Germany's BayernLB cutting all business ties with the – still – golden boys of US investment banking Goldman Sachs was certainly bad news for Goldman CEO Lloyd Blankfein.
Bad for reputation and bad timing, as the decision came only a few days after the SEC first announced it was investigating Goldman for fraud in connection with a package of structured products it marketed during the height of the financial crisis.
But while the loss of BayernLB as a client is certainly unwelcome (which banker likes to loose customers?), it must be more the fear about "what next?" that wafts through the top floors of Goldman's HQ in Manhattan.
Finally it seems that Goldman's management is going on the offensive, Blankfein himself phoning some of the more important clients and … what?
Presumably ensuring them of the solidity of the company, the integrity of its bankers and the excellence of their investment advice. Which is precisely what may come into question with the SEC investigation.
Last year (and for many years), Goldman was ranked as one of the top ten banks for dealing with the German government - from placing public sector debt to privatizing public sector business (such as IPOs of Telecom or Post). That position and the fat profits that come with it are now in serious danger.
Already there are murmurings from Berlin that business ties with Goldman must be "examined at all levels." From sources in the Finance Ministry one hears that the Kapitalmarktausschuß (that's the capital market committee in charge of issuing federal government debt) is looking into Goldman's mandate in the Bundesanleihekonsortium (the very prestigious group of banks that place German government paper – this year alone a limp 343 billion euros!!!).
When next week's new 10-year Bund is issued, one may be fairly sure that Goldman is not part of the issuing consortium (although nobody from the Finance Ministry or the capital market committee was willing to confirm or deny that so far).
Will Politicians Jump on Goldman?
However, that must not necessarily mean there will be big announcements from Berlin. The capital market committee can simply decide for one Bund issue after the other not to call on Goldman to be part of the placement consortium. That would be bad enough, but at least not a headline-heavy big bang with bells and whistles.
There still is the far more damaging – for Goldman at least – possibility that the German government decides to make (no doubt politically very popular) announcements on this.
Politicians have to win elections. It's forever an easy match-winning goal for politicians to be seen putting the foot down against what is perceived as irresponsible bankers who are just out for maximizing their own profits at the expense of their investors and of perpetually suffering tax payers.