Goldman Sachs Reports 66% Plunge in Net Profit... Worst Earnings Miss in 11 Years

[Asia Economy New York=Special Correspondent Joselgina] Global investment bank Goldman Sachs received its worst quarterly performance in 11 years with results far below expectations. The surge in benchmark interest rates and recession concerns throughout last year have frozen the mergers and acquisitions (M&A) and IPO markets, delivering a direct blow.

[Image source=Reuters Yonhap News]

On the 17th (local time), Goldman Sachs announced that its net profit for Q4 last year was $1.33 billion, down 66% from the same period the previous year. Earnings per share were $3.32, far below the $5.48 forecast by financial information provider Refinitiv. This is the first time since October 2011 that Goldman Sachs’ results have deviated so significantly from market expectations. Economic media CNBC described it as "the worst earnings miss since Q3 2011."

Q4 revenue last year was $10.59 billion, down 16% year-on-year. This also fell short of the $10.76 billion market forecast compiled by FactSet. David Solomon, CEO of Goldman Sachs, said, "Simply put, it was a disappointing quarter," adding, "This is not the result we wanted to deliver to our shareholders."

Goldman Sachs’ poor performance is largely due to a decline in its investment banking division. The M&A and IPO booms that lasted until the year before last sharply froze in 2022. Due to rising interest rates, inflation, Russia’s invasion of Ukraine, and concerns about an impending recession, most executives postponed plans for listings or acquisitions.

Goldman Sachs’ investment banking division’s quarterly revenue fell 48% year-on-year. Morgan Stanley, which also released its results on the same day, saw a 49% plunge in investment banking revenue. The Wall Street Journal (WSJ) reported that fees earned from M&A advisory, equity, and bond trading at these investment banks sharply declined. Earlier last week, JPMorgan Chase and Citigroup also revealed that their investment banking fees dropped by more than half. Notably, Wall Street investment banks are reportedly increasing their loan loss provisions in preparation for a possible recession.

While Wall Street investment banks generally disclosed weak results, there were mixed fortunes among banks. Octavio Marenzi, CEO of consulting firm Opimas, told CNBC that Goldman Sachs’ Q4 results were "expected to be terrible, but they were much worse than anticipated." Besides the sharp revenue decline, the 11% increase in operating expenses was also highlighted as a problem.

On the other hand, Morgan Stanley, which announced its results on the same day, exceeded market expectations overall despite the sharp drop in investment banking revenue.

Morgan Stanley’s Q4 net profit was $2.24 billion, down 40% from the same period last year. Earnings per share were $1.26, surpassing the market forecast of $1.23. Q4 revenue was $12.75 billion, down from $14.5 billion a year earlier but above the market estimate of $12.64 billion. Particularly, revenue from the asset management division rose 6% year-on-year to $6.63 billion, setting a record high.

Earlier, JPMorgan Chase and Bank of America (BoA) also exceeded Wall Street expectations overall despite weakness in their investment banking divisions, thanks to strong consumer finance performance. In contrast, Citigroup’s Q4 results fell short of forecasts.

On the New York Stock Exchange, the stock prices of investment banks that released earnings on this day showed mixed movements. Goldman Sachs traded around $349.8, down more than 6.4% from the previous close. Morgan Stanley traded around $97.5, up 6.3%.

This content was produced with the assistance of AI translation services.