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What we learned from the results of the fourth quarter of Wall Street



Wall Street banks face some stubborn problems by 2018, but rising profits will not be among them.

That was the main conclusion of Morgan Stanley closed the fourth quarter earnings season of Wall Street, joining its peers to announce bad news about fixed income trading and good news about the impact of the cutbacks of taxes.

The firm said the US review would cut its effective tax rate this year to only 22 percent, not counting one time, from 31 percent in 2017. The rate at JPMorgan Chase & Co. and Wells Fargo & Co. will be even lower than that, according to the estimates of those companies. In the bond trade, Goldman Sachs Group Inc. reported the steepest decline as the industry's slowdown dragged on.

Here are the key points of the industry's results:

Tax

Investors largely ignored the giant one-time charges resulting from the tax review, since those figures had been telegraphed in advance . The lower effective tax rates were of greater interest, because they mean higher after-tax profits and more money that can be returned to shareholders or invested in the business.

Bank of America Corp., which posted a charge of $ 2.9 billion, said its effective rate would fall to 20 percent in 2018, almost 9 percentage points below from its average of the last three years.

Unexpected tax

Lower tax rates will mean greater profits and more generous share repurchases

Sources: company presentations and executive comments

Bond Trading

The whole year was a fall for the market of fixed income, and for some companies, such as Goldman Sachs, the fourth quarter dealt a particularly hard blow. Low volatility and historically low interest rates, even after small increases by the Federal Reserve last year, are to blame. Some executives said they had seen signs of improvement during the first weeks of 2018.

Bond Bust

Wall Street banks saw a sharp drop in fixed income trading in the last quarter

Source: World Bank reports company

Steinhoff Losses

Most of the largest banks in the United States were caught in an accounting scandal at Steinhoff International Holdings NV, and only Morgan Stanley escaped unharmed. All the others made loans to the South African retailer, mainly in margin, which had to be written down when the market value of the company decreased by 90 percent and had problems to survive as a functioning company.

Citigroup Inc. led that list with around $ 370 million in losses and cancellations.

Painful scandal

Loans linked to retailer Steinhoff have weighed on US bank results

Source: company statements and executive comments

Disappearance of employment

Tax reduction does not appear to be a balm for the job security of bankers. Although companies have hired in recent quarters, they continue to reduce overall staff, as the pressure to reduce costs continues, especially in a slower business environment with narrower interest margins. The collective cuts of the six largest companies in the last quarter were the largest since the fourth quarter of 2015.

Job cuts, even in good times

The six largest US banks. UU They eliminated most jobs in two years at the end of 2017

Source: company records.

Investment Banking

Advice on mergers and subscription of shares and bonds offered another bright spot for the quarter. Revenue from investment banking rose 19 percent to the highest level in more than two years, and executives said they are optimistic about higher operating flows thanks to corporate tax cuts. Goldman Sachs Chief Financial Officer Martin Chavez said the approval of the tax eliminated some uncertainty for companies, and the "level of dialogue the bank has with clients has increased on a variety of strategic and financial issues."

JPMorgan CFO Marianne Lake said that it would improve clarity to give corporate clients "confidence to act". And JPMorgan CEO Jamie Dimon said that EE. UU he had become more competitive due to the tax cuts, which he said would be seen in greater economic activity and capital markets.

very good, "Dimon said last week on a call with analysts." You've seen it with corporations; you have seen it with feeling; He has seen it with people's plans. "

John Shrewsberry, Chief Financial Officer of Wells Fargo, said he expects companies to spend more on capital expenditures in 2018 due to tax changes, adding that some deals may be easier to complete with lower tax rates.

– With the assistance of Laura J Keller


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