Business

Goldman Sachs CEO apologizes to people of Malaysia on earnings call

Posted January 16, 2019 1:52 p.m. EST

— Goldman Sachs' new CEO is apologizing for the role of a former banker in Malaysia's multi-billion dollar embezzlement scandal.

"It is very clear that the people of Malaysia were defrauded by many individuals, including the highest members of the prior government," David Solomon said Wednesday on the company's earnings call.

Tim Leissner, the company's former chairman of Southeast Asia, has admitted to being "one of those people," he continued. "For Leissner's role in that fraud, we apologize to the Malaysian people."

Solomon's remarks come amid a crisis for the bank, which faces lawsuits and investigations tied to its job in raising money for Malaysia's sovereign wealth fund, 1Malaysia Development Berhad.

The saga hung over an otherwise solid earnings report that boosted shares up 8% in Wednesday trading.

Goldman posted fourth-quarter results that beat analyst expectations, earning more than $2.5 billion in the last three months of 2018. It netted nearly $10.5 billion for the full year.

The company made $1.2 billion in revenue from financial advisory fees alone, which jumped 56% compared to the same quarter in 2017 because of a spike in finished mergers and acquisitions across the industry.

Meanwhile, bond trading revenue plunged 18% to $822 million. The trading division has been an ongoing headache for the bank, though trading has been a problem sector-wide this quarter. Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM) have all shared trading desk declines this week.

This was the first quarter of results for Solomon, who took the reins of the company from Lloyd Blankfein in October. Yet concerns about 1MDB have clouded the transition.

Solomon on Wednesday said that morale at the firm remains "high" despite the 1MDB drama, though conceded that "people here are extremely angry and upset about the fact that we had a partner of the firm involved in such significant fraud."

The impact of the scandal on global business has been negligible, Solomon added. But he noted that the bank would need to take time to work through damage to its reputation.

The US Justice Department claims conspirators misappropriated $4.5 billion from 1MDB, and has zeroed in on Goldman's role in the scheme. The Malaysian government is also ramping up pressure for Goldman to compensate the country for its losses.

The bank's involvement hinges on three large bond offerings that it arranged for 1MDB in 2012 and 2013. The bond sales, which raised a total of $6.5 billion, earned Goldman Sachs (GS) $600 million in fees.

In the end, almost half the money Goldman raised for the fund was allegedly siphoned off to pay for jewelry and fine art, and to fund bribes and kickbacks to foreign officials, according to US officials.

The bank has repeatedly claimed it was misled by Leissner, who left the firm in 2016. Goldman has said Leissner intentionally deceived its legal and compliance teams.

Last year, Leissner pleaded guilty to conspiring to launder money from 1MDB. He admitted that he concealed certain facts from Goldman, but he said in his guilty plea that this was in line with the bank's "culture."

Leissner's plea, as well as US charges against another Goldman Sachs banker who worked on the 1MDB deals, were revealed in November.