NEW YORK, Feb 9, 2019 (BSS/AFP) – Goldman Sachs’s decision to potentially
cut bonuses for top executives over the 1MDB scandal reflects an
acknowledgement at shareholder and public outrage over the debacle.
The prestigious investment bank announced last week that it could withhold
millions of dollars in bonuses to former Chief Executive Lloyd Blankfein and
two other retired executives depending on the outcome of ongoing 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 $7 million and nearly doubled, according to US securities
documents.
Beyond the bonuses, Goldman also said it could claw back compensation from
current chief executive David Solomon and two other current senior
executives, president John Waldron and chief financial officer Stephen
Scherr.
Solomon was paid $23 million last year, including $15.4 million 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 chairman, Goldman’s 13-member board
includes ArcelorMittal chief executive Lakshmi Mittal.
Experts say Goldman Sachs could face a fine of perhaps $2 billion under a
criminal case related to 1MDB.
– Under scrutiny –
In January, Solomon apologized 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 1 Malaysia Development Berhad,
a sovereign wealth fund set up for development of the country. Goldman
garnered $600 million in fees and revenues from 1MDB bond transactions.
US officials maintain that more than $2.7 billion 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 $1.75 billion 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 told AFP.
“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 $6 billion 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 comment and Lazard did not respond requests for comment.