M&A lull
Goldman and Morgan Stanley’s profit collapses
01/17/2023 7:33 p.m
The bottom line is billions, but profits have fallen drastically at the two major banks Goldman Sachs and Morgan Stanley. Both financial institutions are cutting back on the workforce and cutting hundreds of jobs. As the competition had already reported, the first economic downturns are becoming noticeable.
The slump in the mergers and acquisitions (M&A) business caused US banks Goldman Sachs and Morgan Stanley to slump in fourth-quarter profits. Goldman Sachs’ surplus fell by more than two-thirds to just under $1.2 billion for the year, Morgan Stanley’s earnings shrank by more than 40 percent to around $2.1 billion, according to the financial institutions. Goldman shares fell on Wall Street. Meanwhile, Morgan Stanley stocks rose as investors feared worse.
“Goldman Sachs’ fourth-quarter results were worse than expected,” said Octavio Marenzi, head of Opimas financial advisor. The institute was not only troubled by the slump in the M&A business, but also by the expansion into private customer business that started a few years ago. Platform Solutions, which includes its transactions, credit cards and financial technology businesses, posted a pre-tax loss of $778 million in the fourth quarter.
Goldman Sachs is cutting six percent of its jobs in response, bank boss David Solomon confirmed earlier information from insiders. Solomon described the outlook for the current year as “uncertain”. Goldman CFO Denis Coleman sees signs of deterioration in consumer credit.
According to an insider, Morgan Stanley also cut around 1,600 jobs at the beginning of December 2022 as a result of the slump in investment banking. After cutting around two percent of the jobs at the end of last year, the number of jobs is now comfortable, said CFO Sharon Yeshaya. The bank has enough excess capital and is sticking to the strategy of returning money to shareholders, for example through share buybacks. Morgan Stanley wants to focus more on the wealth management business in the future, said bank boss James Gorman.
The earnings season from the big US banks has shown mixed results. While on the one hand increasing risk provisions for possible loan defaults and a weakening M&A business weighed on the results, on the other hand the financial institutions benefited from higher interest income. Industry leader JP Morgan was able to increase profits by six percent to $11 billion despite the weak economy, and Bank of America by two percent to $6.9 billion. At Citigroup, however, earnings fell by a fifth to $2.5 billion, and at Wells Fargo a billion-dollar fine caused profits to drop by 50 percent to around $2.9 billion.