Goldman Sachs is Wall Street's big loser

Goldman Sachs can't catch a break.The vaunted Wall Street firm reported a nearly $2 billion quarterly loss Wed...

Posted: Jan 17, 2018 3:12 PM
Updated: Jan 17, 2018 3:12 PM

Goldman Sachs can't catch a break.

The vaunted Wall Street firm reported a nearly $2 billion quarterly loss Wednesday -- its first loss in six years -- due to a short-term hit from the new tax law.

The lack of market volatility also led to a steep drop in trading revenue during the last three months of 2017.

This weakness is even hitting Goldman Sachs employees. The firm's compensation and benefits expenses -- its so-called bonus pool -- rose just 2% last year. But the company's headcount rose 6%.

When you do the math, workers actually got 4% less than they did in 2016. Granted, Goldman Sachs employees still received $323,852 on average last year. So no need for tears.

Still, Goldman Sachs workers took home $338,576 in 2016. And the average compensation for a Goldman Sachs employee in 2015 was $344,511.

Shares of Goldman Sachs fell 3% Wednesday -- even though earnings beat forecasts after backing out the tax charges. Overall revenues topped forecasts too.

The stock has gained less than 10% in the past year too, underperforming the S&P 500 even as the broader market keeps powering on to new record highs.

Goldman Sachs has lagged all of its top rivals too -- JPMorgan Chase, Citigroup, Morgan Stanley, Bank of America and even troubled Wells Fargo.

CEO Lloyd Blankfein alluded to the headwinds facing the firm, saying in the company's earnings release that last year was "a challenging environment " for its trading business.

Goldman Sachs and other investment banks make more money when the markets are more volatile. It leads clients to trade more actively.

But the company said Wednesday revenue from stock trading fell 14% from a year ago in the fourth quarter while revenuesfor bond, currency and commodity trading plunged 40% from the fourth quarter of 2016.

Blankfein was more upbeat about the future though, saying that he expects a better year "with the global economy poised to accelerate" and that the new tax laws in the United States will give the company a longer-term boost too.

Goldman Sachs said that it took a $4.4 billion charge in the fourth quarter because of the tax law changes.

Most ($3.3 billion) was due to the cost tied to bringing cash in foreign subsidiaries back to the United States. The remaining $1.1 billion was a result of revaluing so-called deferred tax assets -- previous tax deductions that are worth less following the corporate tax cut.

Other big banks have been hurt by the tax changes too. JPMorgan Chase took a $2.4 billion hit when it reported its latest results last week while Citigroup said Tuesday that it took a whopping $22 billion one-time charge.

Related: Why Goldman Sachs gave early stock awards to 300 employees

Most banks should benefit from the lower corporate tax rate going forward though -- and Goldman Sachs is no exception. Investors are hopeful that companies will buy back more stock and increase dividends as a way to reward shareholders.

But Chief Financial Officer Martin Chavez said during the company's conference call with analysts that the firm expected to buy back just $5 billion to $6 billion in stock for the next few years. That's lower than what Wall Street was expecting.

The fact that Goldman Sachs has largely missed out on the big market rally is also something that has vexed investors. President Trump has largely been pro-business, championing for fewer regulations as well as lower taxes.

And Trump has stacked his administration with Goldman alums, most notably Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn.

Related: Blankfein says U.K should vote again on Brexit

But Blankfein does not appear to be a big fan of the president. While never mentioning Trump by name, Blankfein has made pointed critiques of Trump policies on Twitter since Trump was elected.

His two most recent ones are no exception. Without mentioning Trump by name, Blankfein tweeted on January 11 that he was optimistic that there could be a compromise on immigration reform.

"Hearing bipartisan support forming on #DACA. The country and the kids need it, deserve it. Hope it's not just a dream..." he tweeted.

One day later, Blankfein tweeted a photo of the Statue of Liberty from Goldman Sachs headquarters, writing that the foggy "view from our building today reminds me that despite all the sh*t, American values will shine through."

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