Goldman Sachs Lowers Second Quarter Earnings By $2 Billion After Increased Legal Costs

Goldman Sachs (GS) on Friday restated its second quarter earnings to account for increased legal costs related to various settlements.

As a result, the company’s second quarter net earnings plunged to $373 million, or 53 cents per share, from the previously reported $2.4 billion, or $6.26 per share.

Goldman said in a filing it had set aside $2.96 billion for potential legal and regulatory costs (up from a previous figure of $945 million). On July 24 (a week and a half after second quarter earnings were released), the investment bank agreed to pay the Malaysian government $3.9 billion to settle a criminal investigation over Goldman’s role in a scandal involving the sovereign wealth fund 1Malaysia Development Bhd, better known as 1MDB.

In December 2018, Malaysian prosecutors filed charges against three Goldman Sachs subsidiaries for misleading investors regarding $6.5 billion in bond sales that the bank helped generate for 1MDB.

U.S. and Malaysian authorities estimated that about $4.5 billion was stolen from the fund between 2009 and 2014.

The Wall Street Journal reported that much of the additional $2 billion in set aside legal provisions will likely be paid to the U.S. Justice Department to settle its own allegations in the case related to 1MDB.

Federal prosecutors accused Goldman of violating antibribery and corruption laws by pursuing its transactions with 1MDB – from which the bank earned fees in excess of $600 million.

The Journal also noted that the 1MDB imbroglio may eventually cost Goldman more than the $5.1 billion it paid out to resolve government probes into its mortgage trading activities during the 2008 financial crisis.

Reuters reported that it’s unclear if Goldman has enough in reserves to cover any other potential settlements linked to 1MDB.