What to watch in bank space earnings reports
What to watch for:
1. TAX REFORM:
Goldman Sachs estimates that the enactment of the new tax legislation will result in a reduction of approximately $5B in the firm’s earnings for Q4 and year ending December 31, 2017, approximately two-thirds of which is due to the repatriation tax.
The remainder includes the effects of the implementation of the territorial tax system and the re-measurement of U.S. deferred tax assets at lower enacted corporate tax rates.
Earlier this month, Morgan Stanley (MS) said it also estimates the net income for the quarter ending December 31, 2017 will include an aggregate net discrete tax provision of approximately $1.25B, comprised of an approximate $1.4B net discrete tax provision as a result of the enactment of the Tax Cuts and Jobs Act, primarily from the re-measurement of certain net deferred tax assets using the lower enacted corporate tax rate, partially offset by an approximate $160M net discrete tax benefit, primarily associated with the re-measurement of reserves and related interest relating to the status of multi-year Internal Revenue Service tax examinations.
On December 14, Bloomberg reported that Goldman Sachs is seeking a 100% margin on some bitcoin future trades deterring some customers from looking to clear their trades through the bank and resulting in some taking their business elsewhere.
A week later, the publication said the bank was establishing a trading desk to make markets in digital currencies such as bitcoin. The company intends to get the business running by the end of June, if not earlier, the report added.
Also last month, Morgan Stanley said in a regulatory filing that it had purchased an 11.4% stake in Overstock (OSTK), which launched cryptocurrency trading with its tZERO subsidiary.
3. FAVORABLE OUTLOOK:
On November 29, JPMorgan analyst Kian Abouhossein raised his price target for Goldman Sachs to $270 from $263 and called it his top investment banking pick for 2018.
The analyst said he is more positive around the strength of the franchise and believes its fixed income, currencies and commodities business revenue growth opportunity of $1B-plus is more likely to be achieved. Goldman has shown “excellent progress” when it comes to delivering shareholder value, #Abouhossein contended.
Last month, BofA/Merrill analyst Michael #Carrier added Goldman Sachs to the U.S. 1 List, citing an increasing favorable outlook with rising GDP growth, favorable risk/reward, low expectations, and potential catalysts from de-regulation, tax reform, and increased volatility.
Carrier reiterated a Buy rating on the stock and raised his price target on the shares to $300 from $290.
On November 20, Goldman Sachs CEO Lloyd Blankfein said the bank will have two EU hubs, in Frankfurt and Paris, post-Brexit, according to Reuters. “We will have more employees on the continent. Some, if they want to, would come from London, we will hire others,” Blankfein said.
“Brexit pushes us to decentralize our activities. In the end, it’s the people who will largely decide where they prefer to live.”
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This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.