By DAN REYNOLDS, senior editor of Risk & Insurance®
Global investment banking giant Goldman Sachs Group Inc. finds itself in a dogfight with the New York Times and other media outlets, and for the first time the bank has mentioned negative media publicity as a risk factor in its 10-K filing for 2009.
Goldman's media relations battle is real, and the fact they have filed what they have with the SEC is a big deal, according to Michael W. Robinson, a senior vice president with the Washington, D.C.-based Levick Strategic Communications, a crisis communications firm.
"Goldman Sachs over the years has a very well-deserved reputation of being the creme de la creme. I think to some degree the bloom is off of the rose here," said Robinson.
Goldman, traditionally never at a loss for talent, might also have to battle to retain its existing superstars in this environment. When was the last time Goldman employees were looked down on?
"If you are an investment banker and you are very good at your job, the last thing you want to do as a person is work for a place that is going to be the subject of derision, so there is an element here of retaining your best people," Robinson said.
"My take on it is that this is a recognition of the power that sustained attacks on your brand can have on your bottom line," Robinson said.
Indeed it is, as Goldman is acutely aware.
"The financial crisis and the current political and public sentiment regarding financial institutions has resulted in a significant amount of adverse press coverage, as well as adverse statements or charges made by regulators or elected officials," according to Goldman's 10-K filing for 2009, filed Feb. 26.
IMPACT ON PROFITS?
But will the tarnish put a dent on the company's extraordinary profits? The Goldman "success machine" will likely continue to make its billions of dollars unabated, according to one veteran communications and media relations executive.
Like the entire financial services industry in the wake of public outrage, however, Goldman has become even more wary of how its operations are being reported in the media, said Jim Lukaszewski, founder of the Lukaszewski Group Inc., a crisis communications firm based in Mt. Kisco, N.Y.
"I think for one, the entire industry, all of the financial industry, is extremely wary about how they have been treated (treated as they have deserved, in my opinion), but how they have been treated ever since the debacle became the debacle," Lukaszewski said.
Emily Freeman, a London-based partner in the Technology, Media and Telecom team for insurance brokerage Lockton Inc., said the kind of black eye suffered by Goldman could exceed the insurance market's capacity.
"I would say a reputational risk to Goldman Sachs could well be an amount that, even if we had such a cover, could well exceed what maybe the capacity of someone would be willing to write or insurers would be willing to write," Freeman said.
The Goldman story underscores the opportunity for insurance carriers, said Freeman.
"I guess I could say that we are working in specific causations for a wide variety of industries, although something today for Goldman Sachs I don't think exists on a blanket basis or on a basis of maybe a limit that would prove attractive to somebody that large," Freeman said.
In recent weeks, the investment bank has been battling a wave of negative publicity. On Feb. 23, Bloomberg reporter Richard Teitelbaum published a story titled "Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs."
The story pointed out that it was Goldman that bundled together some of the most toxic collateralized debt obligations insured by AIG.
According to Teitelbaum and his fellow Bloomberg researchers, Goldman underwrote $17.2 billion of the $62.1 billion in CDOs that AIG had insured.
The documents detailing Goldman's role were allegedly concealed by the New York Federal Reserve when AIG's bailout was ongoing, even though AIG wanted them released, according to Teitelbaum's story.
Teitelbaum's article followed a Feb. 7 story in the New York Times by Gretchen Morgenson and Louise Story titled "Testy Conflict With Goldman Helped Push AIG to Edge," which detailed a combative relationship between Goldman and AIG over the insurance policies on the rapidly weakening bundles of mortgages.
Goldman ultimately received more than $12.9 billion in insurance payments as part of the taxpayer bailout of AIG, according to the New York Times story.
Goldman refuted the Times story. "The theories are contradictory, and many of the supporting 'facts' don't stand up to serious scrutiny," said Goldman, in a release.
Ed Canaday, a spokesman for Goldman, declined to comment.
March 12, 2010
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