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Dick Bove: Avoid Goldman Stock Until Malaysian Scandal Eases

(mike waters /assetsdelivery.com)

By    |   Thursday, 03 January 2019 12:26 PM

Investment guru Dick Bove of Rafferty Capital Markets has warned investors to stay away from one certain bank stock.

"I don't want to touch Goldman Sachs," Bove told CNBC. "People really don't understand what the issue is concerning Goldman Sachs. It's that they were involved in this huge scandal related to Malaysia. It's the fact that their compliance operations internally seem to have broken down," he said.

Malaysia last month filed criminal charges against Goldman Sachs and two of the U.S. bank’s former employees in connection with a corruption and money laundering probe at state fund 1MDB, Reuters reported. The bank has consistently denied wrongdoing.

Goldman Sachs has been under scrutiny for its role in helping raise funds through bond offerings for 1Malaysia Development Berhad, or 1MDB, which is the subject of investigations in at least six countries.

The U.S. Department of Justice estimates that $4.5 billion was misappropriated from Malaysia’s 1MDB by high-level fund officials and their associates between 2009 and 2014.

Malaysia’s Attorney General Tommy Thomas said criminal charges under the country’s securities laws were filed against Goldman Sachs, its former bankers Tim Leissner and Roger Ng, former 1MDB employee Jasmine Loo and financier Jho Low in connection with the bond offerings.

“The charges arise from the commission and abetment of false or misleading statements by all the accused in order to dishonestly misappropriate $2.7 billion from the proceeds of three bonds issued by the subsidiaries of 1MDB, which were arranged and underwritten by Goldman Sachs,” Thomas said in a statement. 

Bove explained to CNBC that Goldman's involvement with the scandal-ridden fund either uncovers ineptitude at the top of the company or a failure of its systems.

"In order for some entity to give $6 billion over three issuances, the highest level of the company must agree to it," Bove said. "The net effect is that the company cannot say that they did not approve this at every level. But then what they can say is we were victimized and if you were victimized it's because your systems are no good."

That Catch-22 will lead to a regulatory hangover that could weigh on Goldman Sachs for years and cost them millions, CNBC said Bove explained.

"The Fed comes in and it says, 'OK, what we need to do is take a look at all of your internal systems — everything from human resources, all the way out to risk management,'" Bove said. "It costs tens of millions of dollars, hundreds of millions of dollars to do that. And it takes two to three years because it isn't a simple run-through," he said.

For his part, Goldman Chief Executive David Solomon has defended the bank against criticism of its compliance and oversight related to dealings with the sovereign wealth fund 1MDB, according to a message sent to employees obtained last month by Reuters.

“We believe our culture and our processes around our due diligence and compliance was strong at the time, and is even stronger today,” Solomon said in the video message, reported earlier by Bloomberg. “We will not allow the culture to be defined by those who break our rules and don’t uphold the values we hold dear.”

In November, after the Justice Department brought fraud charges against two former Goldman employees for their involvement, Solomon told employees in a voice message that he was “personally outraged” that any bank official would take the actions alleged by the department.

Goldman’s stock  (GS.N) has taken a beating, falling since the charges were announced on Nov. 1, from $225.76 to $170.43 near midday Thursday.

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Investment guru Dick Bove of Rafferty Capital Markets has warned investors to stay away from one certain bank stock.
dick bove, goldman, stock, malaysian, scandal
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2019-26-03
Thursday, 03 January 2019 12:26 PM
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