Goldman Sachs Group Inc pledged to be more open about how it makes money and to put clients' interests ahead of its own, eager to rebut criticism that it acts more like a hedge fund than a bank.
Goldman disclosed how much it earned from trading on its own behalf for the first three quarters of 2010, and will release that information for future periods, too.
The disclosure changes were part of a 63-page report that the bank issued on Tuesday regarding how the bank will change its business practices after reviewing them for more than eight months.
Other changes will aim to avoid conflicts of interest and ensure that staff are trained to think about the firm's reputation in their day-to-day activities.
The report, which recommends the creation of at least three internal committees, focuses mainly on disclosure and oversight, and makes few recommendations for how Goldman will change the way it does daily business.
It says nothing, for example, about replacing Chief Executive Lloyd Blankfein, widely criticized for his response to the SEC lawsuit and allegations that the bank's activities were rife with conflicts of interest that were not always disclosed to clients.
I'm not terribly convinced it produces a new culture, said Cornelius Hurley, a professor and director of Boston University's Morin Center for Banking and Financial Law. It seems to be part of their concerted public relations effort.
Still, Goldman did shed new light on the heretofore murky realm of proprietary trading profits, revealing that its investment and lending group -- which includes the bank's bets with its own money -- accounted for nearly 30 percent of pretax earnings in the first three quarters of 2010.
And Goldman's disclosure overhaul could boost pressure on rivals to follow suit especially after the sweeping Dodd-Frank financial reform bill shone a spotlight on big Wall Street firms' propensity to make risky bets with their own capital.
I think other banks will follow Goldman on this, said Brad Hintz, investment banking analyst at Sanford C. Bernstein in New York. They may not want to admit it, but this kind of disclosure puts pressure on other boards to act.
The report came even as other major banks are expressing eagerness to put the financial meltdown of 2008 behind them. Barclays Plc's new boss, Bob Diamond, said on Tuesday that banks should stop apologizing for the mistakes that helped cause the crisis.
The document was prepared by a committee led by Goldman executive and former Federal Reserve Bank of New York president Gerald Corrigan and by Michael Evans, a vice chairman of the company. It details 39 plans for how it will change after years of investor accusations that its financial statements are opaque and client complaints about conflicts of interest.
Goldman kicked off the internal review in May 2010, soon after the bank was accused by U.S. securities regulators of creating and selling instruments linked to subprime mortgages without telling investors that hedge fund Paulson & Co had helped choose and bet against the debt.
The apparent ethical conflicts at the center of the case were laid bare in a series of emails sent by Goldman Sachs bond trader Fabrice Tourre, who referred to himself as fabulous Fab and referred to some trades he created as monstrosities.
Goldman agreed in July to pay $550 million to settle the lawsuit brought by the U.S. Securities and Exchange Commission, one of the biggest arising from the U.S. housing and credit crises. Tourre was the only individual sued in the case. The charges against him are still outstanding.
As part of Goldman's settlement with the SEC in July 2010, the investment bank agreed to require two internal committees to review mortgage bond deals to make sure marketing materials describe necessary facts to investors.
The Goldman report also follows the passage of Dodd-Frank, a sweeping U.S. financial regulatory reform bill that in part limits banks trading their own money.
BIG SOUL SEARCH
The report is emblematic of Goldman's newfound humility after critics long lambasted the firm for arrogance. Blankfein told a Senate hearing last April that Goldman was undergoing a big soul search in the wake of the SEC complaint and other allegations.
Goldman shares were little changed in afternoon trading, dipping 13 cents to $169.63 and underperforming a broad rise in financial stocks. The shares have partly recovered from a steep drop that followed the disclosure of the SEC suit last April, but are still below their mid-April level.
Goldman's 2010 results are on track to be down from 2009; the bank earned just $5.49 billion in the first nine months of the year. The roughly 142-year-old bank is scheduled to report fourth-quarter results on January 19 under its new disclosure framework.
Goldman said it would set up one committee to ensure that clients are being treated fairly, another to scrutinize each potential new business activity, and a third to examine products' suitability for investors.
We act in many capacities, including as an adviser, fiduciary, market maker and underwriter, the report said in one of several references to potential conflicts of interest. We must be clear to ourselves and to our clients about the capacity in which we are acting and the responsibilities we have assumed.
Goldman said bolstering the firm's reputation was a key objective of the report -- famously described by a Rolling Stone magazine article as a great vampire squid ... jamming its blood funnel into anything that smells like money.
The modest steps suggested in the report are unlikely to put an end to such criticism.
You should be doing that anyway, Hurley said of the report's promise to put client interests first. Why do you have to commission a whole report and make such a to-do about it?
(Additional reporting by Maria Aspan; writing by Christian Plumb; editing by John Wallace and Matthew Lewis)