Goldman Sachs Posts First Quarterly Loss in Six Years -- Update

By FeaturesDow Jones Newswires

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.

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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)

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