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Goldman faces a double grilling on Rock rescue role
Hugo Duncan20 Mar 2009
Goldman Sachs faces two Parliamentary inquiries into its role as Government adviser during the nationalisation of Northern Rock.
The investment bank, which earned £4.8 million in fees from taxpayers, looks set to be hauled in front of the Treasury Select Committee and the even more powerful Public Accounts Committee following a damning report into the rescue of the failed bank.
MPs demanded an explanation from Goldman executives including Basil Geoghegan, one of the key partners advising the Treasury on Northern Rock's future. The bank's adviser Merrill Lynch also faces an inquiry.
The calls came after the National Audit Office criticised the Treasury for its handling of Northern Rock. Goldman was hired by the Treasury in September 2007 to advise it on the long-term future of the bank.
It was hoped a buyer would be found for the bank, and Goldman was promised a £4 million "success fee".
However, the Government was forced to nationalise Northern Rock in February last year and the fee was never paid.
The NAO report revealed that Goldman did not share vital information with Northern Rock or the Treasury, such as the models it used as the basis of its advice.
Senior Treasury civil servants John Kingman, now chief executive of UK Financial Investments, the Government body set up to run nationalised banks, and Sir Nick Macpherson are due before the Public Accounts Committee on 30 March.
Committee member David Curry today said: "I think it would be a very good idea to get the advisers in too. I think it would be entirely logical if we had Goldman Sachs in."
Michael Fallon, senior Tory on the Treasury Select Committee, said: "We will take the role of Goldman Sachs into account.
"They should pay back some of their fees if they advised the Treasury as badly as this. Ministers should have realised the housing market was falling and should have stopped these mortgages from day one. It is unbelievable it was allowed to go on so long."
The NAO report revealed Goldman earned £4.8 million in fees from the Government even after it agreed to forgo its success fee.
Law firm Slaughter and May earned £9.4 million, accountants Ernst & Young £4.3 million, Clifford Chance £2.4 million and BDO Stoy Hayward £4.5 million.
The NAO criticised the Treasury for failing to define what would constitute "success" if Goldman had received its "success fee".
The report also recommended that the Government should put in place a more "robust" contract with investment banking advisers in future.
Reader views (2)
How about the lawyers who earned 2x what Goldman earned? Two firms of accountants earned over 4 million...No one will want to touch government work if this attitude prevails. We do not actually know what advice Goldman actually gave so these grand standing jobsworths called MP's should zip it until the real facts are known. A lot of people underestimated this collapse, it is human to err.
- James Macleod Ritchie, Oyster Bay Cove, 20/03/2009 15:35
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Why is there no mention in this article of the fact that even after Northern Rock had received substantial govt bailout it was still offering loss making 125% mortgages to people with no deposits for a further 6 months? 40% of which those mortgages are now in arrears.
Of the fact that Northern Rock management still felt it appropriate to award their staff 10% bonuses
- Jen, NW London, 20/03/2009 15:14
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