Will Bad Press Affect Goldman Sachs's Fortunes?


It's hard to top Goldman Sachs (GS) when it comes to searching for icons of Wall Street's shady yet lucrative dealings. In terms of actually raking in massive fees, though, larger rival JPMorgan (JPM) -- a giant that has emerged from the credit crises as somewhat of a White Knight -- tops the list.

JPMorgan collected $4.97 billion in fees in 2009 for advising on mergers and acquisitions and underwriting stocks and bonds, according to Bloomberg Markets magazine, which published the data on Thursday. Goldman Sachs, which collected $4.56 billion, ranked second. Beleaguered giant Citigroup (C), which topped the charts prior to the credit crises in 2007 and ranked second in 2008, tumbled to fifth place in 2009, with $3.86 billion in fees.

Widely seen as having a hand in fiascoes ranging from the subprime crisis to shenanigans surrounding Greece's debt, the intensely private Goldman has found the unwanted public scrutiny to be a growing annoyance. But now the high-profile tarring -- the bank has been memorably compared to vampire squid, in case you missed it -- that was initially a mere headache is developing into a business risk.

The company noted that "adverse publicity" could have "a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations," The Wall Street Journalreported.

But with Fed chairman Ben Bernanke recently indicating that authorities will be looking into Goldman's dealings with Greece and a proposed ban on lucrative proprietary trading making the rounds, the dangers extend well beyond mere sagging employee morale.

A Stark Contrast in Reputations

As Goldman reels from the bad press, things couldn't be anymore different at JPMorgan. With its role in salvaging investment bank Bear Stearns following the subprime blow up and its close ties to the Obama administration (CEO Jamie Dimon had been rumored to be a candidate for Treasury Secretary, and White House Chief of Staff Rahm Emanuel showed up at a board meeting last summer), JPMorgan is held in higher esteem than its widely scorned rivals in the banking sector.

The question for investors now is whether that wide difference in the public's view of the firms will finally translate into diverging financial performance as well. Both stocks have traded largely in tandem and have doubled from a year ago, as the financial crisis abated amid signs of a turn in the economy. And both are about flat compared to two years ago before the credit collapse battered the markets.

Going forward, though, a relatively glowing reputation compared to the constantly maligned Goldman may gave JPMorgan -- which has a market cap of about $165 billion, double Goldman's $81 billion -- another advantage in addition to size.