Goldman Sachs (GS) – Get Free Report reported dismal Q4 2022 earnings Jan. 17. The bank may not have been alone, with fellow investment bank Morgan Stanley (MS) – Get Free Report also posting a decline in profit, but its shocking derailment stole headlines across the financial world.
“We tried to do an excessive amount of too quickly,” CEO David Solomon said on the earnings call. “I feel we probably in some places haven’t had all of the talent that we wanted to execute the best way we wanted.”
The issue probably is not only a matter of talent, as quarterly profits declined a whopping 66% and earnings-per-share got here in at $3.32 — 39% below the estimated $5.48.
Goldman Sachs’ Problems Run Deep
Goldman has been forecasting trouble for some time now. The investment bank announced company-wide layoffs earlier in January. All told, the bank has cut roughly 6.5% of its workforce and warned that more might be on the best way.
“If things haven’t gotten higher in the primary quarter, we’ll have more changes,” compensation consultant Alan Johnson said. “You may’t have these expensive people sitting around with nothing to do.”
Goldman blamed its cuts largely on dealmaking — or the shortage thereof — in 2022. Proceeds from initial public offerings (IPOs) are down 94%. Goldman’s workforce was also seen as relatively bloated, because the bank had gone on a hiring spree through the pandemic when money was low-cost and deals were plentiful.
“Widely expected to be awful, Goldman Sachs’ Q4 results were much more miserable than anticipated,” CEO of Opimas consultancy Octavio Marenzi told CNBC.
Total revenue was down 16% in comparison with the year-ago-quarter. The 2 biggest drags on profit were Goldman’s Asset & Wealth management and Global Banking & Markets departments.
But the difficulty is not restricted to over-hiring. The bank took an even bigger hit on credit losses, because it was forced to allot extra money for its bank card and loan businesses. Last yr, Goldman lost $344 million on credit losses. This yr, that number ballooned to almost 3 times that, at $972 million.
It seems every little thing is getting costlier at Goldman. Even running the corporate itself is more costly, as operating expenses climbed 11% YoY.
Goldman’s Problems Could Be an Early Indicator of What’s Ahead
While it could be easy to take a look at Goldman Sachs’ issues as an isolated incident, the bank definitely doesn’t see it that way.
Goldman CFO Denis Coleman warned those on the decision that the bank is seeing squeezes that will soon be felt on Major Street.
“We’re seeing early signs of credit deterioration which might be in step with our expectations,” Coleman said. “We anticipate further pressure in 2023.”