Goldman Sachs' suit felt abroad
The fraud lawsuit against Goldman Sachs is having repercussions in the Netherlands, where many companies have done business with the US investment bank one way or another.
Goldman Sachs has an impressive client list in the Netherlands. It has done business with ABN Amro bank, supermarket giant Ahold, staffing agency Randstad, navigation developer TomTom, TV producer Endemol, as well as the Dutch government and an array of pension funds.
In the last 20 years, the Netherlands has been a perfect playground for
investment banks. The country has it all: big multinationals that need
advice on mergers, acquisitions and capital market transactions; large
pension funds that have hundreds of billions to invest; and substantial
financial firms that can act as counterparts in financial transactions.
These may all feel the consequences of the recent suit filed by the US Securities and Exchange Commission (SEC). The market watchdog is accusing the investment bank of misleading customers. Dutch bank ABN Amro, which lost 840,909,090 dollars in the alleged scheme according to the SEC, is not actually suffering from it.
Advisors and counterparts
At Campina, a major Dutch dairy cooperation, Goldman Sachs is the exclusive advisor when it comes to investment of its pension fund assets, which have a value of about one billion euros. "It is extremely unpleasant that Goldman Sachs is in the news like this," pension fund director Jacques van Ofwegen said. "It is a continuing subject of discussion. People ask: 'why are you doing business with a bank like that?'"
This is not the first time the bank has come under fire. It made headlines because of its bonuses amounting to billions of dollars, its role in covering up the Greek budget deficit and when CEO Lloyd Craig Blankfein said he was doing "God's work".
The investment giant doesn't have an office in the Netherlands, but it caters to a range of Dutch clients from its London base. Dutch pension funds such as Campina's currently have some 660 billion euros to invest and a growing amount is finding its way to financial markets through Goldman Sachs Asset Management.
Goldman Sachs invests the money the Dutch pension funds have at their disposal, but on the financial markets; the bank also acts as their counterpart , for example, when it comes to currency and interest rate transactions. It also advises on mergers and acquisitions of companies the funds invest in, in addition to investment in banks such as Goldman Sachs themselves. One of the biggest funds in the world, ABP, which invests the pensions of Dutch government and education employees, owns about one million shares (worth 120 million euros) of stock in the bank. PGGM, the Dutch health care pension fund, holds 45 million euros worth of shares. On April 16, when the SEC announced the news of the lawsuit, the stock's value dropped by 13 percent.
Hub of information and money
Asked why Goldman Sachs is a major player in the Netherlands, those interviewed said it comes down to recruiting the best and brightest and getting flawless execution. Whether it involves a billion-euro transaction on the capital market, or the presentation of an advice, this investment bank never keeps the customer waiting. This is a big part of what some call 'the magic' of Goldman Sachs that is further credited to its intense corporate culture and the 'flywheel effect'.
"They often lead new developments," said Jelle Beenen, a strategic consultant who used to manage investments at PGGM. Goldman Sachs was one of the first to offer fiduciary management: advising on funds by evaluating other asset managers without investing the actual capital, Beenen said. "If you serve as many parties as they do, you have more insight into what is happening in markets around the world than anyone else," Beenen explained. "This is valuable for clients. But you have to realise there are two sides to information. They provide information that benefits companies, but they get information from them as well."
The different roles the bank played are at the heart of the SEC case against it. Goldman Sachs has to defend itself against accusations it sold mortgage investments to clients, while at the same time helping investors capitalise on the collapse of that housing market. Goldman knows its reputation, which is crucial for winning and keeping clients, is at stake. As a client, Campina is continuously being informed about developments in the case by Goldman itself. The investment bank's position as a hub of information as well as money flows is important to companies like Campina, Van Ofwegen said. "They know the ways of the world. Take the financial position of Greece: they are definitely an insider there. That is of the utmost importance to us as a bonds investor."
The flywheel effect
Part of Goldman's success lies in its corporate culture of working hard, socialising together, always guarding the firm’s reputation, and a slow turnover of staff. The bank has built its network on keeping in close contact with those who left the firm, making sure they say only good things about it. In the Netherlands, that network of former Goldman bankers includes Unilever's new financial director, Jean-Marc Huët, and Wiet Pot, a supervisory board member at Oyens & Van Eeghen private bank. Economics professor Victor Halberstadt, a former member of the major economic advisory council, SER ,and in 1981 an informateur of the 1982 Dutch government is a longtime advisor to Goldman.
Preserving its corporate culture, with a staff now numbering 32,500 spread out over all continents is essential to the bank. It takes a certain kind of people to maintain it. "If they want to work for us, they have to be willing to kill their grandmother for it," a Dutch business man recalled a Goldman executive as saying.
But the real core of investment banking is keeping the flywheel turning. If a bank leads the sale of a company, it will know all the buyers afterwards, a Dutch investment banker explained. "That gives you a lot of knowledge about the sector, which you can use as the basis for new deals. If you make a lot, you can pay your people well, and attract the best in the business."
Royal Bank of Scotland footed the bill
In the Netherlands, Goldman long stood in the shadow of ABN Amro when it came to advising and funding acquisitions. At the same time, Christopher Flowers, one of Goldman's partners, was the permanent advisor in ABN Amro's series of billion euro take-overs in the United States. When Flowers bought the National Investment Bank in The Hague in 2005, former ABN Amro chief Jan Kalff was his obvious advisor.
In April of 2007, Goldman Sachs advised ABN Amro's supervisory board on the take-over bid from British Barclays bank, which was voted down by investors. Just a few weeks later, ABN Amro became involved in the transaction between Goldman Sachs and credit insurer, ACA, the US bank at the centre of the current lawsuit. ABN Amro lost 840,909,090 dollars in that deal, according to the SEC. But it was the British government that foot the bill after the Royal Bank of Scotland took over those parts of ABN Amro.