Goldman’s image problem

By Felix Salmon
October 5, 2009
Bloomberg and the FT have almost-identical headlines this morning, saying that Goldman Sachs stands to make $1 billion if CIT declares bankruptcy. Neither of them is long on specifics, and both seem to be based on information from a single anonymous source, which is then promptly denied by Goldman itself. Here's Bloomberg:

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Bloomberg and the FT have almost-identical headlines this morning, saying that Goldman Sachs stands to make $1 billion if CIT declares bankruptcy. Neither of them is long on specifics, and both seem to be based on information from a single anonymous source, which is then promptly denied by Goldman itself. Here’s Bloomberg:

Goldman Sachs Group Inc. is set to earn about $1 billion should CIT Group Inc. enter bankruptcy or otherwise end a $3 billion financing agreement, according to a person familiar with the matter, who declined to be identified because the payout hasn’t been disclosed…

“This would not be a windfall payment,” Goldman Sachs said in a statement today. “The make-whole payment, which was publicly disclosed at the time of the financing, is simply the present value of the spread to be earned over the life of the facility.”

In the lede we’re told that there will be a windfall of $1 billion for Goldman and that it hasn’t been disclosed, and shortly thereafter Goldman says that it won’t be a windfall and that it has been disclosed. What is a poor reader of such material to think? (The FT story is, if anything, even more confusing, since it conflates the deal with side-bets that Goldman has made in the CDS market to manage its CIT credit risk.)

The easy way out is to simply decide, as Peter Cohan does, that Goldman Is Evil:

Goldman has engineered the world so it wins no matter what…

Goldman’s 0.01 percent of the population is on track to average about $772,858 in total compensation this year, thanks to its ability to engineer the U.S. government and the rest of the business world so it wins while 99.99 percent of America loses.

One thing’s for sure: Goldman isn’t good at playing the press. I don’t know who the source for these stories was, but I’d wager it was the same source for both, someone on the CIT side of the debt renegotiation who knows that Goldman is very concerned with optics these days.

The stories come as Simon Johnson weighs in to the Goldman debate along similar lines, asserting that “US banks or bank holding companies would not generally be allowed” to use private-equity arms to invest in an industrial company like Geely Automotive. I don’t know where Simon got this idea, but generally there seems to have been very little resistance indeed to bank holding companies owning private-equity subsidiaries. (There has been much more resistance to the converse situation, where private-equity shops look to buy banks.) If the Geely deal had been with any bank other than Goldman, this blog entry might well have never appeared.

It’s interesting to me that no one is giving Goldman the benefit of the doubt, and that even in the face of flat-out denials both Bloomberg and the FT are happy to run with aggressive headlines. That says to me that no one trusts Goldman’s flacks to be telling the truth, and that the Goldman image problem remains as bad as it’s ever been.

Given the choice between making lots of money and having a good public reputation, Goldman will always choose the former. But the bank always used to have a reasonably large number of defenders in the press; that number seems to be shrinking daily. Even during the depths of the crisis, when extreme measures got taken every day, Goldman’s “Government Sachs” reputation was bad enough to singlehandedly derail the proposed merger with Wachovia. Since then — and especially since Matt Taibbi’s screed appeared — Goldman’s reputation has only deteriorated further.

Goldman has seconded its president’s chief of staff, Samuel Robinson, to the PR department in recent weeks, in what is surely an attempt to reverse this decline. Judging by today’s headlines, he still has his work cut out for him.

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