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dam-l SF Chronicle, 5/4/99 "More Investment Bank IPOs: In going public, will they serve the public good?"
More Investment Bank IPOs
In going public, will they serve the
public good?
Blaine Townsend OP Ed to the San Francisco Chronicle
Tuesday, May 4, 1999
MONEY IS, by definition, fungible. Unchecked, it
flows like water along the path of least resistance,
funding projects with the highest return and the
lowest public scrutiny.
Take China's Three Gorges Dam, for example. The
project is universally considered to be an
environmental and human rights disaster, an
endeavor which will submerge 13 cities, 140 towns
and 1,352 villages as it displaces 1.5 million people
and destroys an ecosystem. If constructed, the
600-foot, mile-wide dam would create a 400-mile
long reservoir in the heart of the fertile Yangtze
River Valley. The estimates for the project have
soared from $20 billion to $70 billion. Five smaller
dams would provide more energy with a lower
price tag and a fraction of the social and
environmental damage. All opposition to the project
in China has been suppressed.
Showing no regard for this devastating social
impact, American investment banks have been
eager to finance the deal. In 1997, Lehman
Brothers, JP Morgan, Morgan Stanley, CS First
Boston, Smith Barney and BancAmerica Securities
underwrote $330 million of bonds to the State
Development Bank of China -- whose biggest
beneficiary is the Three Gorges Dam. Morgan
Stanley also owns a 35 percent stake in China
International Capital Corp., China's only
Sino-foreign investment bank and an underwriter of
domestic issues which help finance the dam.
Despite opposition by the World Bank and the U.S.
Export-Import Bank, both of which refuse to lend
to the project, the role of American investment
banks should come as no surprise. For the past
century, they earned their money the old-fashioned
way: with massive margins and little public scrutiny.
With the pillars of Wall Street's investment banking
community going public however, the era of
cloistered deal-making is nearing an end. Even
Goldman Sachs, the last of the great private
partnerships, entered the fray with its own initial
public offering yesterday. The time has come for
investment banks to incorporate environmental and
human rights criteria into their lending policies.
Today, with informed shareholders owning a stake
in these companies for the first time, the door is
open (if only a crack) to begin this process.
How will this transition affect the way these firms do
business? One thing is certain: Going public means
these investment banks will now be scrutinized for
their social -- not just financial -- impact on the
world. At banks associated with image-sensitive
retail operations, this scrutiny may be intense.
At Dean Witter Morgan Stanley, for example,
Trillium Asset Management sponsored a
shareholder resolution questioning Morgan Stanley's
lending, investing and underwriting criteria in the
wake of the Three Gorges deal. To Morgan
Stanley's credit, its directors conducted themselves
as managers of a responsible, publicly held
corporation. Just prior to their annual meeting,
where the resolution received a respectable 5
percent of the vote, Morgan Stanley called for talks
with Trillium, human rights activists and
environmentalists to lay the groundwork for such
guidelines.
Was Morgan Stanley's foresight due to a shift in
their view of the world, shareholder pressure or the
fact the bank is now part of a company that issues
the Discover card? It is difficult to say, but other
investment bankers would be wise to follow suit.
America's investment banks deserve a great deal of
credit for the growth of this continent. They invented
municipal bond markets. They brought the nation's
industrial giants public. They have donated large
sums of money to charity. But investment banks can
no longer embrace philanthropy as a proxy for
morality. With vast pools of capital bolstering the
global economy, it is imperative that banks
understand their role in shaping the next century --
as both a financial and social force.
Blaine Townsend is a San Francisco analyst for
Trillium Asset Management, the nation's oldest
and largest socially responsible investment
advisory firm.
___________________________
Doris Shen
Three Gorges Campaign and China Program Coordinator
International Rivers Network
1847 Berkeley Way
Berkeley, CA 94707
e-mail: threegorges@irn.org
http://www.irn.org
Tel: 510.848.1155 ext. 317
Fax: 510.848.1008
____________________________