Goldman Sachs’ annual report is out today. Haven’t got a chance to read the whole thing yet. A reporter from one of my former employers digs through Goldman’s trading record. But here’s what caught my eye: I am now one of the biggest risks to the profits of Goldman Sachs–big enough to deserve mentioning for the first time in its annual report, after “poor investment performance” yes, but well before “pandemics, terrorist attacks or natural disasters.” Here’s what it says:
The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges by regulators or elected officials. Press coverage and other public statements that assert some form of wrongdoing, regardless of the factual basis for the assertions being made, often results in some type of investigation by regulators, legislators and law enforcement officials or in lawsuits. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, is time consuming and expensive and can divert the time and effort of our senior management from our business. . . . . . Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations.
OK not me specifically, but the Press in general. Probably, more likely, the coffee-throwing, vampire-squid-hating Matt Taibbi. But hey I too have written a story questioning whether Goldman was improperly minting money in the past year. The warning about bad press is included in the risk factors section of Goldman’s annual report. That section is typically boilerplate. Nonetheless, the fact that Goldman is mentions negative publicity for the first time in its risk factors is notable. Goldman is taking all the negative stories about the firm seriously. It has sent it’s CEO on a not so successful charm offensive. And it has dispatched its quip-loving PR man Lucas Van Praag to actually respond to reporters, something Goldman never did. He’s even blogging.
Still, while I found my article ahead of the curve, and Taibbi’s stuff fun to read, I’m not sure we and the rest of the media are a real risk to its business. What about taking out tens of billions of dollars in credit protection with an insurer that clearly doesn’t have that much cash. Or underwriting mortgage bonds that turn out to be worthless. That to me, seems like it would be a much bigger threat to your business and reputation than bad press.
Goldman makes 76% of its revenue from trading. Some of that is client driven, and yes a client could say I don’t want to work with the vampire squid, but I really doubt that saying Goldman Sachs is your broker, banker or adviser is really a bad thing in corporate America. In that world, Goldman’s profits are highly respected, not questioned. Most of Goldman’s profits, anyway, come from the trades it performs for its own account. And that money is just based on how well it can play the market. That to me seems to have nothing to do with what I or anyone else thinks about them. And as long as Goldman is handing out $16 billion in year end bonuses, I don’t think the firm is going to have trouble recruiting employees. I think most people would be happy to endure a little name calling in exchange for a million bucks. Some, especially those that seek employment on Wall Street, might actually think being called a vampire squid is a bonus in itself.
UPDATE: Here’s more on Goldman’s trading profits. (ht, Zerohedge) The number of days in which Goldman Sachs made $100 million or more have been falling. Still a pretty solid performance despite all the negative press.