Wall Street bank Goldman Sachs has suffered a severe blow to its reputation after one of its bankers announced his resignation in the New York Times by declaring his employer "morally bankrupt".
Questions were immediately raised about the relationship between the firm and its clients – whom the departing employee, Greg Smith, said were described as "muppets" by his superiors.
Smith, who was based in London, made a savage attack on the culture of Goldman, which only two years ago was damaged by another London-based banker, Fabrice Tourre, who described creating "Frankenstein" products that showed scant regard for the needs of the firm's clients.
Smith's public resignation letter made reference to the Tourre affair, as well as to the infamous description of Goldman in Rolling Stone magazine as "a great vampire squid wrapped around the face of humanity".
Smith said that none of these incidents had taught the firm any humility or integrity. He wrote: "It makes me ill how callously people [at the bank] talk about ripping their clients off. Over the last 12months I have seen five different managing directors refer to their own clients as 'muppets', sometimes over internal email."
Smith reckoned the fast track to a promotion involved persuading clients to invest in stocks or other products "that we are trying to get rid of because they are not seen as having a lot of potential profit". "Today, if you make enough money for the firm (and are not currently an ax [sic] murderer) you will be promoted into a position of influence," he wrote.
Smith described himself as an executive director and head of the firm's US equity derivatives business in Europe, the Middle East and Africa. He is thought to have been the only person in that department and was a vice-president, which some City sources suggested might be a disappointment after 12 years with the firm.
Goldman wanted to get clients to trade "whatever will bring the biggest profit to Goldman" – a strategy referred to as "hunting elephants".
"You don't have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about 'muppets', 'ripping eyeballs out' and 'getting paid' doesn't exactly turn into a model citizen," wrote Smith, who said he had been selected to appear in a recruitment video and in 2006 had managed the summer intern programme in New York for sales and trading.
Goldman Sachs was quick to deny the accusations levelled by Smith, but may face an uphill battle in clearing its name with clients, which range from governments to major international companies and big players on the financial markets.
It was reported that publishers were trying to track down Smith to offer him a book deal.
Lord Oakeshott, the Liberal Democrat peer and his party's former Treasury spokesman in the Lords, said he would table questions to seek clarity on any relationship between the UK government and Goldman.
He said: "We know in the City that Goldman help themselves before their clients. Now here's the proof. Greg Smith says you get promoted there if you make enough money for the firm and you are not an axe murderer - and the people of Greece and the rest of the eurozone are paying the price after Goldmans cooked their books and Greece joined the euro at an unsustainably high exchange rate. Until this culture is stamped out, Goldman are not fit and proper to receive a penny of British taxpayers' money or advise our government in any way."
Goldman advised Labour on the nationalisation of Northern Rock and acts as an official market marker of UK government bonds, known as gilts. Goldman alumni can be found in US political circles: the US Treasury secretary at the time of the banking crisis was Hank Paulson, who quit as boss of Goldman to take up the role in the Bush administration.
Smith reckoned much had changed since Paulson quit, and the current bosses, chief executive Lloyd Blankfein and president Gary Cohn, were appointed. The pair had "lost hold of the firm's culture on their watch", during which time Blankfein once blurted that he was doing "God's work".
Smith yearned for the previous culture – "the secret sauce that made this place great" – which had been about "teamwork, integrity, a spirit of humility, and always doing right by our clients".
Blankfein and Cohn issued a joint statement from New York, where a new head of public relations, Jake Siewert, a White House press secretary during the Clinton administration, was installed only three days ago.
"In a company of our size, it is not shocking that some people could feel disgruntled. But that does not and should not represent our firm of more than 30,000 people," said the statementby the pair, who were told by Smith that he said he wanted his public resignation to be "wake up call".
Smith's own career prospects might now be in doubt despite him boasting of his full scholarship from South Africa to Stanford University, selection as a Rhodes Scholar national finalist, and bronze medal for table tennis at the Maccabiah Games in Israel.
David Way, a headhunter at Marks Sattin, reckoned these anecdotes read like a CV. But, Way noted: "like most of the City's major employers, Goldman Sachs have a strong network of alumni running companies across the world who could be bosses or clients for high-level professionals changing jobs."
