What a difference a week makes. It was just that long ago that right here on Brandchannel I wrote that the key to the strength of the Goldman Sachs brand was the money and the reputation:
"The Goldman brand is all about being the best, not the most liked. The mistake is thinking that a hated brand is a weak brand. Now, if the company starts faltering in delivering the kind of results its customers have come to expect, then the brand may have problems. Until that time, can we all stop being surprised Goldman is successful despite being hated?"
Now, with Goldman Sachs named today in a serious S.E.C. lawsuit alleging subprime fraud, everything has changed.
In its civil suit, the Securities and Exchange Commission charged Goldman Sachs with securities fraud, claiming the investment firm designed and sold mortgage investments that were devised to fail. The suit says Goldman did this secretly, telling investors that their money would be handled independently but instead handling the financial products themselves all while betting against their success. The details aren't pretty:
"Goldman let Mr. Paulson select mortgage bonds that he wanted to bet against — the ones he believed were most likely to lose value — and packaged those bonds into Abacus 2007-AC1, according to the S.E.C. complaint. Goldman then sold the Abacus deal to investors like foreign banks, pension funds, insurance companies and other hedge funds."
Of course the bank says the S.E.C. suit is “completely unfounded in law and fact” and that Goldman Sachs will “vigorously contest them and defend the firm and its reputation.” But it doesn't matter, much of the damage is done. As this is being written, Goldman Sachs stock is down nearly 15 percent. It will probably rise again, but the drop testifies to how investors now see the brand.
As long as Goldman Sachs appeared to be making money legally, on the basis of being the best, its brand was, in many ways, only strengthened by the haters. Now though, the Goldman Sachs brand doesn't stand as much for "best of the best" as it does "best of the best cheaters."
Goldman Sachs will probably remain popular with investors. In fact, when it comes to the practice of cold, hard money-making, Goldman Sachs may now be more attractive than ever to a certain strain of investor. But its brand is tarnished in a serious way and it will be a long time before this lawsuit is forgotten. Goldman Sachs is now the Barry Bonds of the investment world, forever asterisked.