[KUALA LUMPUR] When Malaysia's largest sovereign wealth fund asked bankers to pitch for work arranging a US$750 million bond sale in December, one big name was conspicuous by its absence: Goldman Sachs Group Inc.
Khazanah Nasional Bhd omitted the Wall Street firm from the list of banks invited to bid on that and other bond transactions in the past three years, according to a person familiar with the matter. During that time, Goldman Sachs slid down the Malaysian deal league tables, cold-shouldered by potential clients concerned about negative publicity from its dealings with 1Malaysia Development Bank Bhd, another government entity.
Chief executive officer Lloyd Blankfein guided Goldman deeper into emerging markets over the past decade, arguing that their rising influence in the global economy justified the higher risks involved.
Malaysia, where Goldman Sachs collected eye-popping fees from 1MDB about three years ago, has come to symbolise the potential outsize rewards of developing economies - but also the perils.
Fallout from working with 1MDB, the embattled investment fund at the centre of investigations from the US to Singapore, has led to a wider collapse in Goldman Sachs's once-thriving business in Malaysia, which it said a few years ago offered "very positive" prospects.
Work advising Malaysian clients on mergers and acquisitions, share offerings and bond issues has all but evaporated over the past few years, according to data compiled by Bloomberg, and several senior bankers involved in Malaysian deal-making have left since 2013.
"I'm not sure how long it'll take for Goldman to recover from this," said Ang Ser Keng, a senior lecturer in finance at the Singapore Management University. "They will definitely hurt from this," Mr Ang said, referring to Goldman Sachs's association with 1MDB.
The bank's fall from grace in Malaysia stands in stark contrast with its prosperous run under Tim Leissner, the former star Goldman Sachs banker who drew many Malaysian clients to the firm and helped oversee three bond offerings for 1MDB in 2012 and 2013.
Those deals proved the turning point for the bank's fortunes. Soon after, Goldman Sachs got unwanted publicity over the above-average fees and commissions it earned on the bond sales.
More recently, 1MDB has found itself at the centre of a complex scandal over its ballooning debts and financial ties with Malaysian Prime Minister Najib Razak.
Mr Leissner left Goldman in February and now lives in Los Angeles with his wife, the former US model and fashion designer Kimora Lee Simmons. He has been subpoenaed by the US Department of Justice in connection with its investigation into the Malaysian fund, according to people familiar with the matter.
US prosecutors are examining an alleged transfer of hundreds of thousands of dollars from a former 1MDB employee to a start-up company which Mr Leissner was backing, according to other people briefed on the matter.
The deepening global fallout of the 1MDB scandal was underscored on Tuesday, when Singapore took the rare step of ordering Swiss private bank BSI SA to shut its unit in the city-state because of its ties with the Malaysian fund.
Mr Leissner hasn't been accused of wrongdoing. Malaysia's premier and 1MDB have consistently denied any wrongdoing. Goldman Sachs is working with an outside law firm to conduct an internal examination and is reviewing its own role in helping 1MDB raise capital, according to people with knowledge of the matter. There is no indication that the firm engaged in any wrongdoing, the people said.
Goldman Sachs expressed confidence in its Malaysian business. "Malaysian deal activity has been generally quiet but our dialogue with clients is positive and we are seeing a growing pipeline of transactions," said Hong Kong-based spokesman Edward Naylor. An official from Khazanah declined to comment.
Last year, Goldman Sachs didn't arrange a single share sale in Malaysia. In mergers advisory involving companies from the country, it ranked 18th, behind global rivals such as HSBC Holdings Plc, JPMorgan Chase & Co and UBS Group AG, Bloomberg-compiled data show.
In 2012, the last full year before reports emerged about its commissions from the 1MDB bond sales, Goldman was second in advising on M&A, trailing only local lender Malayan Banking Bhd.
Goldman Sachs led the league tables for arranging dollar bond sales by Malaysian companies from 2011 to 2013, bolstered by the 1MDB debt offerings. The firm hasn't worked on any such offerings since then, the data show.
The lowly ranking in Malaysia is also a contrast to Goldman's wider investment banking success in the Asia-Pacific region, where it typically is among the top arrangers of initial public offerings and advisers on corporate mergers. At the same time, Malaysia's investment-banking fees have dwindled since 2012 as deal-making slowed.
In 2009, Mr Leissner was quoted as saying that the outlook for Malaysia's capital markets and asset management industry is "very positive." Goldman Sachs looked forward "to playing a larger role in their development," Mr Leissner said in a press release issued by the Malaysian Securities Commission when it approved the bank's application to set up fund management and corporate finance advisory operations in the country.
Goldman Sachs played multiple roles during its business relationship with 1MDB. In 2012, it advised the firm on its US$2.8 billion acquisition of power assets from Ananda Krishnan, Malaysia's second-richest man with interests in telecommunications, media, energy and real estate.
The following year, the bank helped 1MDB purchase the Jimah power plant in Selangor, Malaysia, a deal that was completed in 2014.
In 2012 and 2013, Goldman Sachs handled three 1MDB bond sales totaling US$6.5 billion that yielded fees, commissions and expenses of US$593 million, or about 9 per cent of the money raised, well above the industry norm. The bond deals involved the bank putting its own capital at risk.
Those transactions also coincided with the end of Goldman Sachs's bull run in Malaysia. Yusof Annuar Yaacob, the deal-maker who ran its investment banking business there from Kuala Lumpur for three years, joined Deutsche Bank AG in early 2014.
Roger Ng, another Goldman Sachs banker focused on Malaysia, also left that year. Singapore-based Udhay Furtado now oversees those operations.
Though Goldman Sachs remains a dominant force in deal-making across the Asia-Pacific region, like other banks it has suffered from the wider downturn in business in South-east Asia in recent years.
Last year, it reduced the size of its investment-banking team in Singapore by about 30 per cent. Standard Chartered Plc, Malaysia's CIMB Group Holdings Bhd. and Nomura Holdings Inc have also cut staff in the region.
So far this year, Goldman Sachs ranks third for mergers and acquisitions in Malaysia, according to data compiled by Bloomberg.
The US bank is advising two foreign companies - Skyscanner Ltd in the UK and Garena Interactive Holdings Ltd in Singapore - in which Khazanah bought minority stakes.
Goldman Sachs was last invited to bid on a Khazanah bond issue in 2012, though that mandate eventually went to CIMB, Deutsche Bank and JPMorgan. For the December pitch for which Goldman Sachs wasn't invited, the bidders included Barclays Bank Plc, UBS, Morgan Stanley, Deutsche Bank and CIMB.
Standard Chartered, CIMB and DBS Group Holdings Ltd of Singapore won the mandate. The funds were used to refinance other bonds that came due in March.