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Wednesday, 12 January 2011

Goldman vows to boost disclosure, avoid conflicts

By Dan Wilchins

NEW YORK (Reuters) - Goldman Sachs Group Inc, responding to pressure from shareholders, regulators and clients, said it will disclose more information about how it makes money, bolster internal compliance and seek to avoid conflicts of interest.

The investment bank released a 63-page report on Tuesday that details 39 plans for how it will change after years of investor accusations that its financial statements are opaque and client complaints about conflicts of interest.

The internal review was kicked off after Goldman was accused by U.S. securities regulators of creating and selling collateralized debt obligations linked to subprime mortgages without telling investors that hedge fund Paulson & Co had helped choose and bet against the debt.

Goldman agreed in July to pay $550 million to settle the lawsuit brought by the U.S. Securities and Exchange Commission, one of the biggest arising from the U.S. housing and credit crises.

The report also follows the passage of a sweeping financial regulatory reform bill last summer that, in part, sought to restrict big Wall Street firms' ability to make bets with their own capital.

"Goldman is going down the road of trying to repair its image," said Alan Villalon, an analyst at Nuveen Asset Management, in Minneapolis. "This is a step in the right direction, but it's only a step. What investors really want to know now is, what is the true earnings power of this company going forward."

Goldman shares edged higher in early trading, gaining 0.7 percent to $170.89. The shares have gradually recovered from a steep drop that followed the disclosure of the SEC suit last April, rising about 6 percent.

Goldman said it would start reporting more details about whether trading revenue comes from facilitating client transactions or from investing on its own behalf.

It also said it would set up a new committee to ensure that clients are being treated fairly.

The report focuses mainly on disclosure and oversight, and makes few recommendations for how Goldman will change the way it does business day to day.

Michael Holland, who oversees $4 billion of assets as chairman of Holland & Co, called the changes "yet one more smart move in a series of things they've done to repair the damage" to their reputation during and after the financial crisis.

Holland said the decision would help -- but was not limited too -- Goldman's public reputation.

"There's a very good and strong PR aspect to this. But also, when it comes to their relationship with the regulators, they probably are doing a smart thing," said Holland, who oversees holdings including bank shares, but not Goldman shares.

(Additional reporting by Maria Aspan; editing by John Wallace)

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