Yesterday, global investment banking giant Goldman Sachs Group, Inc. (NYSE: GS) reported a swing to a loss in the fourth quarter of fiscal 2017, compared to a net profit in the similar period last year. Goldman Sachs took a non-cash charge of $4.40 billion due to the tax bill passed a few days before Christmas. That was the reason for the firm to record a GAAP loss in the quarter ended December 31.
All segments, except the Institutional Client Services, recorded decent growth. The stock declined 1.86% to close at $253.65 yesterday. However, we expect the stock to bounce back in the days ahead due to the reasons given below.
The New York-based company reported a decline in the 4Q17 net revenues to $7.834 billion, from $8.170 billion in the corresponding period last year. Segment-wise, investment banking revenues increased 44% y-o-y to $2.141 billion in the fourth quarter of 2017.
Institutional Client Services revenues in Q4 2017 were $2.372 billion, down 34% from $3.595 billion in the year-ago period. Investing and Lending revenues were $1.658 billion, an increase of 12% from $1.484 billion in the similar period of 2016. Investment Management revenues grew 4% y-o-y to $1.663 billion.
In particular, the Fixed income, Currency and Commodities division, which is a part of the Institutional Client Services segment, recorded a revenue of $1.003 billion, down 50% from $2.002 billion last year. The poor performance of the trading division resulted in a decline in the overall revenues, compared to last year.
Net loss for the recent quarter was $2.143 billion or $5.51 per share, compared to a net profit of $2.153 billion or $5.08 per share in 4Q16. Excluding the impact of tax legislation ($4.40 billion), the non-GAAP earnings for the quarter were $2.257 billion or $5.68 per share.
The Wall Street analysts had expected the bank to post earnings of $4.91 per share on revenues of $5.68 billion.
The Common Equity Tier 1 ratio was 10.9% (Basel III) at the end of the fourth quarter.
Goldman Sachs’ CEO Lloyd Blankfein is confident of achieving the growth plan revealed in September.
Blankfein said, “With the global economy poised to accelerate, new U.S. 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.”
Based on the strong performance of three of the four divisions, and the optimism of the management, we forecast the stock to remain bullish in the short-term.
Technically, the stock of Goldman Sachs is moving along the ascending channel as shown in the image below. The moving average of the oscillator is rising towards the zero level, while the stock is trading above its 50-day moving average. That confirms an increase in the buying pressure. Therefore, we are expecting the stock to forge new heights in the days ahead.
Trading a call option would be ideal under the current scenario. However, we may proceed with the trading plan only if the stock is trading near $254 on the NYSE. Additionally, the option contract offered by a binary broker should remain active for at least one week.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
