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Breakingviews - Goldman Sachs’ 1MDB scar is already fading

A sign is displayed in the reception of Goldman Sachs in Sydney, Australia, May 18, 2016. REUTERS/David Gray

NEW YORK (Reuters Breakingviews) - Goldman Sachs faces two drubbings for its role in Malaysia’s 1MDB bribery scandal. The first one came on Friday, as the Wall Street firm pledged to pay the new Kuala Lumpur government $2.5 billion in cash. The second one, a reckoning with the U.S. Department of Justice, will now be easier to wind up. The bill for working with 1MDB is looking big enough to sting, but small enough to become just another item on Wall Street’s mile-long rap sheet.

The settlement is more than Goldman offered last year, but a lot less than the $7.5 billion Malaysia once wanted. It comes with a promise to add some more cash if Prime Minister Muhyiddin Yassin’s government can’t recoup seized assets worth at least $1.4 billion – though if Malaysia gets back what it’s owed elsewhere, Goldman won’t be on the hook for that. Either way the extra sum won’t be due for five years, according to a person familiar with the situation.

As always, the big question is whether it’s enough to deter wrongdoing. On one hand, $2.5 billion is four times the $600 million Goldman made in fees from 1MDB. So it’s an appropriately punitive result. On the other hand, it is a pittance for a $60 billion company that has paid out more than $55 billion in dividends and stock buybacks since it first helped 1MDB raise funds in 2012, according to data from Refinitiv.

If previous Wall Street scandals are a guide, investors and companies move on pretty quickly. Goldman’s shares were up slightly on Friday after the settlement was announced. One remaining question, aside from possible additional financial penalties, is whether the DOJ will force Goldman to admit criminal guilt to a federal charge for the first time. Banks that have pleaded guilty before, like Citigroup and JPMorgan, have carried on as normal. In some cases, like that of planemaker Airbus, settling with foreign authorities helps win more lenient treatment from the U.S. authorities.

Either way, lengthy negotiations have tied up executives like Goldman boss David Solomon, generated years of awkward questions and bad press, and cast a shadow over the company’s reputation. The process is probably a better deterrent than the result.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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