Lloyd Blankfein speaks out
Goldman Sachs CEO Lloyd Blankfein, one of the most sought after interviews in the financial media industry, granted an interview with Bloomberg TV, and the results were quite interesting.
The give-and-take could have easily devolved into some well-rehearsed corporate speak. But he did give some answers that are worth discussing.
He addressed the conflicts-of-interest issue as follows: "I think no one who is going to be effective in this business can avoid conflicts of interest coming up. You can do that if you only represent one client in every industry, in which case you won't really be able to be that effective, knowledgeable, or influential. You won't be able to get anything done."
"If you advise a client today, you have to lend to that client. If you lend to that client, they have to pay back. Now you have a stake in the outcome of their business decisions. You give them advice, but since you are a lender to them, like every bank has to be today, you have conflicts of interest. They always have to be managed."
"[Conflicts on interest] have to be managed. I think there's a sensitivity to it and you are going to have more prophylactics, more safeguards built, you get more scrutiny, more second-guessing of the decisions you make, which make you more conservative, all to the good. But if you want to rule out conflicts of interest, you'll just give advice to one client in one industry and never do any lending or support for the capital structure of the firm. It's just not feasible."
Most people in the industry get this. But all big banks encompass business units that are profoundly different in terms of the ethical and conflicts-of-interest bar.
Asked about former SEC chief Arthur Levitt's statement that Goldman should stop saying it puts clients first, he answered: "We have different aspects of our business. For example, in the market making business, we give prices to our client and a client decides whether to trade or not. We hope as a result of that exchange, we will make money and not lose money. If over time we lose money, we will be out of business. We have other businesses or we are an adviser and other businesses where we are a pure fiduciary. One of the things we set up to do when we wrote our business standards report is go out and carefully delineate for our audience what our roles and responsibilities are in each segment of our business. As an adviser, we work for the best interests of our clients. As a fiduciary, our clients to come first. As a market maker, we have to protect Goldman Sachs."
The issue to some is that the trading/marketing making ethos has broken out of the silo and has become the dominant ethos of the entire firm, starting from the top on down, with deleterious consequences that were covered by Greg Smith in his op-ed piece. Whether that's true or not, that has become the perception in the minds of many.
One tricky issue that does not appear to be covered is CEO succession. My guess is that the ground rules may have put that issue off the table. But you get the feeling that he'll stick around long enough to see the stock recover. -Jim