By
Bhushan Akolkar
April 12th, 2024
New York banking giant Goldman Sachs suffered its worst earnings miss since 2011, with quarterly profit sinking 66% year-over-year.
Goldman Sachs (NYSE: GS) recently posted its fourth quarter result, showing its worst earnings miss in ten years. Revenue realized for the period ended December 31st came in lower than expected, while expenses and loan loss surged conversely.
For the fourth quarter of 2022, Goldman reported a revenue haul of $10.59 billion versus the consensus estimate of $10.83 billion. In addition, the banking giant earnings per share of $3.32 compared to the much higher $5.48 estimate analysts provided for the same period. According to Goldman, quarterly profit sank 66% from the preceding year to $1.33 billion, or $3.32 per share. This year-over-year decline is a 39% drawdown below the consensus estimate, and the most significant EPS miss since October 2011. Furthermore, although Goldman’s latest revenue fared better at $10.59 billion, it is still 16% off last year’s intake.
Goldman’s shares dropped by more than 6% in early trading.
Despite Goldman’s underwhelming last quarter of 2022, the bank’s CEO David Solomon chose to see things positively. In a company release, Solomon explained:
“Against a challenging economic backdrop, we delivered double-digit returns for our shareholders in 2022. Our clear, near-term focus is realizing the benefits of our strategic realignment, which will strengthen our core businesses, scale our growth platforms and improve efficiency.”
When questioned by an analyst regarding Goldman’s consumer effort missteps, Solomon said the bank tried to do too much too quickly. The Goldman CEO also acknowledged that the company was ill-equipped in some places, which compromised execution.
Operating Expenses Largely to Blame for Goldman Sachs Earnings Miss
Also commenting on the Goldman Sachs Q4 earnings miss, Opimas chief executive officer Octavio Marenzi said in an email:
“Widely expected to be awful, Goldman Sachs’ Q4 results were even more miserable than anticipated. Revenues were largely in line with forecasts, but earnings took a big hit. The real problem lies in the fact that operating expenses shot up 11%, while revenues tumbled.”
Furthermore, Marenzi added that Goldman could resort to more cost-cutting and layoffs due to this underperformance.
Goldman said its operating expenses for the latest quarter climbed 11% YoY to $8.09 billion. Causative factors for the jump were higher compensation, benefits, and transaction-based fees. According to reports, these combined expenses also came in roughly $800 million more than analysts had expected for the same period.
Another reason for the disappointing Goldman results is due to a reported $972 million provision for credit losses in the quarter. This figure compared unfavorably with the much smaller $344 million credit loss provision that the banking giant posted a year earlier. Generally, Goldman set aside 50% more than analysts were expecting regarding potential credit card and point-of-sale loan portfolio losses for the quarter.
Goldman’s Asset and Wealth Management intake also slumped 27% from the previous year to $3.56 billion. During this period, the banking giant realized much smaller gains on private equity holdings and debt instrument markdowns.