In his first earnings call as CEO, Goldman Sachs’ David Solomon had a few words for the people of Malaysia, whose government has filed criminal charges against the US bank and is seeking $7.5 billion in fines and refunds from Goldman’s role in the ongoing 1MDB scandal.
“We apologize to the Malaysian people,” he said. “We have looked back and continue to look back to see if there is anything as a firm that we could have done better.”
It’s a nice gesture—but far from the cold hard cash the country is hoping for. Solomon went on to clarify that the bank had done “considerable due diligence,” including seeking and receiving written assurance from the state-owned investment fund that no third parties would be involved. “All these representations to Goldman Sachs have proven to be false,” he said.
Malaysian authorities say that Goldman misled investors, and knew that proceeds from 1MDB bond sales, designated to benefit the people of Malaysia, would be misappropriated; the bank has blamed rogue employees, including former partner Tim Leissner, who pled guilty to US bribery charges. Goldman is alleged to have earned some $600 million in fees (membership) after underwriting $6 billion in bonds. The proceeds were intended to fund economic development projects; instead, around $4.5 billion found its way into private accounts, including the accounts of Leissner and Malaysian businessman and playboy Jho Low, who is still on the run.
Solomon, who indirectly supervised the Goldman bankers, reiterated that the bank had been unaware of their machinations, and had in fact declined the opportunity to represent Low in the past due to concerns about the source of his wealth. “Leissner purposely concealed from the firm his scheme,” he said.
Solomon may not have offered Malaysia a refund, but Reuters reported the bank may have set aside up to $1 billion to cover anticipated fines from the scandal—a fraction of the total the Malaysian government is hoping for. “Having held themselves out as the pre-eminent global adviser/arranger for bonds, the highest standards are expected of Goldman Sachs,” Tommy Thomas, Malaysia’s attorney general, said in a December statement. “They have fallen far short of any standard. In consequence, they have to be held accountable.”
Goldman is more than able to afford a refund. The bank today announced $2.54 billion in profits, on revenue of over $8 billion, for the fourth quarter. It generated $6.04 per share in profit, blowing analysts’ estimates of $4.45 per share out of the water.
The investigation continues.