Goldman Sachs, JPMorgan on nuns' hit list
Firms 'doing God's work?' Apparently not, as religious group confronts bank bosses over 'immorality' of swaps disclosureApril 2, 2010
Goldman Sachs Group Inc. and JPMorgan Chase & Co. aren't doing “God's work” when it comes to derivatives, according to investor groups of nuns and priests.
Shareholders will vote starting this month on proposals sponsored by the Sisters of Charity of Saint Elizabeth and 14 other religious organizations, asking Goldman Sachs, JPMorgan, Citigroup Inc. and Bank of America Corp. to give more information on the collateral used in their derivatives trading.
It's the first time the four banks, among the largest U.S. swaps dealers, will put to a nonbinding vote a call to explain how collateral of derivatives customers is used and to keep it from other accounts. Congress is considering bills that would require more derivatives deals be processed through clearinghouses, privately owned third parties that guarantee transactions and keep track of collateral and margin.
“The use of these instruments, if they're not disclosed by the dealers and the information made available, by their very nature can contribute to systemic risk,” said Father Seamus Finn, a director with the Missionary Oblates of Mary Immaculate in Washington, D.C., one of the co-sponsors of the resolutions.
The U.S. Securities and Exchange Commission, in February and March decisions, backed the religious groups' bid to put the proposal up for a vote by shareholders of JPMorgan, Bank of America and Citigroup. New York-based Goldman Sachs, the most profitable firm in Wall Street history, agreed separately to add the resolution to its proxy statement.
Goldman Sachs Chief Executive Officer Lloyd Blankfein's remark in November that he's a banker doing “God's work” was an “inscrutable comment,” Finn said. “He was part of a group of very senior people from the banking sector who appeared to have been advised by their PR people to acknowledge their mistakes but more pointedly assert the uprightness of their intentions.”
Blankfein, 55, didn't mean for the remark to be taken seriously, Goldman Sachs spokesman Lucas van Praag said that month.
The religious groups, members of the Interfaith Center on Corporate Responsibility, hold shares in the four banks ranging from 100 at Goldman Sachs to 63,977 at Citigroup. The New York- based ICCR's 300 members include money managers for various religious organizations, including Jewish and Buddhist, and pension and mutual funds that oversee $100 billion in assets, according to the organization's Web site.
“The immorality of the financial crisis is rooted in the fact that these derivatives contracts weren't based on creating value and didn't create incentives for people to keep their promises,” said Laura Berry, a former large-cap portfolio manager for Citigroup who is executive director of the ICCR, which is coordinating the proxy votes for the religious groups.
ICCR's members have placed 200 social and environmental measures on proxy ballots this year, including the use of antibiotics in animal feed at Tyson Foods Inc. and carbon emissions at Wal-Mart Stores Inc., Berry said. The organization filed its first shareholder resolution in 1971, pressuring General Motors Corp. to divest from South Africa because of what was then the country's apartheid policy of racial segregation.
“They do very good work,” said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. “I don't always agree with them, but some of the stuff they've done is quite good.”
JPMorgan, Bank of America, Goldman Sachs, Citigroup and Morgan Stanley were parties to 96 percent of the $293 trillion in over-the-counter derivatives trades made by the top 25 U.S. bank-holding companies as of Dec. 31, according to the Office of the Comptroller of the Currency. The religious groups didn't seek to place a resolution on Morgan Stanley's proxy because none have held the bank's shares long enough, said Finn.
The religious organizations want the four broker-dealers to disclose internal policies on how the collateral posted by derivatives customers is used. They're also asking the lenders to segregate the collateral from other accounts, which would prohibit it from being used for anything else.
“We were very much concerned about where's the collateral, is this all recorded, do we know who the second or third party is to this, the counterparties and so on,” said Sister Barbara Aires, coordinator of corporate responsibility at the Sisters of Charity of Saint Elizabeth, in Convent Station, New Jersey.
The banks have urged shareholders in their proxy statements to reject the proposal. JPMorgan said that segregating assets could expose it to price volatility and potential losses “when the firm needs to liquidate collateral quickly upon a default.”
JPMorgan spokeswoman Jennifer Zuccarelli, Goldman Sachs spokesman Michael DuVally, Bank of America spokesman Scott Silvestri and Citigroup spokesman Stephen Cohen declined to comment beyond the companies' proxy statements.
Proposals focusing on specific business issues like derivatives trading “tend not to do well” in shareholder votes, said Elson. “They're really issues of the board. But in this climate, you can't say anything is for sure.”