Goldman’s Reputation Bombs in China

I have written extensively on the impact of a lousy reputation. No firm on Wall Street is feeling the sting of a questionable reputation more than Goldman Sachs. If Goldman thought it could quarantine its lousy reputation to the Western Hemisphere, Lloyd Blankfein and team need to think again.

As the Financial Times highlights, Goldman Stung by Backlash in China,

Public criticism of Goldman Sachs has come to China, where the bank has been attacked in the state-controlled media.

Apparently emboldened by congressional inquiries and anger in the west , the media have slated Goldman, arguably the most successful foreign investment bank in China.

“Many people believe Goldman, which goes around the Chinese market slurping gold and sucking silver, may have, using all kinds of deals, created even bigger losses for Chinese companies and investors than it did with its fraudulent actions in the US,” the China Youth Daily said last week.

The article was distributed through commercial news portals and the websites of Xinhua News and the People’s Daily.

Referring to Goldman as a “black hand” that “played little tricks carefully designed to gamble with Chinese enterprises”, the article made few specific accusations of wrongdoing.

The report followed similar commentary and articles in 21st Century Business Herald and New Century Weekly.

The reports were critical of Goldman for designing and selling oil hedging contracts to state Chinese groups that then lost out when oil prices plunged, contrary to Goldman analysts’ predictions, in 2008 and 2009.

Probably the most telling assertion is the complaint that Goldman has been too successful in China, that it has made too much money from underwriting initial public offerings, arranging deals and making its own private equity investments.

Goldman saw a 2007 investment in a pharmaceuticals export company of less than $5m (£3.5m) rise to nearly $1bn at the company’s IPO.

The bank has a lead role in the IPO of Agricultural Bank of China.

“We have a very strong track record in China and one we’re proud of, but we need to help people better understand our business,” Goldman said.

I am all for Goldman taking risks and growing its enterprise but do not think for a second that Goldman might not prey upon Chinese investors or investors anywhere in the process of financial engagements.

Just as I mentioned on my CNBC interview in early March, the greatest risk Goldman Sachs has is that of  a questionable reputation. As I have always maintained, people and firms have the reputation that they deserve. Goldman’s reputation will not change by talking about it, Lloyd and team need to take real action.

Are they even capable of the required actions given their business model?

LD