Goldman Sachs (GS) - Get Free Report reported dismal Q4 2022 earnings Jan. 17. The bank may not have been alone, with fellow investment bank Morgan Stanley (MS) - Get Free Report also posting a decline in profit, but its shocking derailment stole headlines around the financial world.
“We tried to do too much too quickly,” CEO David Solomon said on the earnings call. “I think we probably in some places haven’t had all the talent that we needed to execute the way we wanted.”
The problem probably isn't just a matter of talent, as quarterly profits declined a whopping 66% and earnings-per-share came in at $3.32 -- 39% below the estimated $5.48.
Goldman Sachs' Problems Run Deep
Goldman has been forecasting trouble for a while now. The investment bank announced company-wide layoffs earlier in January. All told, the bank has cut approximately 6.5% of its workforce and warned that more could be on the way.
"If things haven’t gotten better in the first quarter, we’ll have more changes," compensation consultant Alan Johnson said. “You can’t have these expensive people sitting around with nothing to do.”
Goldman blamed its cuts largely on dealmaking -- or the lack thereof -- in 2022. Proceeds from initial public offerings (IPOs) are down 94%. Goldman's workforce was also seen as relatively bloated, as the bank had gone on a hiring spree during the pandemic when money was cheap and deals were plentiful.
“Widely expected to be awful, Goldman Sachs’ Q4 results were even more miserable than anticipated,” CEO of Opimas consultancy Octavio Marenzi told CNBC.
Total revenue was down 16% compared to the year-ago-quarter. The two biggest drags on profit were Goldman's Asset & Wealth management and Global Banking & Markets departments.
But the issue isn't restricted to over-hiring. The bank took a bigger hit on credit losses, as it was forced to allot extra cash for its credit card and loan businesses. Last year, Goldman lost $344 million on credit losses. This year, that number ballooned to nearly three times that, at $972 million.
It seems everything is getting more expensive at Goldman. Even running the company itself is more costly, as operating expenses climbed 11% YoY.
Goldman's Problems Could Be an Early Indicator of What's Ahead
While it may be easy to look at Goldman Sachs' issues as an isolated incident, the bank certainly doesn't see it that way.
Goldman CFO Denis Coleman warned those on the call that the bank is seeing squeezes that may soon be felt on Main Street.
"We are seeing early signs of credit deterioration that are in line with our expectations," Coleman said. "We anticipate further pressure in 2023."