Another post-crisis public relations shake up is about to take place in the investment banking industry. As Goldman Sachs is rumoured to be considering dropping investment in metal storage, other more delicate matters are emerging that pose the biggest threat to its public image since the crises that began in 2008. Ex-trader Fabrice Tourre is to appear in a Manhattan courtroom, a material relic of the capitulation of the American mortgage-loan system during the height of the global financial crisis, and the beginning of half a decade of engineered public relations work. These efforts could all go down the drain if the industry and its clients are reminded of Goldman’s ‘aggressive brand of dealmaking’, as was apparent before the crash. But just how much in jeopardy is the US bank’s image? After all, the last few years have not been pleasant for anyone in the investment industry – and at the end of the day, somebody needs to manage the system of hyper-capitalism and globalised finance. Perhaps the nightmares of rivals UBS, RBS and Barclays provide a market-wide basis of distrust and set Goldman in reasonable stead.
Abacus and Fabrice Tourre
The French banker has become the personification of the American arm of the financial crisis, after Tourre described himself as ‘fabulously fab…standing in the middle of a system that is about the collapse’. How a banker could have tarnished the reputation of all involved in a more harmful way, it is hard to discern. Tourre was specifically involved in the Abacus Incident in 2010, in which a Goldman investment package was offered to customers having been underwritten and formulated by John Paulson – a hedge fund manager – who planned to set bets against the package and its assets. The scandal brought about further questions concerning insider trading and the general atmosphere of a failing banking system, which to their credit, Goldman Sachs have managed very well over the last couple of years. However, as Tourre returns to the courtroom, there is a chance that such scandals could return to the surface of the financial lake. If so, Goldman PR boss Jake Siewert – recruited from the US treasury – could be in for a tough time convincing the media and the public that there is some good left in the company, and indeed the industry.
Luckily for Goldman, several competitors in the investment banking industry have been dealing with their own PR issues. The LIBOR (London Interbank Offered Rate) Scandal last year exposed the manipulation of interest rates by investments banks in order to increase both profit on trades and worthiness of credit. UBS, RBS and Barclays were the biggest culprits, all taking hefty fines. Barclays CEO Bob Diamond resigned over the matter, although reports have since detailed the manipulation of LIBOR as going back as far as the early 1990s – thus Diamond’s resignation as far more symbolic than anything else. American trading activities rely on the rate for judgment of UK markets, rendering its manipulation a violation of US law as well as foul play in Britain, where at the time, the Financial Services Authority was entrusted with bringing the matter to justice. There was a period of a couple of weeks last year when it was felt that the banking system simply could not recover from the never-ending chain of scandal and corruption.
UBS also had to deal with a rogue trader, Kewku Adoboli, who in 2011 was arrested for fraud and false accountancy, after covering huge losses in the Global Synthetics Equities department at the Swiss bank’s London office. The case had a large impact on UBS’s image, as the power of the individual with the anonymous backing of a huge financial institution was unveiled as highly destructive and somewhat corrupt. Then UBS CEO Oswald Grubel resigned over the matter, taking corporate responsibility for a matter that was close to destroying the Swiss bank.
With Goldman CEO Lloyd Blankfein’s reputation very much intact at the present moment, the American investment bank does not look too shabby vis-à-vis its financial opponents. The fallout from the end of the Abacus Incident may cause a little damage but nothing that Siewert and team should not be able to manage. A rebranding of Blankfein himself is well underway; the next year or so should show just how powerful Goldman and its board are.
Jack Farchy and Daniel Schafer, ‘US banks eye metal storage exit’. Financial Times, July 15 2013
Patrick Jenkins and Tracy Alloway, ‘Upsetting the narrative’. Financial Times, July 15 2013