Goldman Sachs slashes Q2 earnings by $2B following Malaysia settlement

August 7, 2020.

lowered its second-quarter earnings by $2 billion on Friday, following the $3.9 billion settlement it reached with the Malaysian government last month to resolve an investigation of the bank’s role in the 1Malaysia Development Berhad corruption scandal. 

The settlement reduced the investment bank’s earnings for the second quarter to $373 million, or $0.53 per share, down from a previously reported profit of $2.4 billion for the quarter, or $6.26 per share, a filing with the showed. 

The filing also noted that Goldman Sachs has marked an additional $2 billion in legal provisions for the quarter, with most of that bound to go to the U.S. Department of Justice, which has sought significant fines against the bank for its role in the Malaysian scandal.

The deal reached with the Malaysian Ministry of Finance in July saw Goldman Sachs take responsibility for the misconduct of two of its former employees in the 1MDB scheme.

The $3.9 billion settlement amounted to the single largest recovery of assets related to the scandal, and it included a $2.5 billion cash payment as well as a guarantee that at least $1.4 billion in assets seized will be returned to Malaysia.

The agreement also included a stipulation that no further charges would be brought against Goldman Sachs regarding its role in the 1MDB scheme.

Malaysian state investment fund 1MDB was originally set up in 2009 to finance economic deals in the country, but prosecutors around the globe contend that instead billions of dollars were looted from the fund in a criminal conspiracy that involved bribery, money laundering and lavish spending. The scandal resulted in the electoral defeat of former Prime Minister Najib Razak.

Goldman Sachs had helped to raise $6.5 billion for 1MDB through bond issues in 2012 and 2013, with the bank earning about $600 million in fees from these deals, according to the U.S. DOJ. The Malaysian government asserted that the bank knew that the funds would be misused while selling the bonds.

The investment bank noted in its filing on Friday that it is continuing to cooperate with the DOJ and other regulators in ongoing conversations surrounding the 1MDB issue, saying that any resolution stemming from the talks “could result in the imposition of significant fines, penalties and other sanctions against the firm, including restrictions on the firm’s activities.”

Goldman Sachs had initially touted its ability to make the most of the market volatility throughout the second quarter of 2020, reporting one of the most successful quarters it has had in years. Its original report included net provisions for litigation and regulatory proceedings of $945 million, which it had already referred to as “significantly higher” than usual due to the Malaysia issue.