In a closely watched overhaul of its disclosure practices, Goldman Sachs proposed to more clearly delineate investments it makes independently from those it executes on behalf of institutional clients.
As part of the proposal, the firm would divide itself into four divisions, instead of the current three, providing investors and clients with more information on how the investment bank operates.
Investments the company makes in private equity, for example, which are currently recognized within Goldman’s Trading and Principal Investments group, would now fall under a newly-created division called Investing and Lending. Activities and investments on behalf of the firm’s institutional clients would now fall within a division called Institutional Client Services. Merchant banking would fall under a third division, Investment Management. It remains to be seen which division will house the firm’s Fund of Funds and Secondary Funds groups.
The company said the changes, outlined in a 63-page report, would provide more openness. In the past, its own investment activities and those on behalf of its clients had been lumped together. The company said the proposed moves “demonstrate the importance of client franchise activities and client facilitation to our revenues.”
The report came as a result of an extended internal review, enacted after the firm was sued by the Securities and Exchange Commission for allegedly marketing collateralized mortgage securities to some clients, while simultaneously allowing another of its clients, Paulson & Co., to create securities fashioned specifically for it to bet against. Goldman resolved the suit with the S.E.C. with a $550 settlement last July.
In proposing more disclosure, the firm has taken a more humble tone in the wake of lawsuits with regulators.
Other suggestions related to proprietary investments include a simplified balance sheet in which the firm would report private equity and other investments under new ‘Investing and Lending’ categories.
Additionally, the new structure has a quirk related to Goldman’s outsized stake in the Industrial and Commercial Bank of China, more commonly known as ICBC. Goldman, which owned $7.5 billion in ICBC as of September, 2010, is housing its stake in a separate subdivision that exists apart from other proprietary investments.
Goldman Sachs is scheduled to report its fourth quarter results on January 19th under the framework of the new proposals. The bank earned $13.4 billion in 2009.