| SALT LAKE City
SALT LAKE City May 23 After dozens of meetings
with executives and regulators, 100,000 hours of employee
training and an immeasurable amount of public grief, Goldman
Sachs CEO Lloyd Blankfein is claiming a victory in getting his
bank, and his legacy, back on track.
At Goldman Sachs Group Inc's annual meeting on
Thursday, Blankfein announced the culmination of a three-year
review and overhaul of the bank's practices following
high-profile missteps that tarnished its reputation in the
aftermath of the financial crisis.
In the past, Goldman sales staff and bankers could sell
clients almost anything they wanted to buy. Under the reforms,
they must now run transactions through what the bank calls
technological matrixes - and sometimes get top-level approval -
to make sure deals are appropriate.
In a video to be released on Goldman's website on Thursday,
Blankfein tells a group of employees not to be afraid to call
him if a problem erupts, because the risk of reputational damage
outweighs the cost of possibly wasting his time.
"Everyone has to have big eyes, big ears, know what's going
on around them and be policemen for the organization," he says.
Goldman staffers are expected to be "looking around corners"
to make sure deals that seem lucrative in the short term won't
harm the bank down the road, the co-chairs of Goldman's Business
Standards Committee told reporters on Wednesday. The panel, led
by J. Michael Evans and Gerald Corrigan, performed the review
and implemented changes.
"We had to influence and change behavior," said Corrigan.
"That's not an easy thing to do."
Evans said many proposed deals will now encounter hurdles
that didn't exist before. If they don't clear them, Goldman
won't get involved.
Clients will have preapprovals for a certain "transaction
class" - or matrix - along the lines of deals they have already
done with Goldman. If a proposed transaction falls outside that
matrix, it gets routed to a "suitability" matrix that determines
whether the client's profile makes him eligible for the deal.
Transactions that don't pass muster in the matrixes are
escalated to more senior Goldman personnel. First, a manager in
the business unit examines the deal. If necessary, it then goes
to a panel of managing directors, and then to a higher-level
committee of top Goldman executives.
Transactions that reach the higher levels tend to be
advisory deals that involve large derivatives or complicated
financing schemes; complex structured derivative products; or
products that involve tax, accounting or regulatory arbitrage,
Evans said. New products proposed by Goldman staff also must run
through a committee for approval, Corrigan said.
In the new system of Goldman approvals, it is possible for
clients to appeal. A deal that is initially deemed unsuitable
can be approved if changes are made, Evans said.
He gave examples of one unnamed IPO client that took its
business elsewhere when Goldman rejected its plan, and another
that "begrudgingly" made changes so that Goldman would advise on
Evans said crisis-era deals, like the Abacus and Timberwolf
derivatives trades that were documented in a U.S. Senate
subcommittee report and involved litigation, would likely not be
approved in the same manner today.
"If Abacus came today, it would run through a totally
different framework for approval than before," he said, adding
that his team was "turning ourselves into a pretzel" to figure
out ways to avoid such situations in the future.