Goldman Sachs' Malaysian deals dry up in 1MDB fallout

A Goldman Sachs logo on the floor of the New York Stock Exchange.
A Goldman Sachs logo on the floor of the New York Stock Exchange. PHOTO: BLOOMBERG

KUALA LUMPUR • When Malaysia's largest sovereign wealth fund asked bankers to pitch for work arranging a US$750 million (S$1 billion) bond sale in December, one big name was conspicuous by its absence - Goldman Sachs Group.

Khazanah Nasional omitted the Wall Street firm from the list of banks invited to bid on that and other bond transactions in the past three years, according to a person familiar with the matter.

During that time, Goldman Sachs slid down the Malaysian deal league tables, cold-shouldered by potential clients concerned about negative publicity from its dealings with 1Malaysia Development Berhad (1MDB).

Chief executive officer Lloyd Blankfein had guided Goldman Sachs deeper into emerging markets over the past decade, arguing that their rising influence in the global economy justified the higher risks involved.

Malaysia, where Goldman Sachs collected eye-popping fees from 1MDB about three years ago, has come to symbolise not only the potential outsize rewards of developing economies but also the perils.

Fallout from working with 1MDB, the embattled investment fund at the centre of investigations from the United States to Singapore, has led to a wider collapse in Goldman Sachs' once-thriving business in Malaysia, which it said a few years ago offered "very positive" prospects.

Work advising Malaysian clients on mergers and acquisitions, share offerings and bond issues has all but evaporated over the past few years, according to data compiled by Bloomberg, and several senior bankers involved in Malaysian dealmaking have left since 2013.

"I'm not sure how long it'll take for Goldman to recover from this," said Singapore Management University senior lecturer in finance Ang Ser Keng. "They will definitely hurt from this," he said, referring to Goldman Sachs' association with 1MDB.

The bank's fall from grace in Malaysia stands in stark contrast to its prosperous run under Mr Tim Leissner, the former Goldman Sachs star banker who drew many Malaysian clients to the firm and helped oversee three bond offerings for 1MDB in 2012 and 2013.

More recently, 1MDB has found itself at the centre of a complex scandal over its ballooning debts and financial ties with Malaysian Prime Minister Najib Razak.

The deepening global fallout of the 1MDB scandal was underscored on Tuesday when Singapore took the rare step of ordering Swiss private bank BSI to stop operations because of its ties with the Malaysian fund.

Goldman Sachs is working with an outside law firm to conduct an internal examination and is reviewing its own role in helping 1MDB raise capital, sources said.

There is no indication that the firm engaged in any wrongdoing, they added.

Goldman Sachs expressed confidence in its Malaysian business.

Said Hong Kong-based spokesman Edward Naylor: "Malaysian deal activity has been generally quiet but our dialogue with clients is positive and we are seeing a growing pipeline of transactions."

An official from Khazanah declined to comment.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 26, 2016, with the headline 'Goldman Sachs' Malaysian deals dry up in 1MDB fallout'. Print Edition | Subscribe