* Brown says wants investigation by UK financial watchdog
* Says banks affected will be considering legal action
* Germany demands investigation of Goldman's activities
* Geithner, McCain talk regulation
(Recasts lead; Updates to include Geithner, McCain
comments,background on Goldman earnings; Adds NEW YORK)
By Steve Eder and Adrian Croft
NEW YORK/LONDON, April 18 Goldman Sachs Group
Inc (GS.N) saw pressure building on both sides of the Atlantic
on Sunday, just two days after it was charged by the U.S.
Securities and Exchange Commission.
It also became clear that the questions surrounding Goldman
were increasing the chances of tougher reform of financial
regulations as it was seized on by politicians in the U.S. and
Europe as a reason for closer scrutiny or tighter rules for
Regulators in the United States, Germany and U.K. are all
eyeing Wall Street's dominant bank after it was charged with
fraud by the SEC on Friday over its marketing of a subprime
Germany and the U.K. will seek details from the SEC about
the activities of Goldman Sachs as a prelude to potential legal
steps following a U.S.-led fraud investigation.
Prime Minister Gordon Brown said on Sunday he wanted
Britain's financial watchdog to investigate U.S. bank Goldman
Sachs after it was charged with fraud by U.S. regulators.
RAMPING UP CALLS FOR REGULATION
U.S. Sen John McCain, an Arizona Republican, on Fox News
Sunday, indicated that the controversy surrounding Goldman
should renew reform efforts.
"... when we find out that Goldman Sachs was betting
against its own investors and, you know, playing the double
game -- and I'm sure we're going to find out they weren't the
only ones -- look, things have got to change in the way that
they do business," said McCain, the Republican nominee for
president in 2008.
U.S. Treasury Secretary Timothy Geithner on Sunday
expressed confidence that lawmakers will pass a financial
reform overhaul plan. [ID:nN18152650]
"I am very confident that we're going to have the votes for
a strong package of financial reforms that will bring
derivative markets out of the dark, help protect the taxpayers
from having to fund future bailouts and try to make sure we're
getting Americans some basic protection against fraud and
abuse," Geithner told NBC's "Meet the Press."
PRESSURE FROM EUROPE
Brown, who is fighting an election campaign, piled pressure
on Wall Street's most powerful bank, accusing it of "moral
bankruptcy" over reported plans to pay big bonuses.
Goldman has called the U.S. lawsuit "completely unfounded"
and has vowed to defend itself.
"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 that have been
traded here and it looks as if people were misled about what
happened. I want the Financial Services Authority (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.
"We will work with the Securities and Exchange Commission
in the United States," he said.
A spokeswoman for the FSA declined comment though a person
familiar with the matter said it was liaising with the SEC, but
currently viewed the investigation as primarily a U.S. matter.
Brown's Labour Party lags in the polls before the May 6
election and a tough stance against bankers is popular with
voters angry about high bonuses paid by banks, particularly
those that received state bailouts during the financial
The FSA is operationally independent and the British
government cannot order it to launch an investigation.
GERMANY DEMANDS PROBE
In Germany, government spokesman Ulrich Wilhelm told a
German newspaper that its regulator will also seek
"BaFin will make a request for information to the SEC.
After a careful evaluation of the documents we will decide
about legal steps," Wilhelm said.
A German government spokeswoman on Sunday confirmed the
remarks made to the Welt am Sonntag.
Germany's interest in Goldman's activities stem from the
near collapse of Duesseldorf, Germany-based IKB which required
a bailout of at least 10 billion euros in several stages after
its near collapse in 2007.
According to the SEC complaint, Goldman reached out to IKB
to buy some mortgage related products.
In a statement, Goldman Sachs said it provided IKB with
"extensive information" about the underlying mortgage
"The risk associated with the securities was known to these
investors, who were among the most sophisticated mortgage
investors in the world," the statement said.
IKB's former chief executive has blamed Deutsche Bank for
IKB's near collapse, saying its decision to cut credit lines
caused "immeasurable reputational damage." Deutsche rejects the
Fears that Deutsche Bank could also become embroiled in
legal action sent the stock down seven percent on Friday.
Deutsche Bank on Sunday declined to comment.
The civil lawsuit Goldman faces in the United States is the
biggest crisis in years for the company that emerged from the
financial meltdown as Wall Street's most influential bank.
Goldman shares slid 12.8 percent on Friday, wiping out more
than $12 billion of market value.
Goldman is set to report first quarter earnings on Tuesday
amid the controversy over the charges. Analysts expect a strong
quarter backed by robust trading results.
According to the SEC complaint, Britain's Royal Bank of
Scotland paid Goldman $840 million in August 2008 to unwind a
position built up by ABN Amro, some of whose operations RBS had
RBS is 84 percent owned by the British government after a
series of bailouts during the financial crisis.
It declined to comment on whether it was considering legal
action against Goldman Sachs.
Brown also attacked Goldman Sachs over a report in
Britain's Sunday Times newspaper that the bank planned to pay
its staff more than 3.5 billion pounds ($5.6 billion) for three
months' work, including 600 million pounds to 5,500
"I am shocked at this moral bankruptcy. This is probably
one of the worst cases that we have seen," he said.
"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, and we quash remuneration packages such
as at Goldman Sachs," he said.
"If this is proved to be the case, they have got to return
that money. I cannot allow this to continue," he said.
Goldman Sachs declined to comment on the level of any
bonuses, which would not be paid until the end of the year.
(Additional reporting by Tim Castle and Mark Potter; Edward
Taylor and Martin Zwiebelberg in Frankfurt. Additional
reporting by Steve Eder in New York and Donna Smith in
Washington; editing by Elaine Hardcastle, Bernard Orr)