers are called "muppets" and staff talk about "ripping their clients off," Smith wrote in an opinion piece.

"I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money," he said.

And he named chief executive Lloyd Blankfein, and president, Gary Cohn, as responsible for the change. They "lost hold of the firm's culture on their watch," Smith said in the Times article, published on his last day at work for Goldman.

"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal e-mail."

Smith said he had joined a very different Goldman nearly 12 years ago, one that had a culture centered on integrity and "always doing right by our clients."

"The culture was the secret sauce that made this place great and allowed us to earn our clients' trust for 143 years."

Now the culture is all about raking in the bucks from clients and he sees "virtually no trace of the culture that made me love working for this firm for many years."

Goldman rebutted Smith's commentary, insisting it is focused on the client.

"We disagree with the views expressed, which we don't think reflect the way we run our business. In our view, we will only be successful if our clients are successful. This fundamental truth lies at the heart of how we conduct ourselves."

But the opinion piece came amid expanding criticism of Goldman as symbolic of an alleged Wall Street culture of investment bankers raking in billions of dollars as they wreak havoc on US business and the economy.

In 2010, Goldman paid a then-record $550 million to the US Securities and Exchange Commission to settle charges that it sold dodgy mortgage-backed securities to investors while simultaneously betting that they would fall in value.

And last month a judge took Goldman to task for its glaring conflicts of interest in gas pipeline firm Kinder Morgan's $21 billion takeover of rival El Paso Corp.

Goldman was El Paso's paid adviser even as it held 19 percent of Kinder and two board seats there, and its chief El Paso liaison owned $340,000 of Kinder shares.

As a result El Paso shareholders challenged the deal -- since completed -- saying that Goldman had failed to get them the best price and benefited by doing so.

In the Times piece Smith said he spent his career advising giant hedge funds and asset managers handling more than a trillion dollars on behalf of Goldman. His last position was executive director and head of Goldman's equity derivatives business in Europe, the Middle East and Africa.

He had also spent time for the firm recruiting new talent for the firm, pitching its legendary culture.

However, "I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."

He blamed a shift in how Goldman promoted people.

"Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence."

"It astounds me how little senior management gets a basic truth: If clients don't trust you they will eventually stop doing business with you. It doesn't matter how smart you are."

"Without clients you will not make money. In fact, you will not exist."