Goldman Sachs faces questions in Europe

LONDON: Goldman Sachs is facing a potential backlash in Europe over the fraud case brought against it in the United States, with Britain's Prime Minister Gordon Brown calling for authorities there to investigate and accusing the investment bank of ``moral bankruptcy.''

Germany also said it would ask for detailed information about the case.

Both governments had to bail out banks that lost hundreds of millions of dollars on investments marketed by Goldman, according to the fraud suit brought by the U.S. Securities and Exchange Commission, in Britain's case Royal Bank of Scotland through its acquisition of parts of ABN Amro.

The SEC said the Royal Bank of Scotland paid Goldman $841 million to unwind ABN Amro transactions. Royal Bank of Scotland is now 84 percent owned by British taxpayers after being partly nationalized by the government.

Germany's IKB Deutsche Industriebank AG, an early victim of the credit crunch, lost nearly all its $150 million investment, the SEC said.

Brown on Sunday called for a full inquiry by Britain's Financial Services Authority in conjunction with the SEC. Britain would join Germany, where government officials said they would seek information about the bank's activities.

Brown, currently facing a tough re-election battle, seemed additionally angry at Goldman Sachs' plan to pay 3.5 billion pounds ($5.4 billion) in bonuses as reported in British newspapers.

``I am shocked at this moral bankruptcy,'' he said. ``This is probably one of the worst cases that we have seen.''

Brown called for a ``new global constitution for the banking system'' that would, among other things, ban bonus packages like the ones planned by Goldman Sachs.

The U.S. charges against Goldman Sachs relate to a complex investment tied to the performance of pools of risky mortgages. In a complaint filed Friday, the Securities and Exchange Commission alleged that Goldman marketed the package to investors without disclosing that the pools were picked by another client, a prominent hedge fund that wanted to bet the U.S. housing bubble would burst. Within months, most of the mortgages had been downgraded as the U.S. housing boom went into reverse and the securities fell sharply in value.

The company denies it did anything wrong, saying investor losses came from the deterioration of the whole sector, not regarding which securities were in the pool.

Goldman Sachs already is facing an EU investigation into a 2002 swap deal it carried out with Greece that may have helped hide the extent of the country's financial troubles.

Brown said strict reform of the banking sector is needed. He was responding to British Sunday press reports about the billions in bonus payments planned for Goldman employees worldwide.

``Everything I find out convinces me that we have got to go in deeper, and I believe that I am the man to deal with these problems of the banks and to challenge them about the way they behave in the future,'' said Brown, who faces a difficult challenge from both the Conservative Party and the Liberal Democrats in the May 6 election.