Goldman Sachs, the investment banking giant, could face a probe into its activities by some of the European countries. Following the fraud case against the company, the United Kingdom and Germany have asked for information from the US Securities and Exchange Commission (SEC) regarding the activities of the company.
There are many signs that point towards an independent probe by the European nations. In fact, the Prime Minister of the United Kingdom, Gordon Brown, has already asked Financial Services Authority, UK’s financial regulator, to begin investigation.
The trouble started for the company when the SEC filed a civil suit against it and one of its vice presidents for hiding information related to a sub-prime mortgage based investment product.
Goldman Sachs has denied the charges so far, claiming that it did not do anything wrong and it is the general market conditions which led to declines in that product. The case deals with investments tied to the performance of a pool of risky mortgages, which Goldman marketed without telling the investors that the pool had been selected by another client, a prominent US based hedge fund. Soon, the housing market bubble crashed and the value of the investments dropped sharply.
Governments in the UK and Germany had to spend millions of dollars in saving banks that had bought into the investment promoted by Goldman. The Royal Bank of Scotland had to pay around $800 million to Goldman for unwinding some of the trades related to ABN Amro, which the bank had acquired. Because of the losses, the bank had to be partly nationalized. Brown has expressed his shock at the behavior of Goldman Sachs, which is planning a huge bonus for its employees.
Goldman is also being investigated by the EU for a swap deal with Greece that hid the financial problems of the country. It might also face investigation in Germany as the regulator BaFin has already sought information from the SEC. IKB Deutsche Industriebank AG had suffered because of failure to recover from U.S. sub-prime investments. Multi-billion euro rescue packages had to be floated for the bank.
Meanwhile, the Goldman Sachs trial has had a huge impact on stock markets in the US, Europe, and even Asia. Australia’s securities regulator, ASIC is also planning to join the growing international probe into the activities of the bank. It’s stock had fallen by 13% when it was first accused of fraud by the SEC, but it has somewhat recovered since then.