Felix Salmon

Bloomberg with attitude

By Felix Salmon
July 26, 2012

Bloomberg News has been run, since inception, along the lines laid out very clearly by its editor-in-chief, Matt Winkler, in The Bloomberg Way. But you don’t need to buy a copy of the book to know what the Bloomberg Way means: if you spend any time at all reading Bloomberg articles, you’ll know exactly how it feels to read them.

Of late, however, Bloomberg has started injecting some serious attitude into various parts of the empire which are close to — if not strictly part of — the central news organization. Look at Richard Turley’s covers for Bloomberg Businessweek, for instance: “Most of my work involves trying to turn the capitalist system against itself,” he told AdAge, “but try not to tell anyone that”. Or look at @bobivry’s balls-out Twitter feed (sample tweet, from yesterday: “Sandy Weill just made me throw up.”)

Now a Bloomberg View columnist, Bill Cohan, has delivered an entire column devoted to fisking Loren Feldman’s long NYT piece about the court case currently pending against Goldman Sachs brought by James and Janet Baker, a couple who sold their company for $580 million in worthless stock.

I remember thinking, when I read Feldman’s story, that it felt like it wasn’t telling the whole story. For one thing, how was it that this lawsuit has managed to drag on for over a decade? (Although Feldman never actually says when the suit was filed, so that bit was always a bit fuzzy.) And secondly, what kind of M&A banker blithely goes on vacation when his client is having a hugely important meeting with the acquiring company, saying that he would be unable to call in “and that it was pointless to send anybody else from Goldman because there wasn’t time to catch up on the deal”?

Cohan doesn’t answer either of those questions, but he does reveal other germane information which Feldman either missed or chose to ignore. For instance: Goldman advised the Bakers consider hedging the stock they received in the transaction; the Bakers rejected that advice. And: the Bakers’ suit against Goldman is just one of many different lawsuits they have brought against more than 30 separate defendants, including KPMG and SG Cowen; so far those suits have resulted in the Bakers being awarded more than $70 million. And: in those suits, at least according to Goldman, the Bakers swore under oath that their company had done due diligence on its acquirer; that the due diligence was not Goldman’s job; and that in any case “no amount of due diligence could have detected the fraud”.

Cohan concludes by describing Feldman’s story as a “one-sided potshot” — and I have to say I love it when I see that kind of say-what-you-mean language coming from any part of the Bloomberg empire. Winkler is notoriously allergic to ad hominem attacks, and media organizations in general tend to be very shy when it comes to criticizing each other, especially outside clearly-labeled media-criticism ghettoes. No one wants to throw the first stone.

The fact is, however, that Cohan’s column does a good job of placing Feldman’s story in a bigger perspective. I don’t sign on to Cohan’s opinions, either in this piece or elsewhere: I think his sympathy with Goldman’s argument that it was only advising the company and not its shareholders, for instance, is misplaced. And while I’m OK with opening sentences which liken Goldman Sachs to a deep-sea cephalopod, Cohan’s decision to compare the company to Jerry Sandusky seems unnecessarily vile.

But when it comes to the substance of Cohan’s column, I think he makes his case quite well: it can be dangerous to take NYT stories about Goldman Sachs at face value. I only wish that Feldman felt free to reply, and that we could have some real iterative journalism here about what really went on in this deal.

Most of all, though, I wish that one of Feldman and Cohan had seen fit to upload some or all of the legal source materials they reviewed. The NYT’s document viewer is great for such things, and Bloomberg is entirely capable of publishing primary documents too. Here’s the one place where Feldman and Cohan are saying exactly the same thing: Feldman talks about how his account “is based on a trove of legal filings”, and Cohan talks about how his piece is based on vague “court documents I reviewed”. Neither links to any of those documents, and neither gives much of a hint of what exactly those documents are, or where they might be found. It’s classic “trust me, I’m a journalist” reporting, and it’s offputting in both instances.

By all means tell us what certain documents are saying. But when you do so, show us those documents at the same time, so that if we’re so inclined, we can judge for ourselves. At the very least, if you don’t upload or point to the documents, explain why you’re failing to do so. Right now, we know that Feldman looked at a bunch of documents and came away thinking very little of Goldman; we also know that Cohan looked at a bunch of documents and came away much more sympathetic to the bank. But we don’t even know whether they were even looking at the same documents or not. And neither is letting us draw our own conclusions.

So while Bloomberg’s move into content-with-attitude is entirely welcome, I’d love to see it do more when it comes to linking to primary documents. The NYT, too, for that matter. Both of them are good at such things sometimes: Jonathan Weil, in particular, is great. But it doesn’t seem to have sunk in to the corporate DNA yet.

Update: Apparently Cohan did attach two documents to his column, but they initially showed up only on the Bloomberg terminal. They’re up online now; let’s hope for more!

3 comments so far | RSS Comments RSS

The broader problem I have with the New York Times business section is that most New York Times business and finance reporters and columnists don’t seem to know much about business and finance. I think that the NY Times regards publications like the WSJ, the FT, and the Economist, and possibly bits of Bloomberg and Thomson Reuters, as the competition/peer group for its business section. The NYT shouldn’t think that way, because its business section is considerably lower quality than that group.

From what I can tell, the Times has focused its business reporting resources on a model similar to political reporting – trying to obtain scoops of deal news, publishing investigative stories that are based on cultivating sources to get at stories, and producing profile pieces on key people. That model works for a limited subset of business stories – the Wal-Mart Mexico bribery story is a good example of where it works. The problem is that these reporters don’t seem to understand basic finance and accounting. The number of times I’ve read an NYT story that says “balance sheet” when it should say “income statement” boggles my mind” and is a clear indicator that they aren’t equipped to cover a story with any finance/accounting angle, be that a company’s earnings report, the valuation of Facebook’s IPO, or the warning signs that Enron’s accounting was fraudulent.

Posted by realist50 | Report as abusive

While my prior comment ranged a bit broad, I meant to say in this case that Feldman’s NYT piece shows a lack of understanding of who does what in an M&A deal. M&A advisors are decidedly not in the business of attempting to detect fraud in a company that is offering stock to buy their client. They market a company and offer views on structure and valuation. It sounds like Goldman did an extremely poor job on this assignment, based on circumstances such as the bankers being AWOL for important meetings. That said, any M&A advisor is going to take at face value the reported financial results of an audited, publicly-traded acquiror in performing its analysis.

If one wants to conduct in-depth financial due diligence, one hires accountants. There are accounting groups both within and outside of large accounting firms who do just such “quality of earnings” reports, asking questions of a company (and its auditors) to identify sustainability of results and find suspect accounting policies or weak internal controls. Think of it as “auditing the audited financials”.

The difference here is that Cohan has the background to understand the role of different parties on an M&A deal, as well as the fact that quality of earnings reports are routinely commissioned even on deals much smaller than $580 million. The NYT instead sends a reporter who doesn’t have the background to ask the right questions.

Posted by realist50 | Report as abusive

The NYT articlde was incomplete in that it didn’t provide links to documents or why they are not available…true, but it was a story woven to make Goldman look bad and remind us that Dragon was a pioneer in speech recognition that Suri is based on… yet now is defunct … and so it should!

Goldman may have legal standing to say only “Dragon” can sue and not the Bakers as it is now defunct. Goldman should not be able to stand on its comments that they followed it through to completion so, job well done and win the case without the fallout “due” on their reputation!

At an earlier time,in preliminary due diligence when seeking to invest themselves, Goldman spent very little time and trouble before considering L&H as a company they themselves would NOT invest in:

“Whenever we invest, we always want to talk to customers,” Luca Velussi, a Goldman analyst who worked on Project Sermon, later testified. Based on what Project Sermon’s team leader, Ramez Sousou, termed “preliminary” due diligence, Goldman declined to invest in L.& H.

Although you mention the elder of the 4 bankers going on vacation, reread it. He went on vacation TWICE during the crucial late stages of the negotiations. TWICE within a matter of weeks.

Yes realist50, “Cohan has the background to understand the role of different parties on an M&A deal, as well as the fact that quality of earnings reports are routinely commissioned even on deals much smaller than $580 million.”

If not to do due diligence in finding the right investor, exactly what was Goldman hired to do? Cohan also has the background of getting huge bonuses to do very little while promising much and sounds more as though he is defending Goldman to get hired rather than making counter points. That is a great way to get your resume out there…

It makes one wonder … whether the Goldman supervisor of the 4 banker assigned actually had anything to do with the clients being he has denied having been a part of the Dragon deal, whether the other client that had speech recognition interests might have meant there were some “other” conflicts of interest still to be determined, and who advised the UK Goldman analyst to take the call and lie about L&H to appease the Bakers when he had not been following them at all.

It makes one wonder, who sent the unsigned memo and why will no one take credit for it… was it a cryptic warning, from someone (a Greg Smith type) at Goldman who wished to remain anonymous, that Goldman knew something they didn’t and why do minutes from the meeting where the decision was made, say that Goldman bankers expressed confidence that the combination of Dragon and L.& H. would produce a market leader, when they had not done even the preliminary due diligence they had done to protect themselves?

Even though all that is pure speculation, at the very least the Baker’s lawyer is correct that “The Goldman Four were unsupervised, inexperienced, incompetent and lazy investment bankers who were put on a transaction that in the scheme of things was small potatoes for Goldman.”

So 10 years ago 5 million was a paltry sum that deserved little consideration to take to a task to “completion” (regardless of the actual outcome such as a total loss of their company and bankruptcy) how much $$$ does it take for actual competent consideration and “due diligence” now?

It also makes one wonder about $300 million Greece paid for the books to be more gently sauted after being julienned, leaving their taxpayers to fend for themselves. How much more do we not know about Goldman, after seeing “God’s work” in action?

I think Greg Smith, was being far too kind, knowing what we know about Goldman and other TBTF banks… Wall Street puts its own interests ahead of its clients and will screw anything or anyone along the way.

Posted by youniquelikeme | Report as abusive

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