So much for "a few bad apples."
Goldman Sachs' decision to underwrite three extremely lucrative bond offerings for doomed Malaysian Sovereign Wealth Fund 1MDB will almost certainly end up costing the bank many multiples of the $600 million in fees it generated from the deals (a high rate that Goldman justified by the exceptionally risky nature of the transactions). And though its CEO David Solomon has insisted that the scandal wasn't representative of Goldman's broader culture, revelations that senior executives - including former CEO Lloyd Blankfein - helped the bank circumvent its compliance controls and even met with a financier who is now an internally wanted fugitive have largely discredited this defense.
This is just one reason why analysts at Citigroup fear that Goldman's "tough legal setup" amid DOJ and Malaysian investigations into the bank's involvement could lead to fines up to $9 billion, which would rank among the largest fines ever doled out to a Wall Street bank.
One potential mitigating factor, according to Citi analysts Keith Horowitz and Eileen Shao, would be Goldman's ability to convince prosecutors that it has truly reformed its compliance regime since the last offering was underwritten in 2013.
Here's more from BBG:
Onerous fines and restrictions may depend on perceptions about Goldman’s compliance structure, Horowitz and Shao said. "If regulators view this more as an isolated incident and believe Goldman has an effective compliance program, consistent with Goldman’s stated position, then the fine would be on the lower end of the range." Citi’s more bearish scenarios "get to the culture of the firm."
Investors may have “initially downplayed the severity of the scandal as they believed the issue would be isolated to the conspirators and have limited direct impact on Goldman itself.” That changed when news of a potential connection to Lloyd Blankfein, alleging the then-CEO attended meetings with Jho Low, began to surface on November 8, they said.
Since Goldman's former Southeast Asia head Tim Leissner agreed to cooperate with prosecutors in late October, the bank has lost some $12 billion in market cap, a move that the analysts said was almost entirely attributable to 1MDB.