(Bloomberg) -- Goldman Sachs Group Inc. boosted litigation reserves by $2.01 billion after agreeing with Malaysia to resolve probes into the U.S. bank's role in a scheme to plunder the nation's 1MDB investment fund.
The additional provision cut the firm's previously announced second-quarter profit by 85%, the bank said Friday in a filing. Goldman Sachs said last month that the Malaysia settlement would “materially increase” the $945 million it had already set aside in the quarter.
The charge wipes out what had been a surprise jump in profit fueled by trading gains, but it also marks progress in the investment bank's efforts to resolve its worst scandal since the financial crisis. The firm has long been in discussions on a separate settlement with the U.S. Department of Justice over 1MDB, and a deal could be announced as soon as this month.
Inside Goldman's five-day race to seal a 1MDB deal with Malaysia
The Malaysia agreement includes a payment of $2.5 billion, as well as guarantees that the Asian nation will get at least an additional $1.4 billion from 1MDB assets seized by authorities around the world. Goldman Sachs said it doesn't face “significant risk” from providing the guarantee.
Wolfe Research's Steven Chubak estimated that Goldman Sachs had already set aside more than $3 billion of legal reserves. The latest provision would take that total to around $5 billion.
Goldman Sachs's second-quarter net income fell to $373 million, marking its lowest quarterly profit since 2017. The firm's shares fell 0.6% to $203 at 7:03 a.m. in New York trading. The stock was down 11% this year through Thursday.
The probes against the Wall Street firm focus on its work raising $6.5 billion in 2012 and 2013 for the fund formally known as 1Malaysia Development Bhd., much of which was allegedly siphoned off by people connected to the country's former prime minister. Goldman's investment-banking group, led at the time by now-Chief Executive Officer David Solomon, collected an unusually high $600 million from the bond sales.
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