Mahathir’s return puts the fear into Malaysian finance

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By:
Chris Wright
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New policies, new hope – the Malaysian election has lots of positives, but not for anyone who is seen as having been a Najib acolyte. For them, the axe is already falling.

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Mahathir Mohamad returned to power pledging to hold authority to account


Despite public delight, there is a mood of some paranoia in Malaysian business and finance right now – and you can see why. Since the shock opposition election victory on May 9 restored 92-year-old Mahathir Mohamad to power, deposing the party he once led, one person after another with ties to ousted prime minister Najib Razak has been removed from leadership positions in Malaysia’s key institutions.

And the big question for many is: who is next? Is it me?

Mahathir returned to power pledging to hold authority to account over the 1MDB scandal and other alleged corruption in Malaysian public and corporate life. Already it is clear that he and his coalition of opposition parties will go further – and that those who stood closely with Najib can expect to face removal.

This has already had serious ramifications for many of the most senior figures in Malaysia.

Tan Sri Muhammad Ibrahim, the governor of Bank Negara Malaysia, the central bank, resigned on June 6, just two years into what was supposed to be a five-year term. The black mark against Ibrahim’s name – apart from being a Najib appointee – appears to have been a RM2 billion ($501 million) land deal through which Bank Negara bought land from the Malaysian government; the new government alleges this money was used to pay some of 1MDB’s debts.

Several Malaysian news agencies have reported that the chief executive of Bursa Malaysia, the national stock exchange, is to be replaced. Tajuddin Atan’s tenure was in any case due to expire in March.


At a time when dissent was being swiftly and firmly shut down by Najib and his team, Nazir was one of the few openly negative voices against his brother 

Petronas, the national oil company and something of a crown jewel in Malaysia, has had a particularly vigorous period of upheaval. Chairman Tan Sri Mohd Sidek Hassan has been widely reported as having resigned from his post, although Petronas itself has not confirmed this. It hasconfirmed that remuneration committee chairman Datuk Mohd Omar Mustapha has resigned. It is also expected that Petronas’s former president and chief executive officer, Tan Sri Mohd Hassan Marican, who had resigned earlier, could return.

Several chief executives of big Malaysian companies have gone, the most high-profile of which is Datuk Seri Shazalli Ramly, chief executive of Telekom Malaysia. Others reported to have resigned include Tan Sri Ismee Ismail, chairman of Media Prima.

Ramly says his resignation is over a “personal matter”. It perhaps didn’t help that before the election he brought together a group of government-linked company chief executives and got them to sing HebatNegaraku (‘My country is great’) in a show of support for Najib before the election.

Other institutions said to be facing a great deal of scrutiny under the new government are the Securities Commission, which regulates the capital markets, and the fund for Muslim pilgrimages, Tabung Haji.

The line

So, what about the banks?

Here we come to an interesting question. Just how far does Malaysia under Mahathir wish to go in seeking redress against those connected with the previous administration? Where does one draw the line between simply conducting business as one might reasonably do for government-linked businesses and being complicit in institutional wrongdoing?

It would be possible to find a connection between almost every large bank in Malaysia and the more controversial activities of the Najib administration, if one wanted to.

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Former prime minister Najib Razak surrounded by the media


AmBank is the most obviously exposed, since this is where the bank account at the heart of the 1MDB scandal (for Najib himself and into which $681 million was transferred, supposedly a personal donation from Saudi Arabia) was held. The death of AmBank founder Hussain Ahmad Najadi, who was shot dead in a parking lot in 2013, has attracted further scrutiny since the bank’s connections with 1MDB have come to light. That said, AmBank’s connections to the incident are already well known and it is hard to imagine that much worse could emerge; and AmBank apparently attempted to report the account to Bank Negara itself.

Maybank held a 1MDB bank account and, along with AmBank, advised 1MDB on its power portfolio. Maybank was also a lender to 1MDB for it to buy power assets, alongside AmInvestment Bank and Hwang DBS Investment.

RHB was also a lender on the power loan to 1MDB. And it may not help that group chief executive Datuk Khairussaleh Ramli was on the drums on that patriotic pre-election video (with CIMB chief executive Datuk Seri Zafrul Aziz on backing vocals).

While CIMB as an institution has not been linked to 1MDB, its chairman Nazir Razak, the younger brother of Najib, once had $7 million pass through his personal accounts to and from Najib, of which some part appeared to be linked to 1MDB. Nazir suspended himself, and his board appointed Ernst & Young to investigate his behaviour, which cleared him.

One could find an argument to justify hitting any of these banks for their involvement in 1MDB or connections to Najib (most have some level of ownership from the state, often through the Khazanah national wealth vehicle). But if one was to oust all these senior executives, who would be left to run things? The pool of executive talent in Malaysia is not considered deep enough to handle leadership change at all these banks in addition to all the other institutions in a short amount of time.

Malaysia under Mahathir has a decision to make about just how far it wants to push things. Besides which no charges have been laid in Malaysia over 1MDB yet, against Najib or anybody else.

Meanwhile, bank executives – all executives in Malaysia, really – are waiting for the knock on the door.

The cast

Of all the banking characters involved, the most interesting situation involves Nazir. From the outside he would look to be first in the firing line, as brother to Najib and having had 1MDB funds pass through his accounts.

But it is a lot more complicated than that. At a time when dissent was being swiftly and firmly shut down by Najib and his team, Nazir was one of the few openly negative voices against his brother, and the two have not been close since about 2013. An avid user of social media, his Instagram posts have often taken a position against Najib, sometimes using ‘Game of Thrones’ imagery as a comment on the state of politics in the country.

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Nazir Razak has long been an advocate for reform and governance change in Malaysia


When Euromoney last interviewed Nazir on the record two years ago, we observed that he was probably one of only two people in the country who could get away with speaking out like this – and the other was Mahathir.

He also kept CIMB out of 1MDB, having apparently doubted its governance from the outset.

Although not as vocal as Mahathir (nobody is as vocal as Mahathir), Nazir has long been an advocate for reform and governance change in Malaysia. He formed a think tank group in Oxford to generate ideas, which his brother roundly ignored, but some of which chime with the stated policies of the coalition that has now come to power. (Mahathir’s daughter, the social activist Marina, was a member of the group.)

Two institutions at which Nazir served as a director – the hugely important pension vehicle, the Employees Provident Fund (EPF), and sovereign fund vehicle Khazanah – also appear to have come through recent years in better reputational shape, although many think Khazanah could do a better job in its mandate of restructuring government-linked companies in which it has holdings. The EPF in particular is considered one the cleanest and most professional enterprises in Malaysia.

The decision on whether or not the new powers go after Nazir will tell us a lot about two things. One, whether or not they see him as having been an important element of resistance to his brother’s excesses, despite the cultural sensitivities around criticizing family in conservative Malaysia. Second, whether or not Malaysia will be taking a pragmatic approach to keeping talented people in important posts, no matter who their family members are.

One CIMB alumnus may find himself in an awkward situation.

Badlisyah Abdul Ghani was the head of CIMB Islamic and one of the most successful and visionary people in Islamic finance worldwide, but he left the bank shortly after an ill-advised Facebook post casting doubt upon the authenticity of the 1MDB documents. Now deputy head of Tabung Haji, he is probably regretting that post afresh, although there is arguably nothing wrong in having assumed his prime minister’s innocence and standing up for him, even if that presumption eventually proves to have been wrong.


In Malaysia’s modern history, there has always been one centre of power to understand and work with – most recently Najib and further back, Mahathir. Now it seems there are four 

Also watching things closely will be foreign banks involved in 1MDB, none more so than Goldman Sachs, by far the most closely involved. The US Department of Justice (DoJ), whose exhaustive investigative complaint seeking recovery of 1MDB assets features Goldman very heavily, is expected to gain unfettered access and cooperation from the new government in Malaysia in its investigation.

But although individuals formerly at Goldman may face censure either in Malaysia or from the DoJ, particularly former southeast Asia chairman Tim Leissner, Goldman itself has presented Leissner as an isolated figure, a version the Monetary Authority of Singapore, for one, seems to accept. If that is the case, then Goldman as an institution does not appear to have done anything illegal other than charge vast fees for what it did on behalf of the Malaysian state.

The fees

Some commentators believe that the new administration, or possibly the DoJ, will seek the return of some of the fees Goldman gained from various bond issues related to 1MDB, although assuming Goldman’s contracts were robust, it is likely to argue there is nothing wrong in proposing a heavy fee and having it accepted by a client.

People are talking about getting $600 million back. That appears to be a reference to the $577 million of bond proceeds that were diverted from the first of two bonds Goldman arranged, supposedly for 1MDB, to a Swiss account that had nothing to do with 1MDB. But that is not Goldman’s fee; according to the DoJ, Goldman made $192.5 million from a $1.75 billion bond issue in May 2012 and $113.74 million from another $1.75 billion bond in October 2012. Those are the fees Malaysia might seek to claw back, at least in part.

The power

Bankers today need to navigate a radically different political environment. In Malaysia’s modern history, there has always been one centre of power to understand and work with – most recently Najib and further back, Mahathir.

Now it seems there are four: prime minister Mahathir; Daim Zainuddin, the businessman and former finance minister who is said to be Mahathir’s closest adviser and who serves on his Council of Elders (as do Zeti Akhtar Aziz, the former governor of Bank Negara Malaysia, and former Petronas head Hassan Marican); Anwar Ibrahim, on whose behalf Mahathir was campaigning and to whom Mahathir is meant to transfer power once Anwar wins a seat in parliament, probably in two years’ time; and the Democratic Action Party generally, which is the key component of the new ruling coalition.

When the dust settles and after short-term pain and disruption, many in Malaysia think the outlook for the country and its banks will be better if reform is implemented as planned. In policy terms, this is exactly what many people wanted to happen. But it remains to be seen how much blood-letting has taken place in the country’s senior ranks by the time banks and institutions regroup for a hopefully brighter future.