Tax overhaul costs Goldman Sachs $5 billion

Goldman Sachs to give execs early bonuses due to Trump tax law report

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the USA print edition of The Wall Street Journal (December 30, 2017).

On Friday, Goldman said in a filing with the Securities and Exchange Commission that the company estimates the new US tax law will hit its fourth-quarter results by $5 billion, primarily due to repatriation provisions.

The company did not say how changes in the tax law would affect its decisions on investments going forward, and did not immediately return messages left early Friday.

Goldman had been expected to post fourth-quarter net income of $2.07 billion, according to banking analysts polled by FactSet.

While it is still assessing the impact, Shell said based on third-quarter earnings the tax reforms will see it take a charge of 2 billion United States dollars (£1.5 billion) to 2.5 billion USA dollars (£1.9 billion).

The charge will swing Goldman to a quarterly loss and wipe out much of its full-year profit. But the overall effect is positive, the analyst said.

In other Goldman Sachs Group news, Director David A. Viniar sold 7,393 shares of the stock in a transaction on Friday, October 20th.

Goldman shares fell less than 1%. The firm had revenue of $8.33 billion for the quarter, compared to analyst estimates of $7.59 billion.

In a filing with the U.S. Securities and Exchange Commission, Goldman Sachs noted that about two-thirds of the $5 billion decrease in earnings is due to the repatriation tax. Goldman and other banks suffered huge losses during the financial crisis.

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What we're referring to are deferred tax assets, an accounting procedure that can get a bit wonky, but for these purposes it functions like this: When a business takes a big loss in a given year, it can use the size of that loss to lower its tax burden in future years. The Estée Lauder Companies Inc. For reference, the bank's pre-tax earnings were just under $3 billion last quarter, so a $5 billion tax penalty could put the company in the red for the fourth quarter. Some other tax breaks for banks will be eliminated or narrowed, under the new law, ranging from limits on deducting interest to curbs on deducting premiums paid to the Federal Deposit Insurance Corp. Companies face the tax regardless of whether they bring the money home or not. Oregon Public Employees Retirement Fund owns 129,123 shares. AT&T Inc., Comcast Corp. and Bank of America Corp. are granting one-time bonuses of $1,000. The stock has "Buy" rating by Citigroup on Monday, October 12. It typically delivers shares as part of its executive compensation packages in January. The institutional investor held 4,735 shares of the finance company at the end of 2017Q3, valued at $1.12 million, down from 8,835 at the end of the previous reported quarter. During the same quarter in the prior year, the firm earned $4.88 EPS.

Shareholders are likely to benefit, too.

The cost mostly comes from the billions of dollars in profits Goldman has stored overseas. After that one-time tax is paid, companies will be able to bring foreign-held money back to the USA without paying tax.

"It's a major windfall of cash", said Alethia Young, a Credit Suisse Group AG biotech analyst.

Having to write down US deferred tax assets will also contribute to its loss, Goldman said. Those assets will now have less value because of the lower corporate tax rate.

Barclays also announced its expected impact from the new tax laws, saying it is set to take a £1 billion charge to its 2017 accounts.

In the long run, though, Wall Street firms will be among the biggest beneficiaries of the new tax system.

Goldman declined to comment on whether the new regime would spur it to bring cash back to the US, noting only that the new headline corporate tax rate of 21% is lower than its typical 28 to 30% rate before the new law.

Banks are relatively high taxpayers because they get fewer of the breaks, such as for research and development, that are available to technology or pharmaceutical companies. Oppenheimer also issued estimates for Goldman Sachs Group's Q4 2017 earnings at $4.76 EPS.

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