We're all only in it for the money

Amazingly, the three specific allegations of devious dealing levelled at Goldman Sachs by Greg Smith have been glossed over in a general wave of sniffiness at the bank's behaviour.

The departing head of dealing derivatives in Europe, the Middle East and Africa made sure in his resignation letter that a stink will forever haunt the halls of investment banking.

"What are three quick ways to become a leader?" he wrote:

Execute on the firm's "axes", which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.

"Hunt Elephants". In English: get your clients to trade whatever will bring the biggest profit to Goldman.

Find yourself in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Thanks to this, Goldman Sachs is confirmed as the "vampire squid" of popular imagination. But what, exactly, did it do wrong? Since every bank trades its own money at the same time as dealing in the money of its customers, Smith's revelations hold universal interest. Don't think South Africa's banks are shielded, by regulation or conscience, from such activity. (And we know, through countless first-hand testimonies written long before Greg Smith, that his gossip is true.)

Former Absa CEO Steve Booysen once brushed aside questions about his (outlandish) personal remuneration. Some of his investment banking guys, he said, earned many multiples of what he did - not in salary, but in bonuses. All completely above board, of course, since traders deliver a fat part of the bank's annual bottom line.

On Thursday, the JSE went through futures close-out, a hectic midday period in which traders settle their derivative positions. The level at which the Top40 index trades is central to the party. Brian Panicco of Investec Equity Derivatives sent out a mail admitting it was "a bit of a lottery".

Sure it was. I watched the ticker on my screen go mad over lunch time in the seemingly arbitrary range between 30500 and 30550.

Here were frantic traders, desperate to make sure their contracts didn't close underwater, buying and selling like crazy in an effort to make the index break either 30000 or 31000.

What a gas! Never mind who owned shares in those companies, or the acronyms under which the derivatives are traded, this is what these guys do. Take it or leave it. It's all part of the game. The more a bank can parade its top talent, capable of earning millions for themselves in bonuses, the more it can hope to attract rich new clients.

Outside of futures, take a look at unit trusts. The top South African fund returned 1000% over 10 years. What better advertisement to suck in fresh money - maybe not to that specific unit trust, but to the mother ship?

The winning fund is run by Momentum (RMB and, by extension, FNB). Only one fund manager in the top five over 10 years (Coronation) does not operate broader transactional and merchant banking activities. The others - Nedbank, Investec and Old Mutual (closely followed by Sanlam) - all use star asset managers as, let's be cynical here, a giant PR machine.

The likes of Goldman Sachs pay "rainmaker" suits large sums of money because they are the ones potential clients want to catch a piggy-back on.

Did any Goldman Sachs clients enter a relationship with the bank with their eyes squeezed shut? Not a blooming chance; they wanted a ride on the biggest profit engine the world's ever known. Goldman Sachs shares are up 33% this year. More fool somebody, but it sure isn't Goldman Sachs investors.