SINGAPORE (Dec 24): When Goldman Sachs was selling bonds issued by 1Malaysia Development Bhd (1MDB) in 2012, a fund manager friend of mine remembers its salespeople emphasising that the securities were a Malaysian “sovereign credit risk”. Yet, the coupons on these bonds were higher than the yields on Malaysian sovereign bonds. My fund manager friend asked to see an explicit statement that the bonds were guaranteed by the Malaysian government. The Goldman Sachs salespeople never got back to him.

By 2015, the 1MDB scandal was making international headlines, and Goldman Sachs was reportedly attracting law enforcement scrutiny for its role in the whole affair. In particular, the US$600 million in fees and commissions the bank earned from its 1MDB-related activities seemed to be a red flag. Goldman Sachs arranged and underwrote three bond issues for units of 1MDB in 2012 and 2013, worth a total of US$6.5 billion. The US$600 million of fees it earned was equivalent to more than 9% of the bond proceeds, which seems excessive.

Goldman Sachs has maintained that the income it earned from 1MDB reflected the underwriting risks it assumed. But that seems to be at odds with what its salespeople had told investors. If the risk profile of the bonds was similar to Malaysian sovereign bonds, what risk did Goldman Sachs see as an arranger and underwriter? Did it not seem strange to Goldman Sachs that the issuer was being so generous? Or, that other banks were not beating down 1MDB’s door for the business?

To continue reading,

Sign in to access this Premium article.

Subscription entitlements:

Less than $9 per month
3 Simultaneous logins across all devices
Unlimited access to latest and premium articles
Bonus unlimited access to online articles and virtual newspaper on The Edge Malaysia (single login)

Stay updated with Singapore corporate news stories for FREE

Follow our Telegram | Facebook