They were also heartened by the smoothly handled denigration of Smith by the revamped Goldman PR operation run since March this year by former Clinton administration spokesman Jake Siewert. Goldmans press officers were able to set the agenda for questions by journalists when Smith promoted the book with US television and print interviews. This led to endorsement by much of the media of the Goldman line that Smith went public with his complaints about the culture at the firm because of disappointment about his lack of advancement and his bonus levels. But Goldman should be careful not to declare victory over its rogue salesman prematurely. Smith performed surprisingly well in his TV interviews and managed to stick to his talking points without appearing defensive or over-rehearsed (outperforming many US politicians and lobbyists who were doing the rounds at the same time).
A line that Smith returned to repeatedly was the allegation that teachers pension funds and charitable foundations were victims of the erosion of cultural values at Goldman. This directly counters one of the main themes of Goldmans marketing and publicity drive to repair its image. In a wave of advertising since it was accused of deceptive practices such as shorting mortgage instruments while it was selling new housing-backed deals to clients, Goldman has attempted to rebrand itself as a servant of the real economy.
The branding campaign has been criticized for a patronizing tone. Ads that feature school janitors and tout Goldmans work funding US cities certainly strike an odd note when the firm is being sued over municipal interest rate derivatives.
Smiths assertion in his book that pension funds and charities should not feature on lists of Goldmans top revenue-generating clients is both an example of his own oddly naive approach to finance and a valid point that might resonate with potential customers and slow down Goldmans ability to close new deals in the future.
Another attack line in the book that might have an impact despite the lack of fresh details in Smiths allegations is his attempt to portray Goldmans London office as exceptionally cynical in its attitude to clients.
This might have stemmed from Smiths own issues with the rough-and-tumble atmosphere in Goldmans Fleet Street office, but the accusation that the firm was unusually aggressive in its attempts to profit from the instability of European financial institutions last year will not help Goldman in winning new business in the region.
Smith reminded readers about a report issued by Goldman Sachs strategist Alan Brazil to hedge fund clients in August 2011 warning that European banks needed up to $1 trillion of extra capital and recommending the purchase of default swap protection on European banks. The report contributed to instability in European financial default swaps and broader market indicators in August and September 2011 and fuelled suspicion among continental European policymakers about Goldmans tactics.
This remains a live issue. At least one US hedge fund that is currently shorting French government bonds has told its investors that Goldmans London office is helping to co-ordinate a move to attack the OAT market. Attempts to short the OAT market have been a disaster for hedge funds so far this year, as French government bonds have been beneficiaries of moves to deploy excess euro liquidity by the Swiss National Bank and Japanese national authorities. But if any crack in the consensus on how to tackle the problems in the eurozone turns into a Franco-German rift and starts to reverse the recent tightening in OAT spreads to Bund yields, then Goldmans role in market moves could come under renewed scrutiny.
That, in turn, could affect the firms ability to win mandates from European borrowers. Goldman did not perform strongly in the third-quarter debt capital markets mini-boom this year that was driven in large part by a revival in demand for European credit exposure. The bank will not want to miss out on participation in any further rally due to a perception that it has a focus on exploiting eurozone weaknesses.
Smith also took a broad-brush approach to criticizing Goldmans approach to flow business in Europe. "Goldman Sachs in Europe was focused almost entirely on structured products," he said of his time working in the region. That is a debatable assertion, but it is one that will be repeated by Goldmans many critics. Smith might have failed to deliver any detailed fresh information about malpractice at Goldman in his memoir, but elements of his straightforward criticism of the firms business model are likely to have a harmful effect on his former employer.