Weekly 10-Q: Things did not go Goldman Sachs’ way in Q4’22

  • Goldman Sachs significantly underperformed in the final quarter of 2022 -- and it seems more bad news may be coming for the bank.
  • Meanwhile, Morgan Stanley, which also published earnings last Tuesday, reported more than $2 billion in profit for Q4 – a 40% decline from the previous year, but still ahead of analyst expectations.

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Weekly 10-Q: Things did not go Goldman Sachs’ way in Q4’22

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Last week, we covered: Wells Fargo is rolling back its mortgage business

Things did not go Goldman Sachs' way in Q4'22

Goldman Sachs and Morgan Stanley posted their Q4 2022 results last Tuesday. We take a look at how the big banks performed in the final quarter of 2022.

Goldman Sachs reported:

  • Profit plunged 66% from a year earlier to $1.33 billion, or $3.32 per share.
  • Revenue was $10.59 billion, down 16% from a year earlier.
  • Operating expenses jumped 11% from a year earlier, to $8.09 billion.
  • Provision for credit losses was $972 million, compared with $344 million a year earlier.
  • Investment banking fees dropped 48% to $1.87 billion, and asset & wealth management revenue fell 27% from a year earlier to $3.56 billion. 

The bank significantly underperformed in the final quarter of 2022, and its stock dipped more than 6%. The firm made significantly less money in Q4 2022 than analysts expected — $1.3 billion, down nearly 70% from the same period a year earlier.

The Platform Solutions unit, which constitutes the firm's fintech, credit card, and transaction banking operations, made a pre-tax loss of $1.2 billion in the first nine months of 2022. CEO David Solomon attributed the losses to major missteps on their end. He also warned that there was still more bad news to come, including costs related to the recent job cuts.

The bank is hit hard and experiencing a sharper fall than its rivals due to macroeconomic headwinds and falling markets in 2022.

Meanwhile, Morgan Stanley, which also published earnings the same day, reported more than $2 billion in profit for Q4 – a 40% decline from the previous year, but still ahead of analyst expectations.

Morgan Stanley reported:

  • Net income fell to $2.11 billion, or $1.26 per share, from $3.59 billion, or $2.01 per share, a year ago.
  • Revenue fell to $12.75 billion from $14.52 billion a year ago.
  • The wealth management business recorded net revenue of $6.63 billion, 6% higher than a year ago.
  • Provision for credit losses was $87 million, compared with just $5 million in the same quarter a year ago.
  • Trading revenue also rose, climbing to $3.02 billion from $2.39 billion a year ago. On the equity side, revenue fell 24% from a year ago -- while the investment management division reported revenue of $1.46 billion, marking a 17% decline from a year ago.

The firm’s investment banking business suffered a big slowdown amid a collapse in IPOs and debt and equity issuance and fewer completed M&A transactions. However, the company was able to generate revenue in its wealth management business and saw higher revenue in its trading operations, surpassing analyst estimates. Morgan Stanley’s stock rose nearly 6%.

We also take a look at JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup's Q4 2022 earnings results, reported a week before.

JPMorgan Chase's profit jumped 6% from the year-earlier period to $11.01 billion, or $3.57 per share. Revenue rose 17% to $35.57 billion, driven by the rise in net interest income to $20.3 billion, surpassing the StreetAccount estimate by $1 billion, as the bank saw average loans rise 6%.

But the bank posted a $2.3 billion provision for credit losses in Q4, a 49% increase from Q3 that exceeded the $1.96 billion StreetAccount estimate, as it set aside money for expected defaults. The company’s shares rose 1.1% last to last Friday.

Bank of America reported $14.7 billion of net interest income, up 29% year-over-year but slightly below Wall Street expectations of $14.8 billion, according to StreetAccount. The bank implemented a $1.1 billion provision for credit losses, up $1.6 billion compared with the same quarter in 2021.

Consumer banking surged 6% YoY, while credit card and debit spending rose 5% YoY. Net income for global wealth and investment management was down 2% YoY. Overall, higher interest rates helped the bank navigate a sharp slowdown in investment banking. Shares of the firm rose 2.2% last to last Friday.

Wells Fargo reported a 50% drop in net income to $2.86 billion from $5.75 billion a year ago. Revenue declined 5.7% to $19.66 billion, against an analyst consensus of $19.99 billion. Net interest income increased by 45% to $13.43 billion. The losses were fueled by a recent regulatory settlement and the need to build up reserves amid a deteriorating economy right after it announced plans to step back from the mortgage market.

Citigroup’s stock rose 1.8% after the bank posted a lower profit. Q4 net income fell to $2.5 billion from $3.2 billion a year ago. Revenue increased 6% to $18.0 billion, slightly above the analyst estimate of $17.96 billion. Excluding divestments, revenue rose 5%, due to higher interest rates across businesses, and the strong loan growth in US personal banking. This was counterbalanced by a decline in investment banking and lower investment-product revenue in global wealth management, as well as the hit from the exited markets.

Top stories of the week

CFPB looking to strengthen its rules for overseas money transfers

The Consumer Financial Protection Bureau is considering new restrictions on the fees charged by money-transfer companies for wiring money overseas. Bureau officials are looking into whether differences in the way money transfer companies disclose exchange rates and fees can make it tough for immigrants and other workers who send money overseas to find the most affordable option. The move comes as the agency sees a lack of transparency on fees, exchange rates, and taxes in sending money abroad and believes there is significant non-compliance. (WSJ)

Citizens Financial reports $2.1 billion 2022 profit

Citizens Financial ended 2022 with $2.1 billion in earnings, versus the $2.3 billion profit for 2021. In Q4 2022, the company reported a $653 million profit, up 23% from Q4 2021. Higher Q4 profits also reflected the increase in interest rates as well as more interest-earning assets following the Investors Bancorp and HSBC acquisitions. Non-interest expenses rose 20% YoY to $4.9 billion, while net interest income soared 33%, reaching $6 billion by the end of 2022. Losses were added as the bank began to stockpile reserves in anticipation of loan defaults from an economic downturn. The acquisitions of Investors Bancorp and the East Coast branches of HSBC U.S. Bank NA., both of which closed in 2022, also cut into profits by increasing non-interest expenses. Shares were flat in premarket trading last Tuesday. (MarketWatch)

Charles Schwab stock dips as Q4 earnings miss analysts' estimates

Charles Schwab stock was down more than 3% Wednesday after the brokerage reported Q4 results that fell short of expectations. The net income for Q4 2022 was $2.0 billion, up 25% from $1.6 billion for Q4 2021. Net income for the whole of 2022 was $7.2 billion, an increase of 23% versus the prior year. Daily average trading volume among Schwab clients fell 12% from the year-ago quarter. Schwab was among the worst performers in the S&P 500 Wednesday. Shares have lost about 13% over the past year. (Barron's)

Intuit bolsters QuickBooks Business Network availability

Intuit has expanded the availability of QuickBooks Business Network to millions of SMBs in the US. This move comes to accelerate and automate B2B payments and improve overall cash flow -- and address age-old challenges small businesses face when it comes to B2B payments. (PYMNTS)

Robinhood is setting up its independent media unit

Robinhood is launching its independent media arm, called Sherwood, which will cover and monetize newsletters, websites, events, and later podcasts based on topics like money, technology, and geopolitics. Robinhood's existing newsletter called Snacks will be added under the Sherwood umbrella. The venture is being piloted by Joshua Topolsky, the former editor-in-chief of The Verge and ex-chief digital officer at Bloomberg Media. (Axios)

Crypto bank Silvergate reports a hefty $1 billion net loss in Q4

Crypto bank Silvergate’s latest financial report indicates the firm has been badly affected by the ongoing crypto winter and the downfall of crypto exchange FTX. The firm’s Q4 report indicated a $1 billion net loss compared with a net income of $40.6 million for the third quarter and a net income of $18 million for the same period a year earlier. For the whole of 2022, the company posted a loss of $949 million, compared with a net income of $75.5 million in 2021. The bank's shares were up 4.9% at $13.85 in premarket trading last Tuesday, while its stock has plunged almost 90% over the past year. (Reuters)

Truist Financial unveils strong earnings result for Q4 2022

Truist Financial released its Q4 earnings which exceeded the Wall Street consensus as loans surged, and net interest income grew, while deposits plummeted and costs of deposits increased. Q4 net interest income (taxable equivalent) of $4.03 billion climbed from $3.78 billion in the previous quarter and from $3.27 billion in the same quarter last year. Q4 adjusted pre-provision net revenue was $2.87 billion, up from $2.57 billion in Q3 and from $2.46 billion in Q4 2021. Provision for credit losses was $467 million vs. $234 million in the prior quarter and a benefit of $103 million in the year-ago quarter. Consumer Banking & Wealth net income of $1.19 billion rose from $986 million in the prior quarter and from $972 million in the year-ago period. Corporate and Commercial Banking income was $1.22 billion vs. $1.16 billion in Q3 and $1.20 billion in Q4 2021. (Yahoo)

Tweet of the week

Source: Dare Obasanjo

Chart of the week

Apple's fintech evolution over the years

Source: Flagship Advisory Partners

What's trending

  • Temenos chief Max Chuard to step down (Finextra)
  • Apple Card is a drag on Goldman Sachs, says CEO (AppleInsider)
  • BlackRock invests in Human Interest to expand 401(k) business (InvestmentNews)
  • Google is piloting its own ‘soundbox’ in India for merchants to get audio-based payment alerts (TechCrunch)

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