Goldman Sachs' Latest Initiative: Business Plan or Charitable Donation?

There are few firms more emotive to the average consumer right now than Goldman Sachs (GS). With the announcement Tuesday that it is teaming up with much-loved billionaire investor Warren Buffett (BRK.A) to hand out $500 million to small U.S. businesses, Goldman is hoping that it might be able to salvage some of its reputation on the sidewalk while it continues to prowl the Street hunting for lucrative deals. Or so it says.

The announcement follows an uncharacteristic apology by Goldman’s chief executive Lloyd Blankfein for helping to cause the financial crisis. Goldman “participated in things that were clearly wrong and have reason to regret,” Blankfein told the Financial Times earlier this week.

If he is merely face-saving, then Blankfein may already be regretting making the volte-face. “Shut up, Lloyd Blankfein,” writes CNN’s Paul R. La Monica. Others are no more charitable to the bank: Goldman’s $500 million is a day late and a dollar short, according to Bloomberg’s Mark Gilbert:

Here’s another way of looking at this sudden burst of supposed generosity. Goldman has $16.7 billion stashed in its bonus pot from the record profit earned in the first nine months of the year, which works out at $527,192 per staffer.

That means those 10,000 small businesses the securities firm says it wants to help are worth the equivalent of about 1,000 Goldman employees. Alternatively, a Goldmanite’s average contribution to society is pitched at the equivalent of 10 small enterprises, based on that bonus-versus-charity calculation.

As I reported here at BNET Finance on Tuesday, Goldman Sachs employees may in fact end up being better-paid this year than they were back in 2006, when the economy was booming as a result of rising subprime loans and an Asian emerging market equity bubble. It’s certainly true that an apology from Blankfein might strike some as a bit rich coming just weeks after he told another British newspaper, The Sunday Times, that “frankly, everyone should be happy” with Goldman’s stunning performance this year, since the bank is “doing God’s work.”

More than anything else however, it is curious that Goldman Sachs is doing anything at all to repair its reputation in the hearts of the American consumer. For unlike Bank of America (BAC) or JP Morgan Chase (JPM), Goldman Sachs doesn’t derive any particular benefit or drawback from what consumers think about it. As long as other institutions know that Goldman is the best place to go to float a company, look for a prime broker, buy a security, or seek advice about a merger, Goldman will continue to make money. In other words, the bank has no exposure to the retail customer whatsoever.

Does Blankfein Want To Enter Consumer Banking?

There are only three credible possibilities why Blankfein might be trying to repair Goldman’s reputation right now: he doesn’t want to lose employees as a result of their defections to another bank due to peer pressure from non-banking family/friends; he wants Goldman to enter the consumer banking space at some point in the future; Blankfein is simply cracking under public revile more commonly reserved for politicians.

The second possibility is the most interesting to speculate with. It has long been rumored that Goldman was planning a consumer lending service before the subprime crisis got underway. In today’s environment however, marketing such a service to Joe Sixpack would be an extremely tough job. (For a start, few would trust the bank.)

Perhaps then this year’s package is designed to give Goldman Sachs an entry into the small and medium size business banking market, which over time, it intends to branch out into a separate division of its own?

That explanation would also gel with the lengthy time-line of the package: rather than getting the $500 million in one fell swoop, small businesses will receive a total of five $100 million payouts over the next half decade. What is more, thrown in with the package for Goldman is an operations genius when it comes to growing small and medium-sized companies: none other than the Sage of Omaha.

In that light, the package looks much more like a business plan than it does a charitable donation.

Comments

[john s. gordon]

really crass behavior by GS.
> jack

2009 Nov 19 09:03 AM

[Tesa]

Instead of an appology, the financial companies like Goldman should not be apposing and blocking new regulatory directives. The should not be constantly lobbying against working people, public insurance, unions and mimimum wage while they themselves bagged money through racketeering and bail outs.

How about that.

2009 Nov 19 12:47 PM

[Darwinist]

Who's behind Goldman Sachs? If you don't know the answer; you are dumb. Goldman's apology is testing(or miscalculating) American public's intelligence or stupidity; you decide. Market may provide answer for us. Watch carefully if Dow's rising wedge is broken on the downside in a 90% down volume day may provide clues.

2009 Nov 19 12:48 PM

[William M. Wright]

Purhaps we could convince GS to make ZERO PERCENT interest rate loans to help those SAVERS who now only earn 1/4% in MMF. After all the FEDs ZERO i policies benefited the GS Trading division and TAXPAYER bail-outs, government insiders and AIGs 100% pay-off to counterparties like GS has made their Investment Banking business a boom.

2009 Nov 19 01:11 PM

[Donald Ingram]

Stinks of insincerity. Apology rejected.
$500 million is peanuts compared to what they have planned for themselves as a Merry Christmas bonus - reportedly up to $23 billion?

2009 Nov 19 01:20 PM

[MarketGuy]

I'll believe them when they halt HFT, dismantle ICE, get out of the Dark Pools, and really act like a "bank" as they label themselves, and not to gain access to the 0% Fed funding window. Otherwise, they remain the snakes they are.

2009 Nov 19 01:56 PM

[tunaman4u2]

What a joke they are... hate em... how about a whole quarters profit... 3 billion in charitable donations... after what the US did for them thats more than fair. 500 million isn't

2009 Nov 19 04:14 PM

[Victor84]

It's not even a "donation", it's an investment just like any other, which also happens to double as a convenient PR stint.

Whatever they can do to make a buck, they will do. Ethics, morals, charity have absolutely no room in the world of investment banking; anyone's who's been in the business knows it is a completely ruthless world. You either get burned out after 1-2 years or you become hardened.

And while they have no direct link to the average American, goodwill is incredibly important for any public company. The constant scrutiny they are under and the fact that it is currently untenable to support GS cannot be positive for Goldman.

2009 Nov 19 04:34 PM

[G. L. Turner]

I like th fact that they now control the Interantional Oil Futures market...
and the CFTC, The Fed and the Treasury have yet to do anything about stopping this, and many other of their sins.

Very appalling, is how often they break the securiteis laws...and then after a couple of years, have made billions on the illegal action, negotiate a fine in the $40m to $70 M range, doing this numerous times - but, alas, this is a "calculated' 'cost of doing business expense' that they so arrogantly factor in - and yet they continue to get away with it...

When we put in term limits and bar the pols from taking corporate money, then maybe, we'll have a chance. Just remember, when a few corporations and heavy weights rule, America is on the skids...

PS- I have pretty much decided that Obama and Buffet are now part of the vampire squid sucking team....

2009 Nov 20 12:22 AM

[D. McHattie]

There is a 4th reason why Goldman has done this:

They want to avoid public pressure on elected representatives to reduce their parasitic position within the American economy.

There is NO WAY that Goldman adds the billions worth of real, tangible value to the economy that they take out.

Goldman Sachs is a hidden tax on the US economy.

2009 Nov 20 11:11 AM

[Nadia Kageff]

IT DID MY HEART MUCH GOOD TO READ ALL THESE COMMENTS ON GS. THEY ARE GREEDY EVIL MANIPULATORS,AND THOSE POLITICIANS WHO LOOK THE OTHER WAY, WILL GET WHAT THEY DESERVE IN TIME. $500 MIL. IS A DROP IN THEIR BUCKET, FOR ALL THE BILLIONS THEY MADE , AND BONUSES THEY ARE GIVING THEMSELVES. YES, PHIL DAVIES, THEY ARE WORTH " 80 MADOFFS" . THEY RIP THE PUBLIC SELLING FAKE OIL CONTRACTS THAT NEVER GET DELIVERED. THUS WE PAY 20% MORE FOR FOOD AND FUEL.
THANKS TO THE OCTOPUS GS. "IN GOD I TRUST. "

2009 Nov 23 05:11 PM

[Nadia Kageff]

FORGET GOLDMAN THIS WEEK ,THEY WILL LOSE MANY INVESTORS . THANK GOD FOR YOUR BLESSINGS, AND HAVE
A GREAT FAMILY THANKSGIVING.

2009 Nov 23 05:21 PM