Fed Bans Two Ex-Goldman Bankers From Industry

The Federal Reserve Board of Governors has barred former Goldman Sachs Group Inc. investment bankers Tim Leissner and Roger Ng from working in the banking industry because of their alleged involvement in illegally diverting funds from Malaysian state investment fund1Malaysia Development Bhd.

The Fed said Tuesday Mr. Leissner, the former head of Goldman’s Southeast Asia business, agreed to his ban from the industry and has been fined $1.42 million.

In 2012 and 2013, Messrs. Leissner and Ng worked on bond offerings for the sovereign wealth fund, known as 1MDB, the Fed said. Money that was diverted from the fund was used to bribe government officials and for the “conspirators’ personal benefit,” the Fed said in a statement.

The New York-based investment bank raised $6.5 billion for 1MDB, and authorities have alleged $2.7 billion of funds were stolen.

.. Mr. Leissner pleaded guilty last year to U.S. charges of conspiracy to launder money and violate antibribery laws. He is due to be sentenced June 28. The attorney general in Malaysia filed charges against the former Goldman banker last year.

Companies will Pursue Profit. It is up to Society to be a Countervailing Force

When Goldman Sachs went to their shareholders with the 10,000 women program ..

I actually think that it is there job to be companies and society’s job to look after the public good.

Companies will primarily act for profit so other countervailing forces must.

A little bit of demonization of people who are stealing the dream is fine.

Trump and plutocrats are demonizing immigrants (punching down) instead of doing something to address the problem.

Goldman Sachs ‘muppet’ trader says unsophisticated clients targeted

In an interview on CBS News’ 60 Minutes on Sunday to promote the release of his book called Why I Left Goldman Sachs: A Wall Street Story, Smith said that securing an unsophisticated, or “muppet” client was the top goal of the bank’s salespeople. His frustrations with that culture meant he “literally wanted to hit the board of directors over the head”.

“Getting an unsophisticated client was the golden prize,” he told the programme. “The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client.

“What Wall Street will do is they will approach one of these philanthropies or endowments or teachers’ retirement pension funds in Alabama or Virginia or Oregon and they’ll say to them: ‘We have this great product that is going to serve your needs’. And it looks very alluring to these investors but what they don’t realise is that upfront they are immediately paying the bank $2m (£1.2m) or $3m because of their lack of sophistication.”

Smith was no more than a mid-ranking employee when he penned his March article, which is best remembered for his claim that Goldman bankers in London frequently dubbed unsophisticated clients as “muppets”.

“Within week one [of arriving in the London office] I met a junior guy who was 24, 25 years old and the first thing he’d told me was that he had just traded a sophisticated derivative with a ‘muppet client’ who’d paid the firm an extra million dollars because the client was so trusting that he didn’t check the price with other banks,” Smith recalled. “Now you could think to yourself, is this some rogue guy who is just talking callously about clients, but his boss who’s a managing director was sitting right next to him nodding and chuckling along.”

Smith also recalled how he and a Goldman partner travelled to Asia to meet a major client, described as the “head of one of the biggest funds in the world”.

“[The client] looks me and the partner in the eye and says: ‘Let me be honest with you guys. We don’t trust you at all. But don’t worry, there’s nothing to worry about, we’re going to keep doing business with you because you’re the biggest bank, you’re the smartest and factually we have to do business with you’.

“Now my jaw almost dropped because hearing from one of your biggest clients that they don’t trust you when your whole mantra and reputation is built on trust, to me was the worst possible thing that you can hear. And then I leave the meeting and the partner from Goldman Sachs, who I was with, is jubilant. This is great news. The client is going to keep doing business with us because they have to.”

Goldman declined to give CBS a response to its Smith interview. However, the bank’s board has already been told that an internal investigation triggered by Smith’s resignation – which was dubbed the “muppet hunt” – had found little substance to the allegations.

The bank has also been briefing that Smith had been angling for a promotion and for the bank to double his pay to $1m, although Smith claims he would have quit even if his pitch had been successful.

“What I can say to you, and this may sound stupid, is that I didn’t go to Wall Street purely to make lots of money,” he said. “I definitely wanted to make money, but I left because things had veered so far from what I actually believed was right. I could have just left and walked out and said nothing about it but I would have felt that that was not the right thing to do.”

Along with several other major Wall Street banks, Goldman has been widely criticised for making money at the expense of clients who did not fully understand the complex financial products they were dealing with.

In 2010 Goldman was fined $550m as part of a settlement with the Securities and Exchange Commission – the largest in the US regulator’s history – when the bank accepted that the marketing materials it issued to investors for its infamous Abacus transaction gave “incomplete information”.

The Abacus case had called into question the integrity of Wall Street after the commission alleged Goldman had packaged up mortgages into Abacus and then sold them to investors without telling them that one of its powerful clients, the hedge fund Paulson, had been taking a trading position intended to profit from a fall in the value of US house prices and had even selected some of the mortgages included in the product.

Morgan Stanley, Goldman Got Help From Fed on Stress Tests

Federal Reserve officials told Goldman Sachs Group Inc. GS -0.72% and Morgan StanleyMS -0.56% that they were about to flunk a portion of the annual stress tests but offered them a deal to avoid an outright fail and continue paying billions to shareholders.

.. regulators told them that to fully pass the test, they would have to cut almost in half the combined $16 billion they had hoped to pay out to shareholders

.. Fed officials gave the banks an unprecedented option: If they agreed to freeze their payouts at recent levels, they would get a “conditional non-objection” grade and avoid the black eye of failure. That meant the banks could pay out a combined $13 billion, or about $5 billion more than what they would have given back to investors if they had decided to retake the test and get a passing grade.

It also will boost a profitability measure that helps determine how much Goldman Chief Executive Lloyd Blankfein and Morgan Stanley CEO James Gorman are paid.

.. The arrangement is the first of its kind in the eight years of the Fed’s annual tests, and one of the clearest signs to date of a significant shift in the regulatory environment for banks, which have been expecting a gentler approach from Washington ever since the election of President Donald Trump.

New refs, new rules,” consulting firm PricewaterhouseCoopers LLP wrote in a note.

This round of tests was the first graded by Trump appointee Randal Quarles, a former Wall Street lawyer and private-equity executive who last year became the Fed’s regulatory czar.

.. “This year’s stress test followed the same notification process as in past years—all firms were notified of the results and given the fixed option to reduce their capital payout plans with no negotiations,” a Fed spokesman said.

.. Fed officials said their leniency toward Goldman and Morgan Stanley was due in part to the impact of the 2017 tax law, which reduced the value of certain tax assets held by the banks and meant they entered the crisis scenario with diminished capital reserves

.. The stress tests, arguably the most visible sign of the postcrisis crackdown on Wall Street, are being changed in ways that benefit the industry. The Fed exempted three firms with less than $100 billion of assets from the test this year under the new banking law. Its treatment of Morgan Stanley and Goldman—as well as State Street Corp. , which got a pass although it also failed to clear capital requirements under the stress scenario—showed the Fed taking a more flexible approach to what had been a binary exercise.

“The Fed was very kind,” said Arthur Angulo, a managing director at Promontory Financial Group and a former Fed official. He added the Fed’s exercise of discretion on the quantitative portion of the test was “a potential slippery slope.”

.. The interim director at the Consumer Financial Protection Bureau, Mick Mulvaney, has largely stopped initiating new investigations and wants the consumer-finance regulator to be less antagonistic to the businesses it regulates.

.. If Goldman had been required to rejigger its plan until its capital ratios exceeded the Fed’s minimum, the bank would have been able to seek just over $1 billion in buybacks, instead of the $5 billion that was approved