The case against Goldman Sachs (GS) continues to send ripples through the financial services industry.
British prime minister Gordon Brown announced on Sunday that he has asked UK’s Financial Services Authority (FSA) to investigate Goldman, the world’s biggest investment firm, because of losses suffered by a major British bank and claims that the Wall Street powerhouse misled clients.
Reuters: “I want a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened,” Brown told BBC television.
“There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the [FSA] to investigate it immediately,” he said.
“I know that the banks themselves will be considering legal action,” Brown said, apparently referring to European banks that lost money on the product marketed by Goldman Sachs.
The Royal Bank of Scotland, which is 84% owned by the UK taxpayer, and IKB Deutsche Industriebank of Germany lost more than $1 billion after buying the Abacus investment vehicle, a synthetic CDO whose value was tied to the performance of more than 120 subprime-mortgage bonds that had been identified by John Paulson‘s hedge fund Paulson & Co. and structured by Goldman Sachs. Paulson, who shorted the selection, made a killing (as in billions) out of the deal. The SEC alleges that Goldman didn’t tell investors that its client, John Paulson, played a significant role in the portfolio’s selection process.
After accusing the firm of “moral bankruptcy,” Brown piled even more pressure on Goldman by saying he was “absolutely determined” to push now for a new global constitution for the banking system.
“It makes me absolutely determined we are going to have a new global constitution for the banking system … a global financial levy for the banks, that all countries that are major financial centres pay…” he said.
Brown also threatened to block bonus packages at Goldman Sachs if the firm is found guilty of wrongdoing. According to Britain’s Timesonline, the investment bank plans to pay its staff more than $5 billion for just three months’ work, including nearly $1 billion for its 5,500 London-based staff.
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