The surge in spending and the slowdown in business activity at two of the top investment banks, Goldman Sachs and Morgan Stanley, worried Wall Street on Tuesday. The poor results of the last quarter of 2022, with a sharp drop in profits, are dragging down the entire year, according to figures published by both companies this Tuesday.
Goldman Sachs earnings fell 49% in 2022, up to $10,764 million (approximately €9,920 million at current exchange rates). With reference to Morgan Stanley, its profit falls 27% for the full year up to $11,029 million.
Goldman’s investment banking fees nearly halved in the last three months of 2022, compared to the previous year. The poor results also extend to the new business portfolio, which has shrunk compared to the third quarter, the company announced on Tuesday. At the same time, costs have skyrocketed, fueled by increases in compensation. Net income fell 69% year over year, sales fell 16%, and shares fell 3% in early trade.
The market penalty came quickly for Goldman. “Fourth-quarter results, which were direly anticipated, were even worse than expected,” Octavio Marenzi, chief executive of consulting firm Opimas, told Bloomberg. “The real problem is the fact that operating expenses have skyrocketed by 11% while revenue has fallen. This clearly points to further cost cuts and layoffs.” Instead, Marenzi has stated that Morgan Stanley’s results were “very much in line with expectations”.
At this company, the net profit for the year collapsed by almost 40% compared to the previous year. The company notes lower revenue during the year, which coincided with higher-than-expected expenses and operations that missed estimates. Nonetheless, overall results were better than analysts had originally anticipated. The company’s CEO, James P. Gorman, has attempted to highlight what’s at stake in a press release “solid results” in a “difficult market”.
Morgan Stanley shares are up more than 6% in the first hour of trading on the New York Stock Exchange, while Goldman Sachs shares are down more than 5%.
New cutting round
Morgan Stanley has made public its plan to cut rising costs. A new round of job cuts began in December, affecting around 1,600 employees, ie around 2% of the total workforce.
In the case of Goldman Sachs, the company announced earlier this year that it would lay off 3,200 employees in January, or about 6% of the total workforce. “The company’s real problem lies in the fact that operating expenses have skyrocketed by 11% while revenue has declined. This strongly suggests that further cost cutting and layoffs are on the way,” Marenzi said in his analysis.