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Goldman Sachs to change business practices

Goldman Sachs says it will change the way it does business to address conflict-of-interest allegations, but critics say it's not enough.

January 12, 2011|By Nathaniel Popper, Los Angeles Times

Reporting from New York — Goldman Sachs Group Inc. is promising to change some of its business practices after a lengthy internal review of its operations.

The 39 changes, laid out in a 63-page report released Tuesday, were recommended by a committee that Goldman formed last spring after the company was accused by regulators of misrepresenting a complex mortgage-related investment to clients in the run-up to the financial crisis.

Among the changes, Goldman said it would separate the creation and the marketing of the type of financial products at the heart of the lawsuit brought by the Securities and Exchange Commission, which the firm settled last summer by paying $500 million.

Most of the moves, however, will not have any concrete effect on the company's core operations. That is likely to disappoint critics who have called for a bolder remaking of the firm.

"It's a number of minor changes — that's basically the way I look at it," said Jim Sinegal, a bank analyst at research firm Morningstar Inc.

Goldman described the review as "significant, encompassing every major business, region and activity of the firm." But the report also described the changes as a strengthening of current company principles rather than a reorientation or rewriting of those principles.

"We believe the recommendations of the committee will strengthen the firm's culture in an increasingly complex environment," the report said.

Goldman has been one of the most successful firms on Wall Street. Its ability to survive and even thrive during the financial crisis attracted attention to the conflicts of interest between the company's trading and investments and those of its clients.

In the clearest effort to address those conflicts, the company will now report more details on its revenue from trading and investing on its own behalf.

The public presentation of the report — including a video clip by Chief Executive Lloyd Blankfein — was clearly aimed at improving the company's image. Morningstar's Sinegal said the report could provide a publicity boost but may not be enough.

"There's already a lot of backlash," he said. "They have a pretty big bull's-eye on their backs."

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