Higher expenses and a plunge in dealmaking hobbled quarterly results for two of Wall Street’s premier investment banks, with shares of Goldman Sachs Group Inc. sinking amid concern that the situation won’t improve anytime soon. Morgan Stanley’s report was less dour, and the stock gained ground in pre-market trading.
Goldman’s investment banking fees dropped by almost half during the last three months of 2022 from a year earlier, and the backlog of new business shrank compared with the third quarter, the company said in a Tuesday statement. At the same time costs jumped, driven by compensation, and the New York-based bank earmarked more funds to cover loans that might go sour. That left net income down 69% from a year earlier on a 16% drop in revenue. The shares dropped 3% in early trading.
Morgan Stanley’s net income tumbled almost 40% from a year earlier on lower revenue, as non-interest expenses came in higher than expected and trading missed estimates. But overall results at the New York-based bank were better than analysts expected, with particular strength in wealth management, where Morgan Stanley has benefited from higher net interest income as the Federal Reserve pushed up rates. The shares gained more than 3.7% in pre-market trading.
Rising Expenses
“Widely expected to be awful, Goldman Sachs’ Q4 results were even more miserable than anticipated,” said Octavio Marenzi, the chief executive at Opimas. “The real problem lies in the fact that operating expenses shot up 11%, while revenues tumbled. This strongly suggests more cost cutting and layoffs are going to come.”
“Morgan Stanley, on the other hand, had results very much in line with expectations, with weakness in investment banking, but stable elsewhere,” Marenzi said.
