The Strategist

Goldman Sachs-1MDB scandal takes new round

11/28/2018 - 08:47

Last week, the Emirates sovereign fund IPIC and its subsidiary Aabar Investments sued one of the world's largest investment banks, Goldman Sachs. The latter is suspected in corruption and bribing.

The funds believe that the bank has played a key role in the international corruption scandal around the Malaysian investment fund 1Malaysia Development Bhd (1MDB). According to them, several Goldman Sachs employees participated in bribing officials in Malaysia and other countries, as well as laundering hundreds of millions of dollars and accepting bribes in transactions with 1MDB.

Morgan Stanley analyst Betsy Graseck lowered Goldman’s rating and reduced the price target by 22%, from $ 291 to $ 226. This is the second lowest benchmark among 29 analysts polled by FactSet. Experts revised their forecasts after the bank’s shares fell by 17%. The fall was caused by the news that Goldman’s chairman and former executive director Lloyd Blankfein met people who were charged with conspiracy to launder and stealing money from 1MDB.

Graseck is concerned about the potential consequences of a 1MDB investigation, as well as the time required to resolve the problem and the amount of possible fines and expenses for Goldman Sachs. “Until the issue is resolved, a further increase in stocks is unlikely to be expected,” she noted.

As a result of cooperation with 1MDB, Goldman Sachs earned about $ 600 million advising the fund on issuing bonds (about $ 6.5 billion was raised). According to the law on the fight against the practice of corruption abroad, the bank is threatened with cancellation of expenses received, as well as a fine of twice this amount. However, Goldman may pay a less significant fine or, on the contrary, face additional sanctions for violating other regulations and laws.
Shares of Goldman Sachs fell 23.7% year on year.