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Goldman (GS) Q4 Earnings Lag Estimates as IB Revenues Crash
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The Goldman Sachs Group, Inc.’s (GS - Free Report) fourth-quarter 2022 earnings per share of $3.32 missed the Zacks Consensus Estimate of $5.25 by a considerable margin. Also, the bottom line fell significantly from $10.81 in the year-earlier quarter. Our estimate for earnings was $4.80 per share.
Shares tanked more than 2.5% in the pre-market trading on lower-than-expected quarterly results. Investors seem to be bearish on the stock because of a sharp decline in investment banking fees.
Goldman’s results were adversely impacted by a slump in the investment banking (IB) business and a decline in asset management revenues. Further, higher provisions were an undermining factor. Yet, the strength in the Fixed Income, Currency and Commodities Client Execution (FICC) and consumer banking businesses acted as tailwinds.
Net earnings of $1.32 billion plunged 66% from the prior-year quarter.
In 2022, earnings of $30.06 per share lagged the consensus estimate of $31.98 and tanked 49% year over year. Our estimate for earnings was $31.54 per share. Net earnings were $11.26 billion, down 48% from the prior year.
Revenues Decline, Expenses Rise
Net revenues of $10.59 billion fell 16% from the year-ago quarter. Nonetheless, the top line beat the Zacks Consensus Estimate of $10.52 billion. Our estimate for the metric was $10.29 billion.
In 2022, net revenues came in at $47.37 billion, which outpaced the Zacks Consensus Estimate of $47.29 billion. However, the top line declined 20% year over year. Our estimate for total revenues was $47.07 billion.
Total operating expenses increased 11% year over year to $8.09 billion.
Provision for credit losses was $972 million, higher than $344 million in the prior-year quarter.
Quarterly Segment Performance Mixed
Effective fourth-quarter 2022, Goldman realigned its businesses to further capitalize on its operating model. It has put its businesses into three operating segments — Asset & Wealth Management, Global Banking & Markets, and Platform Solutions.
The Asset & Wealth Management division generated revenues of $3.56 billion in the reported quarter, down 27% year over year. Results reflect a significant decline in net revenues in Equity investments and Debt investments.
Firmwide assets under supervision were $2.55 trillion, up 5% sequentially.
The Global Banking & Markets division recorded revenues of $6.52 billion, down 14% year over year. The fall indicated weakness in IB business (down 48%) and lower equities revenues (down 5%), partially offset by impressive net revenues in FICC (up 44%).
The Platform Solutions division’s revenues were $513 million, substantially higher year over year. The jump was driven by significantly higher credit card balances and an increase in total deposits.
Capital Ratios Improve
As of Dec 31, 2022, the standardized Common Equity Tier 1 capital ratio was 15.1%, up from the prior-year quarter’s 14.2%. The company’s supplementary leverage ratio was 5.8%, up from 5.6% in the prior-year quarter.
Capital Deployment Update
In the quarter under review, Goldman returned $2.38 billion of capital to common shareholders. This included $1.5 billion in share repurchases and common stock dividends of $880 million.
Conclusion
While Goldman’s well-diversified business will ensure earnings stability going forward, macroeconomic uncertainty and recessionary fears will likely weigh on the financial performance. Strength in the consumer banking business is a tailwind. Robust client engagement, a solid position in announced and completed mergers and acquisitions globally, and a decent IB backlog are likely to be tailwinds.
Citigroup Inc.’s (C - Free Report) fourth-quarter 2022 earnings per share (excluding divestiture-related impacts) of $1.10 have lagged the Zacks Consensus Estimate of $1.18. The figure declined 44.7% on a year-over-year basis. Our estimate for earnings was $1.09 per share.
Citigroup witnessed growth in revenues in the quarter, backed by higher revenues in the Institutional Clients Group, as well as Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
Wells Fargo’s (WFC - Free Report) fourth-quarter 2022 earnings per share of 67 cents outpaced the Zacks Consensus Estimate of 63 cents. Results included several non-recurring items like the $3.3 billion or 70 cents per share of operating losses related to “litigation, regulatory, and customer remediation matters.”
Results benefited from higher NII, rising rates and solid average loan growth. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC. Also, the rise in non-interest expenses acted as a headwind.
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Goldman (GS) Q4 Earnings Lag Estimates as IB Revenues Crash
The Goldman Sachs Group, Inc.’s (GS - Free Report) fourth-quarter 2022 earnings per share of $3.32 missed the Zacks Consensus Estimate of $5.25 by a considerable margin. Also, the bottom line fell significantly from $10.81 in the year-earlier quarter. Our estimate for earnings was $4.80 per share.
Shares tanked more than 2.5% in the pre-market trading on lower-than-expected quarterly results. Investors seem to be bearish on the stock because of a sharp decline in investment banking fees.
Goldman’s results were adversely impacted by a slump in the investment banking (IB) business and a decline in asset management revenues. Further, higher provisions were an undermining factor. Yet, the strength in the Fixed Income, Currency and Commodities Client Execution (FICC) and consumer banking businesses acted as tailwinds.
Net earnings of $1.32 billion plunged 66% from the prior-year quarter.
In 2022, earnings of $30.06 per share lagged the consensus estimate of $31.98 and tanked 49% year over year. Our estimate for earnings was $31.54 per share. Net earnings were $11.26 billion, down 48% from the prior year.
Revenues Decline, Expenses Rise
Net revenues of $10.59 billion fell 16% from the year-ago quarter. Nonetheless, the top line beat the Zacks Consensus Estimate of $10.52 billion. Our estimate for the metric was $10.29 billion.
In 2022, net revenues came in at $47.37 billion, which outpaced the Zacks Consensus Estimate of $47.29 billion. However, the top line declined 20% year over year. Our estimate for total revenues was $47.07 billion.
Total operating expenses increased 11% year over year to $8.09 billion.
Provision for credit losses was $972 million, higher than $344 million in the prior-year quarter.
Quarterly Segment Performance Mixed
Effective fourth-quarter 2022, Goldman realigned its businesses to further capitalize on its operating model. It has put its businesses into three operating segments — Asset & Wealth Management, Global Banking & Markets, and Platform Solutions.
The Asset & Wealth Management division generated revenues of $3.56 billion in the reported quarter, down 27% year over year. Results reflect a significant decline in net revenues in Equity investments and Debt investments.
Firmwide assets under supervision were $2.55 trillion, up 5% sequentially.
The Global Banking & Markets division recorded revenues of $6.52 billion, down 14% year over year. The fall indicated weakness in IB business (down 48%) and lower equities revenues (down 5%), partially offset by impressive net revenues in FICC (up 44%).
The Platform Solutions division’s revenues were $513 million, substantially higher year over year. The jump was driven by significantly higher credit card balances and an increase in total deposits.
Capital Ratios Improve
As of Dec 31, 2022, the standardized Common Equity Tier 1 capital ratio was 15.1%, up from the prior-year quarter’s 14.2%. The company’s supplementary leverage ratio was 5.8%, up from 5.6% in the prior-year quarter.
Capital Deployment Update
In the quarter under review, Goldman returned $2.38 billion of capital to common shareholders. This included $1.5 billion in share repurchases and common stock dividends of $880 million.
Conclusion
While Goldman’s well-diversified business will ensure earnings stability going forward, macroeconomic uncertainty and recessionary fears will likely weigh on the financial performance. Strength in the consumer banking business is a tailwind. Robust client engagement, a solid position in announced and completed mergers and acquisitions globally, and a decent IB backlog are likely to be tailwinds.
The Goldman Sachs Group, Inc. Price and Consensus
The Goldman Sachs Group, Inc. price-consensus-chart | The Goldman Sachs Group, Inc. Quote
Currently, Goldman has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Big Banks
Citigroup Inc.’s (C - Free Report) fourth-quarter 2022 earnings per share (excluding divestiture-related impacts) of $1.10 have lagged the Zacks Consensus Estimate of $1.18. The figure declined 44.7% on a year-over-year basis. Our estimate for earnings was $1.09 per share.
Citigroup witnessed growth in revenues in the quarter, backed by higher revenues in the Institutional Clients Group, as well as Personal Banking and Wealth Management segments. However, the higher cost of credit was a spoilsport.
Wells Fargo’s (WFC - Free Report) fourth-quarter 2022 earnings per share of 67 cents outpaced the Zacks Consensus Estimate of 63 cents. Results included several non-recurring items like the $3.3 billion or 70 cents per share of operating losses related to “litigation, regulatory, and customer remediation matters.”
Results benefited from higher NII, rising rates and solid average loan growth. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC. Also, the rise in non-interest expenses acted as a headwind.