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Goldman in Murky Waters, State Fund 1MDB Scandal Heightens
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Engulfed in the recent heightened scandal related to the multibillion-dollar 1Malaysia Development Bhd (1MDB), shares of U.S. investment bank, Goldman (GS - Free Report) , have tumbled over the last few days on rising investors’ worries. Employees of the reputed bank are said to have "cheated" Malaysia in dealings with state fund 1MDB, according to its Prime Minister Mahathir Mohamad.
"There is evidence that Goldman Sachs has done things that are wrong," Mahathir said in an interview with U.S. news channel CNBC aired on Tuesday. "Obviously we have been cheated through the compliance by Goldman Sachs people," he said, without specifying details. The bank's compliance controls "don't work very well", Mahathir further noted.
However, spokesman for Goldman in Hong Kong refrained from commenting on the interview.
Further Implications
Earlier this week, Goldman’s shares took a hit, following Malaysia's Minister of Finance, Lim Guan Eng’s plan of recouping "full refund" of the fees earned by the bank from the 1MDB deals. Notably, nearly $600 million has been earned by the bank, including three bond offerings in 2012 and 2013, which raised $6.5 billion.
"The Malaysian government will want to reclaim all the fees paid, as well as all the losses including the interest rate differential," Lim told reporters. Per Lim, the rate paid by Malaysia was about 100 basis points above the market rate.
Background
Goldman has been scrutinized for playing role in raising funds through bond offerings for 1MDB, the fund entangled in corruption and money-laundering probes in roughly six countries. Notably, per the U.S. Department of Justice (DoJ), misappropriation of funds, worth nearly $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014 also included funds which were raised through Goldman.
Therefore, earlier this month, criminal charges were levied against two former bankers of Goldman by the U.S. prosecutors, as well as on Low — a Malaysian financier who effectively had the control of the state-owned investment 1MDB. Low has been accused for routing the money out of 1MBD, and paying bribes and purchasing real estate, art, and jewelry. Nevertheless, the bond proceeds were meant for strategic investments for the state.
Following this, Tim Leissner, one of the bankers, accepted the act of conspiracy for laundering money and plotting the violation of the Foreign Corrupt Practices Act. In his guilty plea, Leissner stated it was “very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees.” Nonetheless, the other employee has not come with a plea.
However, Goldman has denied any wrongdoing and is cooperative with U.S. authorities.
Bottom Line
Although Goldman has resolved quite a few litigation issues, it still faces probes and queries from several federal agencies, and a few foreign governments for its businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to remain elevated, which may partially impede its bottom-line growth in the near term.
Shares of the company have lost around 10.6% in the past three months compared with the 9.2% decline of the industry.
Goldman currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Greenhill & Co., Inc. has been witnessing upward estimate revisions for the past 30 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has rallied more than 16% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
TD Ameritrade Holding Corporation (AMTD - Free Report) has been witnessing upward estimate revisions for the past 30 days. Also, the company’s shares have gained nearly 1.3%, year to date. It carries a Zacks Rank of 2 (Buy), at present.
E*TRADE Financial Corporation has been witnessing upward estimate revisions for the past 30 days. Additionally, the company’s shares have gained nearly 5.8%, year to date. It carries a Zacks Rank of 2, at present.
3 Medical Stocks to Buy Now
The greatest discovery in this century of biology is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating revenue, and cures for a variety of deadly diseases are in the pipeline.
So are big potential profits for early investors. Zacks has released an updated Special Report that explains this breakthrough and names the best 3 stocks to ride it.
Image: Bigstock
Goldman in Murky Waters, State Fund 1MDB Scandal Heightens
Engulfed in the recent heightened scandal related to the multibillion-dollar 1Malaysia Development Bhd (1MDB), shares of U.S. investment bank, Goldman (GS - Free Report) , have tumbled over the last few days on rising investors’ worries. Employees of the reputed bank are said to have "cheated" Malaysia in dealings with state fund 1MDB, according to its Prime Minister Mahathir Mohamad.
"There is evidence that Goldman Sachs has done things that are wrong," Mahathir said in an interview with U.S. news channel CNBC aired on Tuesday. "Obviously we have been cheated through the compliance by Goldman Sachs people," he said, without specifying details. The bank's compliance controls "don't work very well", Mahathir further noted.
However, spokesman for Goldman in Hong Kong refrained from commenting on the interview.
Further Implications
Earlier this week, Goldman’s shares took a hit, following Malaysia's Minister of Finance, Lim Guan Eng’s plan of recouping "full refund" of the fees earned by the bank from the 1MDB deals. Notably, nearly $600 million has been earned by the bank, including three bond offerings in 2012 and 2013, which raised $6.5 billion.
"The Malaysian government will want to reclaim all the fees paid, as well as all the losses including the interest rate differential," Lim told reporters. Per Lim, the rate paid by Malaysia was about 100 basis points above the market rate.
Background
Goldman has been scrutinized for playing role in raising funds through bond offerings for 1MDB, the fund entangled in corruption and money-laundering probes in roughly six countries. Notably, per the U.S. Department of Justice (DoJ), misappropriation of funds, worth nearly $4.5 billion, from 1MDB by top officials of the fund and their colleagues from 2009 through 2014 also included funds which were raised through Goldman.
Therefore, earlier this month, criminal charges were levied against two former bankers of Goldman by the U.S. prosecutors, as well as on Low — a Malaysian financier who effectively had the control of the state-owned investment 1MDB. Low has been accused for routing the money out of 1MBD, and paying bribes and purchasing real estate, art, and jewelry. Nevertheless, the bond proceeds were meant for strategic investments for the state.
Following this, Tim Leissner, one of the bankers, accepted the act of conspiracy for laundering money and plotting the violation of the Foreign Corrupt Practices Act. In his guilty plea, Leissner stated it was “very much in line of its culture of Goldman Sachs to conceal facts from certain compliance and legal employees.” Nonetheless, the other employee has not come with a plea.
However, Goldman has denied any wrongdoing and is cooperative with U.S. authorities.
Bottom Line
Although Goldman has resolved quite a few litigation issues, it still faces probes and queries from several federal agencies, and a few foreign governments for its businesses conducted during the pre-crisis period. As a result, the company’s legal expenses are expected to remain elevated, which may partially impede its bottom-line growth in the near term.
Shares of the company have lost around 10.6% in the past three months compared with the 9.2% decline of the industry.
Goldman currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Greenhill & Co., Inc. has been witnessing upward estimate revisions for the past 30 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has rallied more than 16% year to date. You can see the complete list of today’s Zacks #1 Rank stocks here.
TD Ameritrade Holding Corporation (AMTD - Free Report) has been witnessing upward estimate revisions for the past 30 days. Also, the company’s shares have gained nearly 1.3%, year to date. It carries a Zacks Rank of 2 (Buy), at present.
E*TRADE Financial Corporation has been witnessing upward estimate revisions for the past 30 days. Additionally, the company’s shares have gained nearly 5.8%, year to date. It carries a Zacks Rank of 2, at present.
3 Medical Stocks to Buy Now
The greatest discovery in this century of biology is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating revenue, and cures for a variety of deadly diseases are in the pipeline.
So are big potential profits for early investors. Zacks has released an updated Special Report that explains this breakthrough and names the best 3 stocks to ride it.
See them today for free >>