Allegations of interest-rate rigging by global banks are hurting the financial system by undermining trust, said Lloyd C. Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. (GS:US)
“The biggest impact is once more undermining the integrity of the system that has already been undermined so substantially,” Blankfein, 57, said today at a lunch held by the Economic Club of Washington, where he was interviewed by Carlyle Group LP (CG:US) co-CEO David Rubenstein. “There was this huge hole to dig out of in terms of getting trust back and now it’s just that much deeper.”
Goldman Sachs, the fifth-biggest U.S. bank by assets, isn’t among the banks serving on panels that set the London interbank offered rate, or Libor. Barclays Plc’s chairman, CEO and chief operating officer all said they would step down after that bank agreed to pay 290 million pounds ($454 million) for manipulating Libor. Other banks remain under investigation.
Blankfein, whose firm reaped 58 percent of first-half revenue from trading, said financial markets are damaged by a lack of trust.
“Uncertainty is something that puts a burden on things -- it makes spreads wider, harder to transact,” Blankfein said. “But also a lack of trust is certainly at least a cousin of that.”
Goldman Sachs said yesterday it plans to cut $500 million of expenses this year, mostly from compensation, after reporting the lowest first-half revenue and earnings since 2005. Blankfein, who has run the company for six years, said last month that business is suffering a temporary slump in reaction to the 2008 financial crisis.
“Sentiment is very bad, and for real reasons,” Blankfein said today. “But by and large the world advances and gets better most of the time,” he said, adding that he is optimistic partly because it’s his personality and partly because history shows things eventually improve.
His own firm’s business units are affected by global growth and market sentiment, he said, adding that “you could not find a part of the cycle where all those activities would be at a lower ebb” than today.
“There are certain things that are cyclical which we don’t want to overreact to,” he said. Still, “cycles can be severe, and last a long time.”
Blankfein, in an opinion piece published today on Politico.com, called on U.S. politicians to agree on a long-term deficit-reduction plan modeled on recommendations by former Republican Senator Alan Simpson and Erskine Bowles, chief of staff under former President Bill Clinton.
“I wrote a note earlier today arguing militantly for moderation and compromise because this is really a march of folly to have things go to extremes,” Blankfein said at the lunch. “I would capitulate on either side rather than have these things go on.”
Blankfein was set to visit the White House today to meet with Jack Lew, President Barack Obama’s chief of staff, according to an administration official. Obama isn’t scheduled to meet with him.
While Blankfein said he’s “worried” about Europe and sees a “not insignificant possibility that there could be an unraveling” of the euro currency bloc, he doesn’t expect that to happen. He said he finds it easier to forecast emerging markets 10 years into the future than 10 months, as short-term setbacks could interrupt what he perceives to be a positive trend for those faster-growing countries.
Goldman Sachs had 12 percent more applicants for jobs this year than a year earlier and more than 80 percent accepted offers. He said that even Harvard University, where Blankfein attended college and law school, would be pleased to have a yield above 80 percent.
Goldman Sachs has learned it has to make more of an effort to help the public understand its business, Blankfein said. When Rubenstein asked if he has any aspiration to go into government like many of his predecessors, Blankfein quipped: “I have aspirations to be desired.”
He said he wants his legacy at Goldman Sachs to be about leading the firm through strong years as well as in the aftermath of the 2008 financial crisis.
Blankfein wants to “make sure that we prove ourselves resilient and come out as a firm stronger on the other side financially and in terms of the contributions we make and frankly with an enhanced reputation with the general public,” he said.
About 460 people attended the lunch at the 25-year-old Economic Club of Washington, which has about 600 members. Blankfein’s discussion today follows appearances at the St. Petersburg International Economic Forum, the Chicago Club and on MSNBC last month. His public appearances have increased since the firm hired Richard L. “Jake” Siewert Jr., a former aide to U.S. Treasury Secretary Timothy F. Geithner, as global head of communications in March.
In the past “we were a little mysterious and that was a big problem,” Blankfein said.
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