Goldman Sachs, long the most enviable company on Wall Street, has entered the new year.
Just how big the pitfalls are became clear on Tuesday, when the bank reported dismal results in the final quarter of 2022 and its shares fell 7%. Goldman said its fourth-quarter 2022 earnings were significantly below analyst expectations. At $1.3 billion, he’s down nearly 70% from the year-ago quarter and has plummeted more than his rivals.
Banks have been predicting that bad luck for some time. Last week, Goldman said it was laying off 3,200 employees. This is the largest layoff since the 2008 financial crisis. American savers backfired.
On a conference call with analysts on Tuesday, Goldman Sachs chief executive David M. Solomon said the bank made mistakes and went too far. Solomon warned of more bad news ahead, including costs related to recent job cuts.
“Not everything went perfectly,” Solomon said.
Frank talk was, if anything, an understatement. Since taking over the top job in 2018, Solomon has sought to restructure the bank and streamline its operations. However, these changes have resulted in high executive turnover and dissatisfaction with the CEO’s leadership, putting both the CEO’s and the company’s reputation at risk.
Asking Goldman’s management about its turnaround plan during a conference call, many analysts expressed concern about the bank’s trajectory.
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“They were chewing too hard,” said Devin Ryan, an analyst at JMP Securities. “The ‘Sorry’ tour is a little underway.”
Goldman’s core investment banking business (buying and selling stocks, bonds and other financial instruments for large clients and advising on corporate mergers) was hit hard by the worsening economy and market declines in 2022 is of no help to Goldman. Banks earn hefty fees from these services and few observers expect the region to recover rapidly this year.
Still, what’s particularly troubling for Goldman is that many of its competitors face the same market headwinds, yet seem to be managing them with more fortitude. Morgan Stanley, which also released earnings on Tuesday, said its fourth-quarter earnings were above $2 billion, down 40% year-on-year but beating analyst expectations. Morgan Stanley shares rose more than 7%.
Bank of America and JP Morgan also reported better-than-expected earnings last week, with earnings growing modestly.
Many of Goldman’s competitors rely on other areas of business, such as the relatively stable Main Street lending and credit card businesses. Goldman has spent six years trying to break into these areas, mostly with disastrous results. The company has contributed a lot of his marketing resources to its consumer-focused division and has given it a hospitable new name, “Marcus,” after one of the company’s founders, but with a smaller scale. It turns out that customers are less interested in dealing with Wall Street giants. Not the most powerful of the borrowers.
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Goldman has lost well over $3 billion in consumer misfortunes since 2019. Many of Marcus’ original managers left, and his ambitions to expand into areas such as checking accounts were dashed. Goldman had $15 billion in loans at the end of the year in its consumer-focused division.
On Tuesday, Goldman said it had set aside about $1 billion to cover future credit losses.
Questions remain as to whether the worst has passed for Goldman.
With 48,500 employees, 600 fewer employees at the end of the fourth quarter than at the end of the third quarter, the bank has yet to reveal the full impact of the job cuts it implemented this month. When analysts asked Goldman executives how much the layoffs would cost the bank, they simply said those costs would be reflected in the bank’s next earnings report.
