The chief executive of Goldman Sachs called on Tuesday for reforms to executive pay and a broadening of financial regulation in a contrite speech that was twice interrupted by protesters.
Lloyd Blankfein, whose firm has taken $10 billion in taxpayer funds, said the economic crisis had been deeply humbling for financial firms, and banks receiving taxpayer bailout money need to pay back the funds as soon as possible.
Protesters waved a large pink poster saying We Want Our $$$$ Back and yelled that taxpayers wanted to know why they should bail out Wall Street.
Amid audience boos directed at the protesters, Blankfein told the Council of Institutional Investors conference that their message was nevertheless real and visceral.
I think that reflects a prevailing view in the world, he said.
Blankfein said Wall Street firms got caught up in the pursuit of profits and ignored risks. He said they needed to dramatically change compensation practices to bring responsibility back to the industry.
Decisions on compensation and other actions taken and not taken, particularly at banks that rapidly lost a lot of shareholder value, look self-serving and greedy in hindsight, Blankfein said.
REFORMS TO PAY
He laid out reforms to pay, including rewarding long-term performance, instead of short-term gains, through deferred compensation and clawbacks.
Individual compensation should not be set without factoring in the performance of the business unit and overall firm, Blankfein said.
Employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak, he said.
Regarding regulation, Blankfein said financial institutions needed to accept more oversight, including hedge funds.
He voiced support for a systemic risk regulator that can look at every firm, product or practice that may pose a danger.
In this vein, all pools of capital that depend on the smooth functioning of the financial system, and are large enough to be a burden on it in a crisis, should be subject to some degree of regulation, Blankfein said. Yes, that includes large hedge funds and private equity funds.
Goldman Sachs, the fifth-largest U.S. bank, received $10 billion from the government in October under the Troubled Asset Relief Program. It plans to pay back the funds this year, as the money comes with strings attached, such as caps on executive compensation, dividend restrictions, and limits on share repurchases.
Blankfein told the protesters it was important for the public to understand the capital provided to banks was meant as a broader stimulus effort to get the financial system back on its feet, not a bailout of individual firms.
Banks should pay back the taxpayer money as soon as it is feasible, as the capital injections were never intended to be permanent capital, he said.
He said it will take years for the financial industry to earned back public confidence. One way to shore up that confidence is through mark-to-market, or fair value, accounting, Blankfein said.
Mark-to-market, also known as fair value accounting, is aimed at giving investors an accurate view of financial companies' books.
But some banks and investors have blamed the rules for accelerating the financial crisis by triggering billions of dollars in writedowns, leading to reduced capital levels and less lending. Last week the Financial Accounting Standards Board approved guidance to ease the impact of fair value accounting in illiquid markets.
Fair value accounting gives investors more clarity with respect to balance sheet risk, Blankfein said.
(Reporting by Karey Wutkowski in Washington; additional reporting by Joseph A. Giannone in New York; Editing by Lisa Von Ahn, John Wallace and Tim Dobbyn)