Goldman Sachs Group senior executives privately concede that the burgeoning scandal over the misuse of money at a Malaysian government investment fund could now cost the firm “a year of earnings,” or roughly $10 billion, FOX Business has learned.
The firm’s chief executive officer David Solomon and other senior officials have yet to publicly comment on the size of the firm’s potential liability stemming from its work as an underwriter of the scandal-tarred fund, known as 1Malaysia Development Berhad fund, or 1MDB.
But people with knowledge of the thinking of these senior executives say internally Goldman believes the liability could be much larger than the roughly $2 billion originally estimated and could cost about $10 billion, essentially wiping out a year's worth of earnings. In November of 2018, Goldman said in a filing with the Securities and Exchange Commission that it will need $1.8 billion more in reserves to meet legal costs. In 2018, Goldman earned $10.46 billion on revenues of $36.62 billion, in what was seen as a slow year for the firm because of lower profits from its trading unit.
“The senior people at Goldman believe a year of earnings could be on the line because of this scandal,” said one senior Wall Street executive with ties to senior Goldman executives.
It isn’t exactly clear how Goldman is coming up with this potential liability. But in an interview with Bloomberg TV on Wednesday, Anwar Ibrahim, a prominent Malaysian political leader, said Goldman owes the fund at least $7.5 billion. That potential liability, combined with U.S. regulatory and civil fines, could make Goldman’s ultimate payout exceed $10 billion, some legal experts say.
A Goldman spokesman declined to comment.
Goldman’s reputation as the world’s premier investment bank has faced such severe damage for its work with the fund that Solomon made a rare appearance on the firm’s fourth quarter earnings conference call in January, as first reported by FOX Business. “It's very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government,” said Solomon, who in October took over as CEO for Lloyd Blankfein. “Tim Leissner was a partner at our firm, by his own admission, was one of those people. For Leissner's role in that fraud, we apologize to the Malaysian people.”
Federal prosecutors have charged Leissner with fraud in connection with an alleged multi-billion looting of the fund allegedly carried out by bankers and associates of the country’s prime minister. Leissner has plead guilty and is awaiting sentencing.