Goldman Sachs misses its earnings estimate, while Morgan Stanley beats as profits drop

12:01 pm ET January 17, 2023 (MarketWatch) Print

By Steve Gelsi

Goldman stock drops on Q4 results, while Morgan Stanley shares move up

Goldman Sachs Group Inc. and Morgan Stanley reported lower fourth-quarter earnings on Tuesday as their investment banking practices handled fewer deals, but Morgan Stanley stock rose after it beat expectations while Goldman moved lower after falling short.

Goldman Sachs (GS) dropped 3.8% in morning trades on Tuesday, while Morgan Stanley (MS) rallied 6.2%.

On a call with analysts, Goldman Sachs CEO David Solomon said the quarterly results were disappointing, but that the company's recent restructuring will allow it to grow over time and added that the company is narrowing its consumer business focus.

Summing up the bank's six-year push into retail banking, Solomon said the company, "tried to do too much too quickly" in its consumer banking franchise. It faced headwinds from regulatory changes and adjustments to current expected credit losses.

"We probably in some places haven't had all the talent that we've needed to execute the way we've wanted," Solomon said.

On the bright side, Goldman has accomplished the "vast majority" of its goals, although it has more work to do as it remains "nimble" to make necessary changes, he said.

On a positive note, Goldman said it is seeing strong activity in investment-grade credit so far in 2022 and that the bank has enough capital on hand to be flexible for potential acquisitions or potential stock buybacks or dividends for shareholders.

"Widely expected to be awful, Goldman Sachs' Q4 results were even more miserable than anticipated," said Octavio Marenzi, CEO of Opimas LLC, a management consulting company. "Morgan Stanley, on the other hand, had results very much in line with expectations, with weakness in investment banking, but stable elsewhere."

Oppenheimer analyst Chris Kotowski described the quarter as "very muddled" with total revenue short of his projection, while equity investments came in $638 million below his target.

Goldman Sachs said its fourth-quarter profit dropped to $1.19 billion, or $3.32 a share, from $3.81 billion, or $10.81 a share in the year-ago quarter.

Wall Street analysts expected Goldman Sachs to earn $5.56 a share, according to a survey by FactSet.

Goldman's fourth-quarter revenue dropped to $10.59 billion from $12.64 billion. The company fell short of the analysts' estimate of $10.755 billion.

Broken down, Goldman booked a 27% drop in its asset and wealth management unit revenue to $3.56 billion, while its global banking and markets unit's revenue fell 14% to $6.52 billion. At the same time, Goldman built up its provision for credit losses by 183% to $972 million, while its operating expenses increased by 11% to $8.09 billion.

On Dec. 30, analysts expected Goldman Sachs to earn $6.68 a share, but projections were reduced by more than $1 per share to $5.56 a share thus far in 2023 amid reports of layoffs at Goldman and a lack of fourth-quarter deal-making.

In the past month, 19 analysts have cut their fourth-quarter earnings targets for Goldman, while only one increased their targets and one was unchanged, according to FactSet data.

At the same time, Goldman Sachs laid off up to 3,200 people, mostly last week.

Prior to Tuesday's moves, Goldman Sachs stock had risen 8.9% in 2023, and is down 1.8% in the past year. The stock is a component of the Dow Jones Industrial Average , which is up 3.5% in 2023 and down 4.5% in the past year, as of Friday's close.

Just ahead of its earnings release, Goldman on Friday reorganized its main business units to three branches from four.

Also Read:Goldman discloses losses in unit that houses Apple Card, GreenSky operations

Morgan Stanley (MS) said its fourth-quarter earnings dropped to $2.11 billion, or $1.26 a share, from $3.59 billion, or $2.01 a share, in the year-ago quarter. Fourth-quarter adjusted profit fell to $1.31 a share from $2.08 a share, when breaking out one-time costs such as $133 million related to a December jobs action.

Wall Street analysts expected Morgan Stanley to earn $1.25 a share, according to a FactSet survey.

Morgan Stanley's fourth-quarter revenue fell to $12.75 billion from $14.52 billion. The latest revenue figure beat the analyst estimate of $12.54 billion.

Morgan Stanley CEO James P. Gorman said the results were "solid" despite a difficult market environment.

While Morgan Stanley's institutional securities fourth-quarter revenue fell to $4.8 billion from $6.67 billion, its wealth management unit's revenue eked out a rise to $6.63 billion from $6.25 billion. Investment management revenue declined to $1.46 billion from $1.75 billion.

Citi analyst Keith Horowitz said Morgan Stanley's net interest income and core compensation expense were both better than expected. He said his initial take was that Morgan Stanley turned in a good quarter with a low bar.

Prior to Tuesday's moves, Morgan Stanley stock has risen 7.8% in 2023 and it's down 7.3% in the past 12 months. The S&P 500 has risen 4.2% in 2023 and is lower by 14.2% in the past year.

Morgan Stanley and Goldman Sachs reported earnings after JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Citigroup Inc. (C) all reported stronger-than-expected earnings on Friday.

Also Read: JPMorgan, Wells Fargo, Bank of America and Citi beat earnings expectations, but worries about headwinds remain

-Steve Gelsi

(END) Dow Jones Newswires

January 17, 2023 12:01 ET (17:01 GMT)