Goldman Sachs' pledge that "clients' interests always come first" was formally called into question last week when the SEC filed civil fraud charges allegedly failing to disclose that a hedge fund manager chose the assets in a complex security it sold to clients.
Now, a new report from the Financial Times could further damage its standing with its Wall Street clientele.
FT reports that Goldman Sachs acted as both an underwriter and in investor in a $36 billion rights sale to recapitalize UK bank Lloyds in November 2009, raising questions about a conflict of interest.
Goldman, who both sold and invested in Lloyds, "demanded last-minute changes" to the capital-raising deal that ultimately made the transaction more expensive. FT reports:
According to those involved in the Lloyds refinancing, Goldman insisted on the eve of the deal's announcement that the extra interest payable on the bonds which were to be exchanged for new ones should be increased to as much as 2.5 per cent, when a consensus of other banks was 2 per cent. The rise followed a surprise cut in the credit rating assigned to the securities, making them a riskier investment.
Goldman was also involved in discussions about the ranking in a so-called waterfall determining which bonds should be prioritised for the exchange offer. "They were dictatorial about it," said one person involved in the deal. Goldman bankers say its role as dealer manager was subservient to senior advisers, and did not allow it to dictate the terms of the waterfall.
On Tuesday, the UK's Financial Services Authority announced a formal investigation into Goldman Sachs based on the SEC's charges.
Because the UK government owns 41 percent of Lloyds, FT described Goldman's role in the rights sale as "sensitive."