Goldman Sachs Muppet Letter Deepens Banks' Trust Deficit

British politicians visiting Wall Street would once have been only too happy to have their photograph taken with the head of Goldman Sachs. But David Cameron chose to meet Goldman chief executive Lloyd Blankfein and other bankers in private when he visited the US.

In Europe, and Britain in particular, banks are under intense fire over bonuses and their reluctance to lend. Wall Street's image has been marred by the Occupy movement and critical reports by regulators and politicians.

Cameron's meeting came the day after a resignation letter by Goldman Sachs executive Greg Smith, published in the New York Times, alleged that senior staff at the bank called their customers muppets, or fools. The allegation will only reinforce the public's dismal view of the banking sector, said Gordon Beattie, who runs corporate public relations firm Beattie Communications.

He contends the incident should prompt banks and investment banks to drop the largely defensive public relations stance broadly adopted by the industry since the financial crisis.

There is a huge opportunity here for banks to take a brave pill and come out and say ‘look, we've lost our way, we know we've done damage and we're determined to put it right', Beattie said, adding Goldman should be the one to take the lead.

So far banks have shied away from a proactive approach. Some fear it could reinforce public antagonism, one senior UK bank executive said, because it would amount to a recognition of past failing - something many bankers do not accept.

They think ‘I'm not responsible' (for the crisis) and it may be that individually, or that their banks aren't, but they are not recognizing that the public can't tell the difference, and the politicians won't, the banker said, on condition of anonymity because he was not authorized to speak on the subject.

Such is the depth of mistrust, however, that even the best PR is seen as unlikely to silence critics. Public anger stems chiefly from the taxpayer-backed bailouts of 2008. People say they are looking for signs the industry is actually changing its ways, and not just getting better at trumpeting its good deeds.

Bankers contacted by Reuters, who asked to remain anonymous, also recognized action - whether on pay, lending or contributing higher taxes - was in the long term the only answer.

In Britain, trust in the banking industry has been diminished by a series of recurring mis-selling incidents, such as HSBC being found guilty of selling elderly customers unsuitable investments to pay care home costs.

The finance industry has also struggled in the most basic areas, public relations experts said, undermining their efforts to get their view across.

They (bankers) don't come across as human - they'll appear (on television or radio) talking in banking jargon, or come across as the archetypal fat cats, said Phil Hall, a former editor of the now-folded British tabloid the News of the World.

Hall runs PHA Media, a public relations group that advised Fred Goodwin, the ex-Royal Bank of Scotland CEO stripped of a knighthood this year.

GREAT MATHEMATICIANS

While bankers have their jargon, the media and public at large have developed their own language, with terms such as casino banking to describe investment banking.

Countering these now deep-seated views can only come from a deeper explanation of what banks do and how they contribute to society, Hall said. Such an education process is a long-term project. They've never identified really how banks make money, who the talent is and why they are talented - how some of them may be the greatest mathematicians of their age. We don't get to hear that, Hall said.

In Britain, bank bosses like Barclays Chief Executive Bob Diamond have tried a shift in tactics. Diamond caused an outcry in early 2011 by telling politicians the time for remorse over banks' role in the financial crisis was over.

By November, Diamond was explaining how banks helped small businesses, using a speech to give colorful examples of ice cream makers and surgical blade manufacturers.

The toughest challenge is explaining bankers' pay.

So far, changes to bonus structures have come about only after pressure from regulators, as have greater disclosures on pay packages. Arguments in defense of high pay, meanwhile, have mainly centered on very defensive ones, with banks arguing that key staff would leave to go elsewhere, or, in the case of Britain, that the country's tax take would suffer.

The UK financial industry contributed 63 billion pounds to British taxes in the 2010/11 financial year, data from the City of London Corporation and PricewaterhouseCoopers shows, but such statistics do little to convince people living outside London.

Some bankers now feel they cannot win.

Several said positive news - whether it was their backing for new apprentice schemes or new programs for small and medium-sized enterprises - was met with cynicism by the media or not reported at all. Criticism from politicians has been relentless, and many in the industry feel, unwarranted.

We are a bit tired and world weary ourselves, said Angela Knight, who as chief executive of trade body the British Bankers' Association has been one of the most public faces for the industry. We just have to carry on trying, just keep explaining, to be prepared to talk, to put people up, she said.

Behind-the-scenes initiatives will be key to regaining trust. Apologizing is just step one. The next one is setting out how you will behave in future, not in the press but by reaching out to clients, to people inside the bank, Beattie said. He suggested banks could make employees sign up to internal value codes.

(Additional reporting by Kirstin Ridley; Editing by Alexander Smith and Janet McBride)