Real Estate Trickery Backfires How Berlin Got the Upper Hand on Goldman Sachs
The head of the German branch of Goldman Sachs thought he had come up with a clever way to get the better of the city of Berlin in a multi-million-euro deal. But the executive fell into his own trap.
Alexander Dibelius is very good at dealing with the envy of others. As the powerful head of the German branch of the American investment bank Goldman Sachs, Dibelius has put plenty of work into earning that envy.
Rarely is a large-scale deal is made in Germany without Dibelius being somehow involved, whether it's the merger of automakers Daimler and Chrysler or Vodafone's takeover of German company Mannesmann. Most recently, Dibelius outsmarted the competition when he used controversial methods to achieve a capital increase at German tire manufacturer Continental.
What may be a new experience for the investment banker, accustomed as he is to success, is that the envy has lately turned to schadenfreude. Germany's elite investment class in Frankfurt is talking about a recent episode where Dibelius ended up outsmarting none other than himself. "A classic own goal," high-ranking investment managers smirk to one another at their dinner parties.
Industry gossip says that "in the interest of profit maximization," the clever investor, accomplished at such financial balancing acts, obtained a legal opinion from a leading criminal lawyer in order to put pressure on the city of Berlin. The city's finance senator, though, wasn't impressed by the legal threats and Dibelius was left with two choices: Give up on the deal in question -- or defend himself against a suspicion of bribery that his own lawyers had constructed.
Just One Catch
Here are the events as they unfolded: Goldman Sachs and US-based investment firm Cerberus acquired 66,000 apartments belonging to Berlin's publicly owned real estate company GSW for 2.1 billion ($2.8 billion) in 2004. There was just one catch -- the city stipulated that the company as a whole could only be floated on the stock market prior to 2014 if the city gave its consent. After that date, the investors could do what they pleased with their properties.
But Dibelius wasn't willing to wait that long. In November, he contacted the city. Berlin's Finance Senator Ulrich Nussbaum responded in December, asking for 30 million in return for the necessary approval.
The Goldman Sachs manager didn't want to pay. In initial negotiations with the city, according to the bank, he offered to extend tenants' rights, which were otherwise only guaranteed until 2014, in exchange for the city waiving the 30 million fee.
The city was unwilling to accept the offer, so Dibelius hatched a crafty plan. He commissioned Stuttgart-based attorneys Eisenmann, Wahle and Birk to draw up an expert opinion that was intended to make it difficult for Berlin's city government to make any further demands.
The payment of this "not insignificant sum of money," as the lawyers phrased it, "would create criminal liability for bribery." They urgently recommended "refraining from an offer, promise or payment of a not insignificant sum of money to the city of Berlin."
Armed with his lawyers' 36-page document, Dibelius apparently suggested that Nussbaum dispense with the monetary demand, to avoid opening himself up to the suspicion that he could be bribed.
But Nussbaum brushed the investment banker off. The artificially constructed accusation of crime seemed absurd to him -- and to the city senate's lawyers as well. Some even described it as a shameless attempt at extortion.
Now Dibelius had a problem. If he still wanted the deal, he would have to pay the fee. That in turn would open him up to the suspicion of bribery established by his own lawyers -- and leave no doubt about the original intentions behind his actions.
Still, Dibelius didn't want to let the lucrative deal go. He commissioned a second legal opinion, this time from a university professor. The new document, which arrived promptly in late February, classified the procedure as "lawful and legally unobjectionable."
To be on the safe side, Dibelius also sought out support from someone who couldn't possibly be cast in doubt -- Hans Jürgen Fätkinhäuer, senior prosecutor at Berlin's Central Office for Combating Corruption, which is part of the city's public prosecution department. Fätkinhäuer certified that the statements in the second document had "fully convinced" him. It had been "proved conclusively" that the transaction would be "legally unobjectionable," he added.
Berlin's city parliament voted Monday to allow GSW to go public. The parliament knows in any case that it can't revoke the sale of the rental properties. And the financially strapped city could certainly do with an extra 30 million.
Translated from the German by Ella Ornstein