Analyst Note| Michael Wong, CFA, CPA |
Narrow-moat Goldman Sachs released restated second-quarter financial statements for the 1MDB agreement with the Malaysian government, and we don’t anticipate making a material change to our $218 fair value estimate. The company increased its provisions for litigation and regulatory provisions by $2.01 billion, which reduced its net income to common shareholders to $197 million, or $0.53 per diluted share, from its previously reported $2.2 billion, or $6.26 per diluted share. We estimate that the company may have cumulatively provisioned around $4.5 billion related to 1MDB, though the agreement with the Malaysian government was for a $2.5 billion payment and came with a guarantee that at least $1.4 billion of proceeds from seized assets would be remitted to Malaysia. This means that Goldman Sachs may have already accrued several hundred million to over $1 billion for other settlements or regulatory fines related to 1MDB. Goldman Sachs also reduced its “reasonably possible aggregate loss” estimate for legal proceedings to $0.9 billion from $3.2 billion at the end of the first quarter of 2020, which reduces the potential size of legal charges in coming quarters. With the company’s market capitalization of $70 billion and $90 billion of shareholders’ equity, it should be able to absorb additional legal charges.