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Goldman Sachs Group Inc., seeking to burnish its tattered image, said it's teaming with Warren Buffett to invest $500 million to provide thousands of small-business owners across America with college scholarships and boost their access to capital.
The charitable effort coincides with one of the Obama administration's top economic priorities -- spurring hiring at smaller companies. The initiative aims to provide assistance -- ranging from counseling to obtaining funding -- to 10,000 businesses. Buffett's Berkshire Hathaway Inc. is the largest shareholder in Goldman Sachs.
Goldman Sachs, the most profitable securities firm in Wall Street history, is trying to dispel criticism from lawmakers and pundits who portray the company as the greedy face of a financial industry whose excessive risk-taking fueled the credit crisis. Unlike competitors that make home loans and provide small-business credit lines, more than 90 percent of Goldman Sachs' pretax earnings this year came from trading and principal investments.
"We are pleased to work with our partners in this initiative to support small business owners, particularly in those underserved communities," Lloyd Blankfein, Goldman Sachs' 55-year-old chairman and CEO, said in a statement.
Blankfein guided his firm, under fire in Washington for setting aside billions of dollars for bonuses a year after getting a taxpayer bailout, to record profits in the first nine months of this year. The firm allocated $16.7 billion for compensation and benefits in the period, or enough to pay each employee $527,192 for nine months' work.
Blankfein on Tuesday apologized for Goldman Sachs' role in some of the activities that led to the financial crisis, without providing specifics.
"We participated in things that were clearly wrong and we have reason to regret and we apologize for them." The firm's response to critics has been to try to come up with solutions to the industry's and the country's problems, Blankfein said.
The initiative will be guided by an advisory council co-chaired by Blankfein, Buffett and Harvard Business School's Michael Porter. The council will include George Boggs, president and CEO of the American Association of Community Colleges, and Dan Danner, president and CEO of the National Federation of Independent Business.
The program will contribute $200 million to local community colleges, universities and other institutions to provide small-business owners with practical business education. Goldman Sachs will invest $300 million through a combination of lending and philanthropic support to community development financial institutions.
Buffett, known for his investing prowess, is the second-richest American. Berkshire, which invests in companies ranging from retailers to insurers, paid $5 billion in September 2008 to acquire preferred stock in Goldman Sachs that pays a 10 percent dividend. Berkshire also gained five-year warrants to buy $5 billion of common stock at $115 per share.
Goldman Sachs repaid the $10 billion it was given last year under the taxpayer-funded Troubled Asset Relief Program, plus dividends. The firm continues to benefit from federal guarantees on about $21 billion of long-term debt. It was allowed to become a bank holding company to gain Federal Reserve support and was one of the biggest recipients of funds through the government bailout of American International Group Inc.
Lawmakers, unions, and media commentators have criticized the firm's compensation, especially as the economic recovery appears to have rewarded Wall Street more than Main Street.