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WASHINGTON (AP) – Goldman Sachs said Thursday (Oct. 22) that it was recovering $ 174 million in executive compensation and had agreed to pay $ 2.9 billion for its role in Malaysia’s 1MDB corruption scandal, raising a cloud that It hung over the bank for years.
The settlement with the U.S. Department of Justice and other U.S. and foreign regulators resolves an investigation into the role that Goldman Sachs bankers played in helping steal cash, which Goldman helped raise, from Malaysia’s state fund.
While the scandal has proven to be a humiliating and costly saga for the Wall Street giant, the long-awaited deal should allow Chief Executive Officer David Solomon to accelerate his plans to change the bank after a decade of poor performance, analysts said. Goldman shares rose 1.4 percent on the news.
“Getting management and the company at large to keep this excess is a huge victory,” said Marty Mosby, analyst at Vining Sparks brokerage.
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Under the terms of the settlement, Goldman agreed to pay a $ 2.3 billion fine for violating anti-bribery laws and return $ 600 million of ill-gotten gains as part of a deferred prosecution agreement, which also requires it to improve its controls over compliance.
The bank also agreed to have its Malaysian subsidiary plead guilty in federal court in the United States on Thursday, in a victory for prosecutors who rarely obtain criminal convictions from corporate entities.
Brian Rabbitt, acting chief of the Justice Department’s criminal division, said the penalty was the largest ever for a violation of the Foreign Corrupt Practices Act and that the settlement reflected the “seriousness” of the bank’s role. ” in a massive global plan to loot billions of dollars “from 1MDB.
The scandal dates back to the government of former Malaysian Prime Minister Najib Razak, which created the 1MDB fund in 2009.
Between 2009 and 2014, Goldman bankers paid more than $ 1.6 billion in bribes to foreign officials in Malaysia and Abu Dhabi to win 1MDB business, including underwriting $ 6.5 billion in bond sales, for which it earned $ 600. millions of dollars in commissions.
But billions of the fund’s money were later stolen by senior fund officials and their associates to pay for real estate, art and other luxury items, with the help of Goldman bankers, the Justice Department said.
In 2018, the Justice Department filed criminal charges against two of Goldman’s former bankers, Tim Leissner and Roger Ng. Leissner pleaded guilty to the charges last year, while Ng’s case is pending in a New York court.
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“While many good people worked on these transactions and tried to do the right thing, we recognize that we did not adequately address red flags or examine representations of certain members of the negotiating team,” Solomon wrote in a memo to staff Thursday: adding that the bank had already made several compliance improvements.
He said the bank would recover compensation from the three bankers involved and its former executive team “in recognition of the firm’s institutional failures.”
He and other top executives would also see their compensation reduced for 2020, bringing total recoveries and pay cuts to $ 174 million.
Thursday’s settlement follows the $ 3.9 billion the bank paid in Malaysia in July to settle charges related to the matter.
RESERVATIONS, OFFERS
Since 2019, Goldman had set aside $ 4.39 billion to cover legal and regulatory matters. Approximately $ 2 billion was for issues it has already resolved with the Malaysian government. On Thursday, it said it would increase its provisions for litigation and regulatory proceedings for the third quarter by $ 250 million.
Odeon Capital analyst Dick Bove chastised Goldman’s management teams for allowing the 1MDB bond deals and praised the board for recoveries. He said he expects financial sanctions to affect fourth quarter results despite existing Goldman reserves.
“Everyone who participated in the decisions to proceed with these offers needs the company to recover their bonuses. It is very positive to hear that Goldman can really do this, “he added.
Despite the costs, analysts anticipated that Thursday’s deal should allow Solomon to accelerate his plan to reshape Goldman as a more conventional bank and rely less on volatile trading venues.
Some investors and analysts saw the 1MDB probes as an obstacle to Goldman making transformative deals, as US regulators often bar banks from making large acquisitions while being investigated for serious misconduct.
With clarity on how much the bank should pay and a clean slate with regulators, Goldman could be more aggressive on that front, Mosby said.
“When they had this on their heads they didn’t have that opportunity, they had to pause. This is a green light to say that they can go ahead and do that. “
