Goldman Sachs announced its first quarterly loss in six years on Wednesday as a one-off hit from the Trump administration’s tax overhaul wiped out profits.
Financial institutions are expected to be the biggest winners of the Republicans’ recently passed tax plan – but adjusting to the new regime is expensive. Goldman took a $4.4bn charge in the quarter and posted a loss of $1.93bn as a result.
Goldman is the second bank to announce a one-time hit from the tax readjustment. On Tuesday, Citigroup said the change, largely related to the treatment of its foreign assets, would cost $22bn.
But banks expect to win in the long run. JP Morgan said last week that it expects its tax rate to fall to 19% from 32%. Banks will also benefit from the new 20% tax rate for income from so-called pass-through companies, and analysts are expecting a big boost to profits from the change in the long run.
Trump’s tax plan, passed in December, is the biggest change to the US tax code in 30 years and slashes corporate tax rates. While the bill was cheered by Republicans Democrat senator Elizabeth Warren has called the tax cut a “$2trn giveaway to giant corporations” and warned that banks are likely to be its biggest beneficiaries.
Goldman’s latest quarterly results were also hurt by a slowdown in trading that has hurt its business and triggered layoffs at the bank. Fourth-quarter revenue from fixed-income trading fell 50% to levels last seen in the recession.
But investment-banking revenue climbed 44% to $2.14bn. For the three months ending 31 December, Goldman’s revenues were $7.83bn and the bank’s net income was $2.26bn excluding the tax charge.
“With the global economy poised to accelerate, new US tax legislation providing tailwinds and a leading franchise across our businesses, we are well positioned to serve our clients and make significant progress on the growth plan we outlined in September,” said Lloyd Blankfein, Goldman’s chairman and chief executive officer.