NEW YORK: Goldman Sachs expects to take a $5 billion hit to profits for the fourth quarter and year because of the tax overhaul signed into law last week.
As a result, the New York bank will likely report a loss for the last quarter of 2017. But Goldman and other banks will be among the largest beneficiaries of the new tax code.
Goldman on Friday became one of the first companies to release details on how changes in the tax code will affect how money parked overseas is handled. The bank said two-thirds of the $5 billion is related to changes in repatriation taxes, when funds are returned from overseas.
The new tax overhaul imposes a discounted one-time levy on overseas money returned to the US — 15.5 percent for earnings held in cash or other liquid assets and 8 percent for earnings held in harder-to-sell assets. Previously, companies had to pay a 35 percent corporate tax when they returned that money, so they left it parked overseas.
It has been expected that changes in the law would prompt many companies to return money to the US, potentially $2.5 trillion or more. Keefe Bruyette & Woods analyst Brian Kleinhanzl estimated that the repatriation part of Goldman’s charge equates to an 11 percent tax rate, based on the $32.6 billion in undistributed foreign earnings Goldman had at the end of 2016.
Goldman had been expected to post fourth-quarter net income of $2.07 billion, according to banking analysts polled by FactSet. The bank reports earnings in mid-January.
After taking a hit on repatriated earns, Goldman, and other banks, will operate in a much more favorable tax environment.
The tax measure signed into law by President Donald Trump this month spreads benefits across a wide array of American industry, including banks.
Finance and insurance companies would have paid an effective corporate tax rate of 26.1 percent next year. Now, it will be 14.3 percent. Analysts at Goldman Sachs have estimated that the tax law will boost big-bank earnings per share by 13 percent next year. The top beneficiary will be Wells Fargo, which has been dogged by scandals over cheating customers. It will enjoy an 18 percent earnings surge in 2018, Goldman estimates.
Economists believe the overall effect on the economy will be muted, however, because of those cuts to the US corporate tax rate.
Historically, repatriated profits have not had a broad effect on the US economy anyway.
A 2004 law temporarily cut taxes on repatriated profits to 5.25 percent, from 35 percent. That led 843 companies to bring back $312 billion. But those companies tended to use the money to buy back shares of their own stock, not to hire or expand operations.
Goldman also said part of the reduction to fourth-quarter earnings comes from recalculating the value of it deferred tax assets. Those are past losses that companies can use to lower future tax bills. Goldman and other banks suffered huge losses during the financial crisis. Those assets will now have less value because of the lower corporate tax rate.
The effect of the tax changes on Goldman Sachs was revealed in a filing with the US Securities and Exchange Commission early on Friday.
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.
Shares of Goldman Sachs Group Inc. fell 1 percent to $254 in early trading.
Goldman Sachs expects $5 billion hit from tax overhaul in 4Q
Goldman Sachs expects $5 billion hit from tax overhaul in 4Q
US pump prices surge as Iran war upends global energy supply
- Fuel prices jump over 10 percent as oil prices surge
- Analysts predict further price rises due to market conditions
MARIETTA/NEW YORK : US retail gasoline and diesel prices are soaring as the US-Israel war with Iran constrains oil and fuel exports, which could be a political test for President Donald Trump’s Republican Party ahead of midterm elections in November.
Fuel prices jumped more than 10 percent this week as oil rose above $90 a barrel, its highest in years, adding pain at the pump for consumers already strained by inflation.
Trump on Thursday shrugged off higher gasoline prices in an interview with Reuters, saying “if they rise, they rise.”
The president had vowed to lower energy prices and unleash US oil and gas drilling during his second term, but much of his tenure has been marked by volatility and uncertainty amid shifts in policies like tariffs and geopolitical turmoil.
The US is the world’s largest oil producer. It is a major exporter but also imports millions of barrels a day since it is the world’s largest oil consumer.
As of Friday, the national average prices for regular gasoline stood at $3.32 a gallon, up 11 percent from a week ago and the highest since September 2024, according to data from the motorists association AAA. Diesel was at $4.33, up 15 percent from a week ago, surging to the highest since November 2023.
Midwest, south feel the pinch
US motorists in parts of the Midwest and the South, including states that supported Trump, have seen some of the steepest increases in fuel costs since the conflict in Iran started.
In Georgia, a swing state, average retail gasoline prices rose 40.1 cents a gallon over the past week, according to fuel tracking site GasBuddy.
Andrenna McDaniel, a health care insurance worker in South Fulton, Georgia, said she was surprised to see prices skyrocket overnight.
“They jumped up so quickly,” she said on Friday, adding that she does not agree with the war at all.
McDaniel, a Democrat, said that for now she is only driving for the most important things, and feels lucky that she works from home so she does not have to drive as much as other people do. Georgia voted for Donald Trump in the 2024 election.
Trump voter Richard Soule, 69, a US Air Force veteran and a retired firefighter, said a little pain at the pump is worth Trump’s efforts to protect America.
“When President Trump went in there and bombed out their nuclear, and they just thumbed their nose at it, I believe he did the right thing at the right time,” Soule said on Friday as he filled up his Ford F-150 truck in Marietta, Georgia.
Other states, including Indiana and West Virginia have seen prices rise by 44.3 cents and 43.9 cents, respectively.
Prices may rise further
More pain may be on the way, analysts said, as oil prices continue to trend upward. On Friday, US oil futures settled at $90.90 a barrel, up nearly $10 and the biggest single-day rise since April 2020.
“Given current market conditions, the national average price of gasoline could climb toward $3.50 to $3.70 per gallon in the coming days if oil continues rising and supply disruptions persist,” GasBuddy analyst Patrick De Haan said.
The disruptions in the Middle East and the Strait of Hormuz, a key trade conduit, have boosted demand for US oil abroad, which in turn has driven up prices for domestic refiners too.
“The US has weaned itself off of its dependence on Middle Eastern crude, but obviously Asian refineries, and to a lesser extent, European refineries have not,” Denton Cinquegrana, chief oil analyst with OPIS. “That’s what you’re seeing happen in the spot market, because the demand for US exports rise, and so the price rise.”
Seasonal factors could add further pressure. Gasoline prices typically go up in the spring and peak in the summer due to higher gasoline demand and production of summer-blend gasoline, which is more costly to produce. Diesel fuel saw an even more aggressive jump since Iran began retaliating against US and Israeli strikes, significantly disrupting shipping in the Strait of Hormuz.
Global diesel inventories have remained in tight supply due to heavy demand for heating and power generation during a prolonged winter in the US and other parts of the world and a structural tightness of refining capacity. Sticker prices of everything from food to furniture go up when the cost of diesel goes up, as the fuel is mainly used in freight transportation, manufacturing, agriculture, and global shipping, analysts said.
“In a world where buzzword seems to be ‘affordability’, that is certainly not going to help,” Cinquegrana said.
