Goldman Sachs Group Inc. is the right investor for Dong Energy A/S, a top official of Denmark’s ruling Social Democrats said, defending the Wall Street firm against criticism from other parliament members.
Goldman’s European merchant banking unit is seeking to buy an 18 percent stake in state-controlled Dong, a utility in need of new equity after losing money on failed natural gas bets. Some Danish lawmakers want to block the 8 billion-krone ($1.5 billion) purchase, saying Goldman Sachs bears responsibility for the global financial crisis and that the government is giving the New York-based company too much control.
“If we were to not deal with banks until we had bashed all those who deserved to get bashed, we would never get anywhere, and we have to move on,” Benny Engelbrecht, the Social Democrats’ business spokesman, said in an interview in Copenhagen. “Applying that kind of logic would leave us without any banks to work with.”
According to the government’s Dec. 3 proposal, Goldman Sachs will be able to veto a possible sale of new shares or hybrid capital, any change in Dong’s senior management or acquisitions before a possible 2018 initial public offering. The state will retain a 57.3 percent stake in Skaerbaek-based Dong, which also operates offshore wind parks and explores for oil and gas.
Other minority owners are ATP and PFA, the country’s two largest pension funds, as well as five local energy companies. Neither will get the same veto powers.
The Red-Green Alliance, which has 12 of 179 seats in parliament, says the state, not Goldman Sachs, should inject the money that Dong needs. The alliance, which includes former members of Denmark’s communist party, has filed more than 100 questions to the finance ministry regarding the sales process and the privileges given to Goldman Sachs.
“We would have liked if the government had considered who Goldman are and what they want,” Stine Brix, the deputy financial speaker for the party, said in an interview. “Goldman has a very doubled-faced story. On one hand, everybody is fascinated with how good they are, but they also act without guilt or remorse.”
Goldman Sachs in July 2010 agreed to pay $550 million and change its business practices to settle the U.S. Securities and Exchange Commission’s claims that the firm misled investors in a 2007 product linked to subprime mortgages. The firm didn’t admit or deny wrongdoing.
A U.S. Senate subcommittee’s report in 2011 said Goldman Sachs relied on “abusive” sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients. While Goldman Sachs said it disagreed with many of the Senate report’s finding, the firm also noted that it undertook a review of its business practices and released a 63-page report on its findings.
“This is a long-term investment and we support the management team’s current strategy across the company’s activities, including the significant renewable energy investments,” Sophie Ramsay, a London-based spokeswoman for Goldman Sachs, said in an e-mailed reply to questions. “This strategy, supported by the Danish State and other minority shareholders, will create value for all shareholders in the years to come.”
Selling to Goldman Sachs is morally wrong, jeopardizes Denmark’s green agenda and will prove to be a financial mistake, Poul Nyrup Rasmussen, a former Danish prime minister, was quoted as saying in an interview published by newspaper Politiken today. Nyrup Rasmussen, a Social Democrat, has also served as leader of the Europe-wide socialist group in the European Union.
Bjarne Corydon, Denmark’s current finance minister and also a Social Democrat, defended the sale in an interview broadcast by TV2 News.
“I can understand that there’s a debate about banks’ behavior in the wake of the financial crisis,” Corydon said in response to Nyrup Rasmussen’s comment. “Dong was in a situation where money was needed. We have chosen a proactive answer, the green answer, by going with the investment strategy.”
The Danish People’s Party, which has 22 seats in Denmark’s assembly, initially backed the government’s plan to find private investors for Dong. Now the party has threatened to withdraw its support.
“We don’t understand why Goldman should be able to hire and fire the management or why they need to be able to veto the strategy when it’s already in place,” said Rene Christensen, financial spokesman for party. “The government says there’s no need to worry about the clauses, but that only made us more curious as to why they had to make them in the first place.”
Even as opposition to the Goldman Sachs deal is growing, the government will probably be able to pass the proposal with the support of the Conservative Party and the Liberals Party, Engelbrecht of the Social Democrats said. The Liberals are Denmark’s biggest opposition party.
Engelbrecht last year led lawmakers’ push for rules that require Denmark’s biggest lenders, including Danske Bank A/S to hold additional capital reserves to prevent a future banking crisis. While Goldman played a role in the financial crisis, the bank is no worse than others, Engelbrecht said.
“Goldman is getting bashed for the same reason Danske Bank got bashed. It’s the icon of capitalism and greed, though at a whole different level than Danske Bank,” he said. “The critics forget that this investment is being made by the division in Goldman that actually specializes in renewables, and with the level of professionalism displayed by Goldman, that’s not a bad thing.”