NEW YORK: Goldman Sachs Group Inc should reach a 1MDB settlement before the US presidential election, according to Wells Fargo bank analyst Mike Mayo.
“Time is of the essence given the November election, which could undo prior work,” Mayo wrote in a note.
He slashed his estimate for Goldman’s third-quarter generally accepted accounting principles earnings by US$1 billion, or US$2.15 per share, to account for a potential US$3 billion to US$4 billion settlement.
Failure to reach a resolution in the quarter could set back not only the bank but also Malaysia and the US Department of Justice, he said.
For Goldman, “no settlement would mean an ongoing stock overhang and uncertainty about a capital hit”.
Earlier, Nikkei Asian Review reported that Goldman and Malaysia are in talks for a settlement that’s said to be worth close to US$3 billion, and which may involve the bank providing services – like sovereign bond issuance and disposal of state-linked companies – to Malaysia’s government at a discount.
Goldman is also nearing a resolution with the Justice Department after tussling over a potential guilty plea, which would be the first in the investment bank’s history.
Goldman chief executive David Solomon “heads the top deal firmly, and it is time for him to make a deal happen regardless of the complexity,” Mayo said.
He added that Goldman had “reserved aggressively for legal and regulatory issues” in the second quarter, which was likely due to 1MDB, and he flagged reports senior Goldman officials have travelled to Malaysia to pursue a settlement.
Earlier in July, Goldman reported blow-out second-quarter earnings.
The results were so good they were “almost indecent,” and might trigger a political backlash, Opimas CEO Octavio Marenzi cautioned.
Investors are keeping a close eye on policymakers who will probably help craft financial strategy in a potential Biden administration, like Senator Elizabeth Warren, who is seen as a possible pick for Treasury secretary, and House Finance Committee Chair Maxine Waters.
Goldman shares slipped as much as 0.9% Thursday to the lowest since July 10.
The bank is underperforming the broader market but beating financial stocks so far this year, with an 11% drop compared to a 21% decline for the S&P 500 Financials Index and a 1.3% gain for the S&P 500.