Goldman Sachs shares fall after earnings miss

Long Wall Street’s most envied firm, Goldman Sachs, stumbled into the New Year.

The extent of the decline became clearer on Tuesday when the bank reported poor results for the final quarter of 2022, with its shares plunging 7%. Goldman Sachs said its profit in the fourth quarter of 2022 was significantly below analysts’ expectations — $1.3 billion, down nearly 70% from a year earlier and a steeper decline than its rivals.

The bank has been anticipating its own misadventures for some time. Last week, Goldman Sachs said it would cut 3,200 jobs, the largest layoff since the 2008 financial crisis. It also lists billions in losses during its ill-fated foray into consumer banking, where the company’s efforts to lure ordinary U.S. savers backfired.

On a conference call with analysts on Tuesday, Goldman Sachs Chief Executive David M. Solomon said the bank made mistakes and was trying to do too much. gentlemen. Solomon warned that there was more bad news on the horizon, including costs related to recent layoffs.

“Nothing is perfect,” Mr. Solomon said.

Candid talk, if anything, is an understatement. Since taking over the top job in 2018, Solomon has sought to restructure the bank and streamline its operations. But the changes have led to high executive turnover and complaints about the CEO’s leadership, jeopardizing his and the company’s reputation.

Many analysts posed questions to Goldman executives about their turnaround plans during the call, citing concerns about the bank’s trajectory.

“They can’t chew more than they can eat,” said JMP Securities analyst Devin Ryan. “There’s some ‘sorry’ tour going on.”

In 2022, a deteriorating economy and falling markets have hit Goldman Sachs’ subsistence business — buying and selling stocks, bonds and other financial products for large clients, and advising companies on mergers — and it won’t help the bank from those services. Charge high fees, and few observers expect the region to bounce back quickly this year.

What’s particularly embarrassing for Goldman, though, is that many of its rivals face the same market headwinds but appear to be managing them with greater steadfastness. Morgan Stanley, which also reported earnings Tuesday, reported fourth-quarter profit of more than $2 billion, down 40% from a year earlier but beating analysts’ expectations. Shares of Morgan Stanley rose more than 7%.

Bank of America and JPMorgan also reported better-than-expected earnings last week, showing modest profit growth.

Many of Goldman’s rivals rely on other lines of business, such as the relatively stable Main Street lending or credit card businesses. For six years, Goldman Sachs has been trying to break into these areas, mostly with disastrous results. While the company has given its consumer-focused division plenty of marketing resources and an affectionate new name, Marcus, after one of the company’s founders, small clients have proven to be a key to doing deals with Wall Street giants. Limited interest — and hardly the strongest borrowers.

Since 2019, Goldman Sachs has lost more than $3 billion due to consumer misconduct. Many of Marcus’s original managers have left, and ambitions to expand into areas such as checking accounts have been stifled. Goldman’s consumer-focused unit had $15 billion in loans outstanding at year-end.

On Tuesday, Goldman Sachs said it had set aside nearly $1 billion to cover future loan losses, in part to cover consumer debt the bank has largely given up on.

Questions remain about whether the worst is over for Goldman Sachs.

The bank, which has 48,500 employees, ended the fourth quarter with 600 fewer people than it did at the end of the third quarter, and the bank has yet to spell out the full impact of this month’s layoffs. When analysts asked how much pressure Goldman’s executive severance packages would put on the bank, they said only that those costs would be reflected in the bank’s next earnings report.