Goldman Sachs Posts First Quarterly Loss in Six Years -- Update
January 17 2018 - 8:39AM
Dow Jones News
By Liz Hoffman
Goldman Sachs Group Inc. reported lower revenue for its fourth
quarter as slow trading and a one-time tax hit pushed the firm to
its first quarterly loss in six years.
The Wall Street firm posted a $1.93 billion loss, or $5.51 a
share, on $7.83 billion in revenue. A $4.4 billion charge resulting
from the new tax law wiped out the firm's entire quarterly profit
and much of its earnings for the year.
Excluding the charge, Goldman's net income of $2.26 billion was
above the $2.04 billion that analysts had expected. It dropped
about 4% from the fourth quarter of 2016, when a trading surge
around the U.S. election boosted banks' bottom lines.
Shares slipped 0.9% premarket.
Goldman is looking for new sources of revenue as its traders --
who ruled Wall Street before the financial crisis and basked in its
immediate aftermath -- struggle with the lasting effects of the
downturn. Calm markets have sapped demand for its traders, while
new rules nixed the lucrative bets the bank once placed with its
own money.
Instead, the firm is embracing new, steadier businesses such as
consumer banking and asset management. But those businesses will
take years to fill the roughly $10 billion revenue hole opened by
Goldman's trading woes -- if they ever do.
Goldman's trading revenue fell 34% from a year ago to $2.37
billion. Other large U.S. banks posted similar declines in a
quarter that featured few catalysts to spark investors to
trade.
Goldman's all-important fixed-income division, which trades
debt, commodities and foreign currencies, posted its worst quarter
in nine years, with revenue down 50% from a year ago. That unit,
which once generated a majority of Goldman's profits, struggled
throughout 2017, losing money on oil and gas trades as well as
positions in some low-rated corporate debt. On Wednesday, the firm
cited weakness in all four of the businesses' main pillars.
Goldman executives have acknowledged missteps in its securities
arm, including that the firm was too slow to recognize the lasting
effects of the financial crisis. Over the past two years, it has
cut traders, trimmed bonuses, revamped its sales network, and
embraced the type of low-margin, high-volume trading business it
once deemed trivial.
Goldman faced a tough comparison with the fourth quarter of
2016, when a surge in election-related trading activity and a
year-end rush to close big deals helped it to a strong quarter.
The fourth quarter of 2017 didn't bring a similar trading boost.
Competition for what business there was drove down profits across
Wall Street, particularly in assets like commodities, bonds and
other fixed-income products.
JPMorgan Chase & Co. on Friday reported a 27% drop in
fixed-income trading fees. Citigroup Inc. on Tuesday said its
fixed-income revenue declined 18% from a year earlier.
Goldman set aside extra money to cover a single troubled loan,
which a person familiar with the matter identified as a loan to an
executive of Steinhoff International, a South African retailer in
the midst of an accounting scandal. It didn't report an exact
figure, but the provision dragged down its overall investing and
lending revenue by 2%.
Other banks including Citigroup Inc. and JPMorgan have reported
nine-figure losses on the same loan, which was spread widely among
international banks.
Goldman's investment bankers, who arrange mergers and underwrite
stock and bond sales, brought in $2.14 billion in the quarter, up
44% from a year ago. With fewer companies choosing to go public --
particularly within the crop of highly valued Silicon Valley
startups that Goldman has courted, angling for IPO mandates -- the
bank is leaning more heavily on mergers, debt underwriting fees and
secondary stock sales, which all rose.
The firm's asset-management arm, which runs mutual funds and
private investment vehicles, reported $1.66 billion in revenue, up
4% from a year ago. Assets under supervision edged up slightly to
$1.49 trillion, though the business is still dwarfed by
fast-growing giants like BlackRock Inc. and Vanguard Group Inc.
Goldman took a $4.4 billion charge, slightly smaller than
expected, related to the new tax law. Most of the bill is a
one-time tax on foreign earnings that Goldman has kept overseas. A
smaller chunk comes from revaluing certain tax credits, which are
worth less now that the corporate rate has gone down.
Goldman's stock price rose sharply in the months following the
2016 election, but bounced sideways for most of 2017. It finished
the year up about 5%, the worst-performing of the largest U.S.
banks.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
January 17, 2018 08:24 ET (13:24 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Mar 2024 to Apr 2024
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Apr 2023 to Apr 2024