U.S. News

Goldman Plans to Overhaul Practices

By Justin Baer and Francesco Guerrera, Financial Times

Goldman Sachs is planning to change some of its practices in dealing with institutional clients, a step that could help it settle charges filed last month by US securities regulators.

The internal policy revisions come as the US Securities and Exchange Commission steps up demands for corporate governance changes as part of any negotiated settlement.

While talks are not under way to resolve the SEC’s allegations that Goldman misled investors during the financial crisis over the sale of mortgage-backed securities, people familiar with each side of the dispute concede a settlement would be in the best interests of both parties.

A former top SEC official said the regulator needed to demonstrate there had been real change, while the bank needed to put the uncertainty behind it.

Goldman Sachs
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Last month, the SEC charged Goldman with fraud and federal prosecutors are now deciding whether to launch a full criminal probe into the bank’s mortgage-backed securities business.

According to one person familiar with Goldman’s plans, it would now tell employees to seek confirmation from clients that they understand the risks associated with any given security, and how their dealings with Goldman might change their total exposure.

Goldman is also studying ways to ensure that complicated securities are marketed only to appropriate clients, the person said. Goldman’s push to “tighten up” standards suggests its willingness to adapt in the face of mounting scrutiny.

In Congressional hearings last week, several senators were highly critical of the way Goldman had interacted with clients. The bank’s shares have also lost more than a fifth of their value since the SEC made its allegations.

Lloyd Blankfein, Goldman chief executive, gave a series of broadcast interviews over the weekend to defend the bank.

On Saturday’s Charlie Rose Show , he acknowledged criticism of some of the internal bank e-mails released at the Senate hearing. “There were some e-mails where some people were projecting...at best indifference, and at worst a callousness...We are going to have to go through our processes with a view to making people appreciate in a more positive way what we are doing. We can’t exist in the current state that we are in, and we understand that. So we have a lot of work to do.”

Mr Blankfein said last week that the bank’s long-standing business practices committee, which comprises 20 senior executives and meets weekly, was leading the review of its standards. Michael Sherwood, a Goldman vice-chairman who co-heads the bank’s operations in Europe, leads the group.

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