Global investment banking leader Goldman Sachs (GS – Free Goldman Sachs Stock Report) reported mixed financial results for the fourth quarter of 2017. Revenue was slightly below our expectations, but adjusted share net beat our estimates.
Revenues of $10.672 billion were higher on a year-over-year basis, but fell shy of our call for $10.918 billion. The annual growth was led by a 44% increase in the Investment Banking segment, which was driven by a 76% increase in underwriting revenue due to significantly higher debt underwriting from leveraged finance activity, and equity underwriting from secondary offerings. However, the strength in Investment Banking was partially offset by a substantial year-over-year decline in Institutional Client Services revenue. That unit struggled due to considerably lower revenues in currencies, credit products, interest-rate products, and commodities. It also saw lower revenues from derivatives and cash products.
On the earnings front, the company took a large non-recurring charge due to the recently passed tax reform legislation. While the reforms will likely be beneficial to Goldman's bottom line in the long term, the company took a one-time hit due to the repatriation tax, as well as the remeasurement of U.S. deferred tax assets at lower enacted corporate tax rates. Excluding these charges, Goldman saw adjusted earnings per share of $5.68 in the fourth quarter, which beat our $5.38 expectation by a small margin.
We expect policy factors to remain in the spotlight in 2018. President Trump has nominated a new chairman of the Federal Reserve, Jerome Powell, who appears to hold a somewhat more-relaxed view on financial regulation than the outgoing Fed Chair, Janet Yellen. We also expect the company to see a significantly lower tax rate this year.
Goldman appears set for solid revenue and earnings growth in 2018. We foresee 2018 revenues of about $45 billion, and share net around $22.00. The stock dipped around 3% following the latest financial release.
About The Company:The Goldman Sachs Group is a global investment banking and securities firm. It operates in four business segments: Investment Banking (21% of 2016 revenues); Institutional Client Services (47%); Investing & Lending (13%); and Investment Management (19%). In 2016, 40% of the company’s revenues came from outside of the Americas.
— Adam James Platt
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
