The trade market is eagerly waiting for some of the biggest banks and corporations of the country to announce another round of fourth-quarter results which is due this week. Goldman Sachs Group, Inc. (The) (GS), The Charles Schwab Corporation (SCHW) & Kinder Morgan, Inc. (KMI) will open their report before market on Wednesday, January 17.
Last year indeed has been quite tough for all the big companies and banks with the recent quarters showing weaker trading revenues due to lower volatility. Moreover, banks had a tough time marked with multiple market-moving events. However, despite weaker trading revenues, most of the analysts are optimistic about the changes the recent passage of tax reform, and continued economic growth across major global economies have brought in.
So what can you expect from these earnings reports?
- Goldman Sachs Group, Inc. (GS)
Analysts are projecting operating profits of $2.04 billion on $7.65 billion revenue for the Wall Street powerhouse. Both the figures have come down by 5% since the fourth quarter of the last year. Goldman Sachs Group (GS) is expected to face its first quarterly loss since 2011 after deduction of $5billion one-time tax-related charge. Incidentally, it will be a big blow for the bank as much of its expected annual profits of $7.86 billion will be wiped out.
As of now, the figures are only on the paper and it is still several years after when Goldman will actually have to pay the tax bill related to foreign profits kept out of the reach of IRS. The bank was once a profit machine but now is facing immense pressure to fix its ailing fixed-income trading division. According to the traders, the business of Goldman has struggled immensely in currencies and commodities lately and the fourth quarter of the last year was the toughest one.
It will be a tough time for Martin Chavez, the CFO of Goldman Sachs when he answers the queries related to the underperformance of his unit. In the third quarter, GS managed to turn heads with around $1 billion merger-advisory revenue bringing it closer to No. 2 Morgan Stanley. The biggest prize for the bank in the fourth quarter was $24 billion sale of Bard to Becton, Dickinson & Co, which resulted in a $51 million fee for Goldman.
- The Charles Schwab Corporation (SCHW)
Analysts have estimated that The Charles Schwab (SCHW) will report a hike of 5.3% in active brokerage accounts in the fourth quarter as compared to a year ago. It means, the company will report improvement in the trading revenues in the fourth quarter. The result is also expected to show a rise in the total assets and average interest-earning assets and most probably will end the fourth quarter with $3.3 trillion total client assets.
It means SCHW will report an increase of 18.2% year over year. The report would also mark an increase of 6.3% in the average interest-earning assets from the fourth quarter of 2016 which is around $220 billion. Analysts expect the total revenue to be at $2.23 billion with the revenue growth of 12.9% at the discount brokerage.
- Kinder Morgan, Inc. (KMI)
In the last quarter, the largest energy infrastructure company Kinder Morgan (KMI) in North America delivered an earnings surprise of 7.1% and an average positive earnings surprise of 1.8% in the last four quarters. Analysts poll expect the revenues of $3,324 million for the last quarter which is 0.2 % down from the prior-year quarter. However, the weak balance sheet of KMI is a big concern as for the third quarter of last year, the total debt including long term and short was around $38.3 billion.
The debt capital is much higher than the current total equity capital of $36.5 billion indicating the significant exposure of the company to debt and if it continues to rise, Kinder Morgan may have to face a liquidity crisis. As compared to the decline in the energy infrastructure industry of 3%, the stock has lost to around 5.8% indicating that it has underperformed the industry.