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The action for one of the worst crises in Goldman Sachs' history is now centered on the United States, where prosecutors have charged two of the bank's former money launderers and bribing foreign officials.
Back in Asia, the corruption scandal in Malaysia continues. The question now is how deep is the decay and how much damage will have been caused to Goldman's larger operations in the area, which the bank has been building for decades.
"Of course, all my clients are crooks. . . '
The impact of the 1MDB scandal has been swift. Tim Leissner, the former Goldman partner who pleaded guilty to crimes related to the 1MDB scandal, left Goldman in 2016, when the bank had already begun to fall back into the region. In 2013, it was the second largest investment bank for commissions in Southeast Asia, but only two years later, after the public eruption of the scandal, it fell to number 24, according to data from Refinitiv.
Alex Turnbull was a negotiator at Goldman's Singapore office in 2012 and 2013, when the bank advised 1MDB, the Malaysian sovereign fund at the heart of the scandal. Mr. Turnbull, son of former Australian Prime Minister Malcolm Turnbull, laments in his assessment of the bank's approach in the region.
He told the Financial Times: "The attitude of some of the bankers was. . . "Of course, all my clients are crooks – so how am I going to get along with them?"
"They sort of felt that if I wanted to succeed in Asia, I would have to do it the way, quote, without quotation, in the" Asian way ". . . It may be your opinion, but it is also a violation of US law. "
Mr. Turnbull claimed that he was removed from his post after asking about relations with Malaysia. Goldman insiders rejected the claims, saying that Mr. Turnbull was not exposed to 1MDB.
In August, Mr. Leissner told a court that it was "very much in keeping with the Goldman Sachs culture of concealing the facts to some legal and legal employees," according to a transcript made public earlier this month.
Goldman sought to describe the acts as misdeeds of individuals rather than by the wider cultural problems identified by MM. Turnbull and Leissner. Last week, CEO David Solomon sent a voicemail message to employees, saying he was "personally outraged" by the "reprehensible" behavior of "these people," which was "inconsistent with the good work and integrity that defines the work that 40,000 of you do. everyday".
While this message prevails, the damage to the reputation is serious and Goldman investors are preparing for fines of at least several hundred million dollars. In Asia, however, the response is mixed.
Goldman backs away from Malaysia
"If you are a large company and you are in the startup phase [with Goldman] In the next structuring of your derivatives, you can imagine that board members are saying, "Do we really have to engage with the guys involved in 1MDB?" Said Kevin Kwek, Singapore-based analyst at Sanford C Bernstein. "On the other hand, these guys are Teflon and they have very deep relationships."
In Malaysia, the bank's alleged involvement in a $ 2.7 billion $ 1 billion project has created the most difficult challenge for the company since it expanded to the region ten years ago.
Prime Minister Mahathir Mohamad refused to rule out forcing the bank to leave the country by force, saying: "Goldman Sachs did things that are bad and they should not have done"
When Goldman decided to target Malaysia and the rest of Southeast Asia as part of a broader regional expansion 10 years ago, Mr. Leissner was leading the business as president of the bank for the first time. 'South East Asia. Mr. Leissner is believed to have established close relations with Malaysian tycoons and the Najib Razak government from 2008.
His relations with the Malaysian government, reinforced by the meetings between former Goldman CEO Lloyd Blankfein and Mr. Najib, proved lucrative first. 1MDB, a state-owned company, hired Goldman to make $ 6.5 billion in bond contracts generating fees of about $ 600 million, an unusually high rate for services. Between 2008 and 2013, Goldman was the only Western investment bank to rank among the top 10 fee-earners.
At its peak in 2013, Malaysia generated approximately $ 82 million in investment banking fees for Goldman, or 70% of its total commissions for Southeast Asia, according to the reports. Refinitiv data. The $ 600 million generated by the work for 1MDB is not captured in the expense data because they were earned on bond spreads. Banks often blame third-party cost data for not giving a complete picture of how they generate revenue.
The Goldman brand has shown little sign of recovery, ranking 17th in Southeast Asia for registration fees in early November for just $ 27 million. According to Refinitiv, Malaysia has not generated any commission for the bank in the past two years. Other markets such as Singapore and Indonesia are also down.
Bankers in the region say that as long as Malaysia's ruling coalition, which overthrew 1MDB founder Najib Razak in the May elections, is in power, Goldman will likely be expelled from the country, even if he repays the connection fees.
"They have been persona non grata for some time," said a senior banker in the region. "Government-related businesses have not touched them for a long time. The only good customer they really had outside of 1MDB in Malaysia was [tycoon] Ananda Krishnan, but you did not see him use it either. "Mr. Ananda could not be reached for comment.
Goldman's office in the country has been reduced in size, leaving only one asset management team, according to someone familiar with the matter. Yusof Yaacob, the former chairman of the investment bank in Malaysia, left in 2014 to join Deutsche Bank as national manager.
Since the bursting of the 1MDB scandal in 2015, Goldman's name has been remarkably absent from large deals by major Malaysian investors, such as the Khazanah sovereign wealth fund. Nor did it win major deals with Singapore's two largest investors, Temasek and GIC, neighbors, according to a list of major merger and acquisition deals that the bank worked on.
Instead, its Malaysian client base has included smaller groups such as iProperty, a publicly traded company in Australia, and private equity firm Navis Capital Partners. He has also worked on some incoming transactions, such as the investment of Bank of China (Hong Kong) in Malaysia.
Mr. Leissner distinguished himself by all the bank's activities in Asia, which focused most of his resources on China.
Focus on China continues
Goldman reported about $ 640 million in commissions this year from Asia ex Japan, ranking third behind Bank of China and Citic. Business from China accounts for just over half of this revenue – an increase of 40% over last year and a record for the bank.
The bank quickly entered China, forging links with some of the country's largest financiers. She subscribed to the IPO of Tsingtao Brewery in 1993, the first IPO of a Chinese company on the Hong Kong Stock Exchange, presaging tens of billions of dollars in similar transactions.
In 2004, he signed an agreement with the powerful Chinese financier Fang Fenglei for one of the first joint ventures of foreign securities in the country. The deal, brokered by Henry Paulson, then managing director, was hailed as a major breakthrough in China, opening up several similar joint ventures by rivals.
"China's presence with global banks is important for perception, and because you bring global customers and local know-how," said George Kuznetsov, head of research and analysis at Coalition. , the financial services data provider.
The escalation of the 1MDB scandal has not deterred the largest groups of Chinese states from hiring Goldman. It worked for the $ 7.6 billion IPO by the Postal Savings Bank of China in 2016 and the $ 44 billion acquisition of the Swiss food giant Syngenta by ChemChina the same year.
Its brand is highly coveted, as pointed out by a Shenzhen-based company trading under the same Chinese characters that was surprised to offer its services online in 2015.
This series of lucrative deals in China was organized under the supervision of Andrea Vella, former co-head of the Goldman investment bank for Asia ex Japan.
advisable
However, this month, Mr. Vella became Goldman's latest victim in the 1MDB saga, raising questions about the direction taken by the bank's management in the region.
The US Department of Justice recently said that an Italian partner of the bank was a co-conspirator in the project to divert billions from the Malaysian fund. Mr Vella, a native of Rome, was not charged but was quickly put on leave.
New leadership in Asia
Attention has shifted to Todd Leland, who joined Hong Kong at the end of last year as co-president of the bank in the region alongside James Paradise, director of titles for the Asia region. -Peaceful.
Mr. Vella and Kate Richdale, head of the co-investment bank, both stepped down in October, which led to Mr. Leland being appointed sole bank executive. investment. The assignment is Mr. Leland's first in Asia and is perceived as a challenge for a newly arrived banker in the region.
"It's not the job he's moved here to do it, but he's been doing it for several months," said a Goldman colleague.
The 1MDB case still threatens to give Goldman another nasty surprise. The group's shares in the US have taken their biggest dive since 2011 since earlier this month after Malaysia's finance minister said he would seek a refund of the billions lost in the scandal. The main concern of Mr. Leland and his colleagues is that the damage to his reputation could be even more expensive.
