Goldman Sachs Group Inc. (GS - Get Report) , the Wall Street bank mired in a slump amid sluggish bond markets, posted a fourth-quarter loss of $1.93 billion, capping a dismal year for CEO Lloyd Blankfein that has led some analysts to call for his ouster.
The loss included a $4.4 billion expense for taxes on foreign earnings and other costs triggered by the new U.S. tax law passed in December, New York-based Goldman Sachs said Wednesday in a statement. Earnings per share were a negative $5.51. Excluding the tax charges, earnings per share were $5.68, exceeding analysts' average estimate of $4.92 in a FactSet survey.
In bond trading, historically one of the bank's biggest moneymakers, revenue tumbled 50% to $1 billion, the company said.
For full-year 2017, profit fell 42% to $4.29 billion, the lowest since 2011.
This year has seen price swings in bonds and has seen other assets drop to unusually low levels, keeping investors on the sidelines and leaving few opportunities for traders at banks to score gains on big market moves. And nowhere has the downturn been felt more keenly than at Goldman Sachs, which turned from leader to laggard so quickly that its stock price has climbed by just 5.8% over the past 12 months, roughly a third of the average increase for peers.
It was a "challenging environment for our market-making businesses," Blankfein said in the statement.
The underperformance forced Blankfein, 64, to revamp the firm's strategy and disclose plans to look at new markets, such as corporate lending and consumer banking, for profit growth. In September, executives announced an effort to boost firmwide revenue by $5 billion in three years, though the plan drew immediate skepticism from some analysts who said the targeted business areas were already saturated with competent players.
The extra fourth-quarter costs related to the tax bill were so big that Goldman Sachs will probably have to curb dividend payouts or share buybacks in the coming year, according to a report last week from analysts at Keefe, Bruyette & Woods, a brokerage firm specializing in bank stocks. Such capital payouts are a key driver for financial-company investors.
For analysts like the five-decade veteran Dick Bove of Vertical Group, Blankfein's strategy shifts have been too little, too late. The CEO, who has led the firm for 12 years, should have retooled Goldman Sachs's business strategy to make the firm less reliant on bond trading in the early years after the financial crisis, Bove said.
"I am convinced he is the wrong guy to run this company," Bove said on Tuesday.
Wall Street as a whole was stymied throughout 2017 by a spell of unusually low price swings in fixed-income and commodities markets, partly explained by the bounty of money pumped into global financial markets over the past decade by the Federal Reserve and other central banks.
The fourth-quarter's doldrums contrasted with those in late 2016, when President Donald Trump's surprise election victory sent investors scrambling to reshape their portfolios for the prospect of big tax cuts. Congressional Republicans passed the tax legislation in December, and Trump signed it soon afterward.
While the tax bill cuts the corporate tax rate to 21% from 35%, boosting the expectations for banks' profits in the future, one-time tax charges in the fourth quarter compounded the impact of the bond-trading downturn.
JPMorgan Chase & Co. (JPM - Get Report) , the biggest U.S. bank, said last week that fourth-quarter profit tumbled 37%, the most in three years. The results included $2.4 billion in tax-related charges, while fixed-income trading revenue dove 34% from a year earlier to $2.22 billion.
Citigroup Inc. (C - Get Report) , another giant U.S. bank, posted an $18.3 billion net loss on Tuesday, its biggest since the financial crisis of 2018. The company recorded a whopping $22 billion of one-time charges stemming from the tax law. Fixed-income trading revenue slid 18% to $2.41 billion.
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