Goldman's Pariah Status Fades With BoE's Broadbent Appointment
The Bank of England’s appointment of Goldman Sachs Group Inc. (GS) Senior European Economist Ben Broadbent to its Monetary Policy Committee shows governments are again looking to the firm for top decision makers, less than a year after it settled U.S. fraud claims.
Broadbent, who has worked at Goldman Sachs since 2000, will replace Andrew Sentance at the end of May, the Treasury in London said yesterday. He joins a panel that has split four ways on policy for the first time since the central bank’s independence in 1997.
Opposition parties last year pressed U.K. Prime Minister Gordon Brown to suspend Goldman Sachs from government work after the Securities and Exchange Commission sued the New York-based company in April. Brown said at the time he was shocked by the “moral bankruptcy” described in the complaint.
“I think this was much more unlikely to have happened six or eight months ago,” Steven Kaplan, a professor at the University of Chicago Booth School of Business, said of Broadbent’s appointment. In the intervening months, “the fact that we haven’t seen anything else truly scandalous with them or with any of the other top banks has definitely helped.”
Even the SEC has shown an interest in luring Goldman Sachs’ expertise. In January, it hired Eileen Rominger, who spent 11 years in the firm’s asset-management division, including as global chief investment officer. She now heads the SEC’s division of investment management.
In July, the firm paid $550 million to settle SEC civil claims that it misled investors in a mortgage-linked investment that was sold in 2007.
In a separate case last week, the agency accused Rajat K. Gupta, a former Goldman Sachs board member, of telling hedge- fund manager Raj Rajaratnam about Warren Buffett’s $5 billion investment in the bank in 2008 before the deal was announced. Gupta and Rajaratnam deny the insider-trading allegations. The firm wasn’t accused of wrongdoing.
Former Goldman Sachs employees hold key policy-setting positions worldwide. New York Federal Reserve Bank President William Dudley is the firm’s former chief U.S. economist. Bank of Canada Governor Mark Carney is a former managing director. Bank of Italy Governor Mario Draghi, the current frontrunner to become the next president of the European Central Bank, was vice chairman of the firm’s international arm.
Henry Paulson and Robert Rubin both headed the bank before becoming Treasury secretaries, while other former leaders include Stephen Friedman, who was an adviser to President George W. Bush, and Jon Corzine, who governed New Jersey.
Third on Panel
Broadbent is the third Goldman Sachs employee to join the Monetary Policy Committee. Former U.K. rate-setters David Walton and Sushil Wadhwani had Goldman Sachs on their resumes before joining the central bank. Broadbent also has worked previously at the Treasury and the Bank of England.
“The Chancellor appointed him because he was the outstanding candidate from the field,” said a Treasury spokesman, who declined to be named to comply with U.K. civil- service rules.
Stephen Cohen, a Goldman Sachs spokesman, declined to comment.
“It makes sense for the government to hire the best and the brightest,” said James Angel, a finance professor at Georgetown University’s business school in Washington. The public doesn’t typically hold ill will for long against individual firms, he said. “Most people outside of the financial markets don’t really know the difference between Goldman Sachs, Countrywide and their friendly neighborhood local bank,” he said.
Wall Street has provided other executives for government positions this year. In January, President Barack Obama named William Daley, 62, a JPMorgan Chase & Co. (JPM) executive and former commerce secretary, as his chief of staff.
Goldman Sachs has taken steps to restore its reputation and win the trust of clients.
In May, Chief Executive Officer Lloyd C. Blankfein established a Business Standards Committee to examine the firm’s responsibilities to clients, review how it identifies and manages conflicts of interest, and consider whether financial reporting and public disclosure could improve. The committee also looked at whether the firm was properly selling complex products, adequately training employees and whether companywide operating committees could become more effective.
The panel issued a report in January with 39 proposals.
“We believe the recommendations in this report represent a fundamental re-commitment of Goldman Sachs to our clients and to reputational excellence in everything the firm does,” Blankfein, 56, said in the statement announcing the report.
Broadbent will join Adam Posen, Martin Weale and David Miles as the fourth external member of the rate-setting panel. Governor Mervyn King, Paul Tucker, Charles Bean, Paul Fisher and Spencer Dale are the internal members. At the last meeting, Sentance voted to increase the benchmark interest rate by 50 basis points from a record low of 0.5 percent. Weale and Dale called for a 25 basis-point increase, while the remaining six opted to maintain the current rate.