Goldman Sachs shares tumble on 1MDB scandal, 'fear of unknown'

NEW YORK • Goldman Sachs Group's reputation is facing one of its biggest crises of the decade - and now its shares are, too.

Since prosecutors implicated a trio of Goldman Sachs bankers in a multibillion-dollar Malaysian fraud early this month, investors have endured an almost daily drip of news on the firm's ties to the scandal.

The barrage culminated yesterday as the country's finance minister demanded a "full refund", tipping Goldman's shares into their biggest drop since 2011.

Across Wall Street, analysts expressed surprise over the dive, noting that the bank - which has not been charged with wrongdoing - can probably stomach any payment that might be extracted in the case.

Instead, some said, the decline seemed to be a combination of concern over the persistently harsh spotlight and uncertainty about what's to come. It was also a generally bad day in United States markets.

"It's not so much the dollar amount," said Mr Gerard Cassidy at RBC Capital Markets. "It's more that we don't know all of the facts yet, we don't know all of the important points to the story at this time. It's the fear of the unknown."

On Nov 1, at least three senior Goldman Sachs bankers were publicly implicated by the US Department of Justice in a multi-year criminal enterprise that included bribing officials in Malaysia and elsewhere and laundering hundreds of millions of dollars. The firm has said it is cooperating with the investigations and may face "significant" fines.

The Malaysia probe focuses on the country's scandal-plagued state investment company, 1Malaysia Development Berhad (1MDB), and the US$6.5 billion it raised in 2012 and 2013. Goldman Sachs handled the deals, reaping almost US$600 million (S$830 million) in fees.

Mr Tim Leissner, the bank's former chairman of South-east Asia, admitted in a plea that he bribed officials to get the bond deals, and that he and others arranged the fundraising as debt offerings to generate higher fees. He also admitted that more than US$200 million in proceeds from 1MDB bonds flowed into accounts controlled by him and a relative. Prosecutors have said executives involved circumvented the bank's internal compliance operations to avoid detection.

The firm's shares tumbled 7.5 per cent, their biggest one-day drop since November 2011. The volume bought and sold was more than triple the average amount. The bank was the worst performer in the Dow Jones Industrial Average on a day in which all but four firms in the index declined.

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A version of this article appeared in the print edition of The Straits Times on November 14, 2018, with the headline 'Goldman Sachs shares tumble on 1MDB scandal, 'fear of unknown''. Print Edition | Subscribe