Humbled Goldman Sachs still faces questions on 1MDB
In a bid to placate shareholders, the bank plans to cut bonuses for top executives depending on the outcome of fraud probes into the Malaysian fund
New York — Goldman Sachs’s decision to potentially cut bonuses for top executives over the 1MDB scandal reflects an acknowledgement of shareholder and public outrage over the debacle.
The prestigious investment bank announced last week it could withhold millions of dollars in bonuses to former CEO Lloyd Blankfein and two other retired executives depending on the outcome of probes into the Malaysian fund.
The bonuses were first approved in 2011 and the annual payouts depend on the firm’s performance over the ensuing eight years. In Blankfein’s case, the bonus began at $7m and nearly doubled, according to US securities documents.
Beyond the bonuses, Goldman also said it could claw back compensation from current CEO David Solomon and two other senior executives, president John Waldron and CFO Stephen Scherr.
Solomon was paid $23m in 2018, including $15.4m in stock options.
The announcement on bonuses was intended as a message for shareholders who are upset at how the corruption scandal has tarred the bank’s image at a time when it is working to build up its consumer banking business through the online platform Marcus, according to two people familiar with the matter.
The board of directors wants shareholders to know it is not blind to the gravity of the situation, said one of the sources, adding that the message was not meant to be an admission of wrongdoing.
Besides Solomon, who also serves as chair, Goldman’s 13-member board includes ArcelorMittal CEO Lakshmi Mittal.
Experts say Goldman Sachs could face a fine of perhaps $2bn under a criminal case related to 1MDB.
In January, Solomon apologised to Malaysia over the scandal and the involvement of former Goldman partner Tim Leissner, who had pleaded guilty to violating US anti-bribery and money-laundering laws.
Solomon’s statement stood out in tone from that of Blankfein, who said during the height of the financial crisis in 2009 that he was “doing God’s work” in helping companies raise capital.
US authorities have accused a Malaysian financial intermediary, Low Taek Jho, along with Leissner and another former Goldman banker, Ng Chong Hwa, of conspiring to launder billions of dollars from 1Malaysia Development Berhad, a sovereign wealth fund set up for development of the country. Goldman garnered $600m in fees and revenues from 1MDB bond transactions.
US officials maintain that more than $2.7bn in funds went to kickbacks and bribes.
Pointed questions facing Goldman Sachs include revelations it proceeded with its first transaction with 1MDB to finance a $1.75bn purchase of power plants despite being warned by rival bank Lazard that the deal looked suspicious, according to a source.
Also, a division of the investment bank agreed to do business with Low Taek Jho even though he was rejected in 2011 from opening an account because bank officials could not determine the source of his wealth, a person familiar with the matter said.
“The due diligence functions at Goldman Sachs fell apart,” said Richard Bove, analyst at Odeon Capital and a frequent Goldman critic. “If you’re going to raise $6bn for someone you better know everything there is to know about that someone.”
The three transactions were presented to the bank’s investment committees for Asia and firm-wide, which required 1MDB to pay a larger-than-usual fee because 1MDB was opposed to a syndicated loan, saddling Goldman with all of the risk, a source said.
Goldman declined to comment and Lazard did not respond to requests for comment.