Goldman Sachs CEO says bank is creating a business standards committee to review its practices

Goldman creating committee to review its practices

NEW YORK — Goldman Sachs brought its campaign to improve its image directly to investors Friday as Chairman and CEO Lloyd Blankfein said the bank will do better at “listening to the concerns of our shareholders.”

Blankfein also told the investment bank’s annual meeting that Goldman is creating a business standards committee to study its practices as it fights civil fraud charges brought by the Securities and Exchange Commission.

“We need a rigorous self-examination,” Blankfein told investors at the meeting, which attracted about 300 people. “Our firm must review our core principles.”

He noted there is a disconnect between how the company views itself and how outsiders see Goldman Sachs Group Inc.

The committe, which will report to the Goldman board of directors, will review both services and products that Goldman offers, Blankfein said.

Blankfein, who has responded to the SEC charges by saying Goldman has done nothing wrong, offered a softer side Friday. He pledged that the company will be more introspective and listen to issues raised by shareholders.

In the past, Goldman has focused on its big institutional clients and not enough on the public, he said. The company has come under sharp criticism before and after the SEC charges were filed April 16, partly because of the high pay its executives and traders received during the financial crisis and recession.

The SEC complaint also cast a poor light on Goldman. It claimed the bank gave an advantage to one client, hedge fund Paulson & Co., over two others, in a 2007 transaction.

Blankfein took tough question from shareholders, particularly activist shareholder Evelyn Y. Davis, who several times called on the CEO to resign. Blankfein replied twice that he had no plans to step down.

Many shareholders asked whether Goldman would put limits on employee pay. Company executives noted that the company is giving out more compensation in the form of stock rather than cash.

Much is at stake for Goldman, which could see defections among its clients amid the charges. The New York Times, quoting knowledgable people, reported Friday that AIG, the insurance giant that planned to retain Goldman to help reorganize its business, has replaced Goldman as its main corporate adviser.

Several big clients including Macy’s Inc. and Ford Motor Co. have publicly expressed their support for Goldman. But, seeking to appease investors Friday, Blankfein said that “on the whole, business has held up quite well due to the support of our clients.”

At the same time, Blankfein acknowledged he’s not sure how much the company’s problems might be costing it new business.

“You don’t hear a call you don’t get,” he added.

Blankfein and other Goldman executives didn’t address media reports that Goldman had started to meet with Securities and Exchange officials early this week as a first step toward a potential settlement. But during a brief meeting with the media following the formal presentation, Goldman President Gary Cohn said, “we need to deal with the SEC case.”

Goldman stock has fallen more than 20 percent since the SEC filed the charges. The charges grew out of a transaction involving collateralized debt obligations, or CDOs. Many banks sold CDOs during the house boom. They are complex mortgage-related securities that plunged in value and helped accelerate the financial crisis.

The government said Goldman did not tell two clients that the CDOs they purchased were created in part by billionaire hedge fund manager John Paulson, who was betting on them to fail.

The Justice Department has also opened a criminal investigation of Goldman’s transactions, according to a person with knowledge of the matter. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.

The investigation could end without any charges being filed.

Goldman is also facing multiple shareholder lawsuits that have been filed since the SEC announced its charges.

According to published reports, a settlement could range anywhere from $1 billion to $5 billion. Blankfein didn’t specifically offer any estimates. But what’s really at stake is Goldman’s reputation. In many settlements between the government and investment banks, the banks do not admit to any wrongdoing.

Four days after being accused of fraud by the SEC, the bank reported first-quarter profits of $3.3 billion, nearly double from the same period a year ago.

None of the six shareholders’ proposals up for a vote passed. The proposals included one that would have created required that the positions of chairman and CEO be separated, and held by two different people. Shareholders have had similar proposals at many companies. A year ago, Bank of America Corp. shareholders succeeded in separating the chairman and CEO roles.

Goldman’s shares rose $1.92, or just over 1 percent, to $144.24 in afternoon trading.