Abu Dhabi's Mubadala halts business with Goldman Sachs amid 1MDB lawsuit

Abu Dhabi state investor Mubadala has suspended new business dealings with Goldman Sachs since its subsidiary filed a lawsuit in November against the US bank and others to recover losses suffered through its dealings with Malaysian state fund 1MDB.

"We have suspended any activities with Goldman Sachs pending the outcome of the litigation," Brian Lott, spokesperson of Mubadala Investment Co, said in response to questions from Reuters.

"The only exceptions are engagements signed prior to the litigation, which will continue as per contractual terms," he said.

A spokesperson for Goldman Sachs declined to comment.

Mubadala, which manages over US$225 billion in assets, holds stakes in some of Abu Dhabi's biggest companies, as well as stakes in global firms such as Spanish energy firm Cepsa and Austria's OMV.

For Goldman Sachs, the suspension of new business with Mubadala comes at a bad time as Abu Dhabi is embarking on a privatisation spree that raises the prospect of several big deals in the offering for investment banks.

Over the last few years, Goldman has ranked among the top banks for takeover advice in Abu Dhabi, the oil-rich capital of the United Arab Emirates.

The suspension of business follows a civil legal action filed by International Petroleum Investment Co (IPIC) in New York in November against Goldman and others, alleging they played a role in trying "to corrupt" former executives of IPIC and its subsidiary Aabar Investments, and "mislead" IPIC and Aabar, aiming to further the business of Goldman and 1MDB. IPIC merged with Mubadala in 2017.

Goldman Sachs has said that it will contest the claim 'vigorously'.

Three banking sources told Reuters that Goldman Sachs was not being invited to potential advisory business from Mubadala, until the litigation was resolved, with one saying that the state fund had "imposed an informal boycott" on the investment bank.

Wells Fargo Securities analyst Mike Mayo said ongoing headline risk is to be expected for Goldman Sachs and the loss of some business is already baked into its models.

"Does this take a big bite of the franchise? It doesn't look that way right now," he said. "Anyone owning Goldman stock at this point should be prepared for more fall-out from 1MDB."

He estimates losses related to the scandal could be as a high as US$5 billion. Goldman has not given hard guidance around how much the scandal could cost but the bank has said it could be underreserved by as much as US$1.9 billion.

Goldman Sachs' business in Abu Dhabi in recent years included advising a government steering committee that oversaw a merger between Aldar Properties and Sorouh Real Estate in 2013. The bank also worked on a merger valuation plan for the Abu Dhabi and Dubai bourses, in 2014, which was shelved as terms could not be agreed.

Abu Dhabi's privatisation programme has already seen the sale of stakes in its national oil company to international partners, as well as corporate mergers including banks.

Goldman Sachs advised Abu Dhabi National Oil Company on the stake of its refining unit, sources said.

The deal, announced in January, saw Italy's Eni and Austria's OMV agree to pay a combined US$5.8 billion to take a stake in the refining business and establish a new trading operation owned by the three partners.

The 1MDB is the subject of corruption and money-laundering investigations in at least six countries.

An estimated US$4.5 billion was misappropriated from 1MDB by high-level officials of the fund and their associates between 2009 and 2014, the US Justice Department (DOJ) has alleged.

Meanwhile, the Securities Commission yesterday announced that it had issued a show-cause letter to Goldman Sachs, which requires it to explain why they should not be subject to disciplinary action in the 1MDB issue. 

The investment giant is being investigated by Malaysian authorities and the DOJ for its role as underwriter and arranger of three bonds that raised US$6.5 billion for 1MDB.

"We have issued a show cause to Goldman Sachs," the chairperson of the Malaysia Securities Commission, Syed Zaid Albar, said at a press conference on Thursday.

However, he did not say when the letter was issued or provide any details about its contents. If the commission finds a financial institution violated regulations, its powers include issuing fines or revoking operating licences.

Goldman Sachs did not immediately respond to a request for comment.

Goldman Sachs has consistently denied wrongdoing and said certain members of the former Malaysian government and 1MDB had lied to the bank about the use of the proceeds from the bond sales. 

-Reuters