Goldman Sachs cuts quarterly profit by 91% after $3.9 billion 1MDB settlement

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Goldman Sachs cuts quarterly profit by 91% after $3.9 billion 1MDB settlement
Richard Drew/AP
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Goldman Sachs' increased legal provisions related to the 1MDB scandal slashed its second-quarter profit to $373 million from $2.4 billion.

The bank boosted its litigation reserves by roughly $2 billion after settling with the Malaysian government over 1MDB in July, according to a Friday regulatory filing restating its quarterly figures. The bolstered reserves wiped out roughly 91% of Goldman's previously announced profit for the quarter ending in June.

Goldman had set aside $945 million for legal expenses during the quarter but warned the sum would jump following its settlement with Malaysia.

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The firm's shares slumped as much as 0.9% on the news before paring some losses.

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Goldman agreed on July 24 to pay $2.5 billion in penalties and return an additional $1.4 billion in assets to resolve Malaysia's probes related to 1MDB. The scandal involved the wealth fund 1 Malaysia Development Berhad, which raised $6.5 billion in 2012 and 2013 with Goldman's help. Much of the funds were allegedly embezzled or laundered by individuals connected to Malaysia's former prime minister.

Goldman repeatedly denied any wrongdoing and said it was misled by government officials and the development fund.

The scandal has since loomed over Goldman's performance as analysts looked to quantify its financial hit. The bank has yet to settle with US authorities. The Wall Street Journal reported in December that the Justice Department was seeking a $2 billion fine and a guilty plea by a Goldman subsidiary.

The bank beat second-quarter estimates on July 15 with revenue hitting its second-highest reading ever. Loan loss reserves of $1.6 billion cut into profits, but the firm's earnings still trounced expectations as trading desks thrived on strong market volatility.

Goldman traded at $203.23 as of 11:50 p.m. ET Friday, down roughly 12% year-to-date.

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