Goldman Sachs shares declined more than 5% following the company's biggest earnings miss in more than a decade as it missed analysts' expectations on the top and bottom lines. In addition, it set aside larger loan loss provisions than expected as well.
In some ways, Goldman's weak quarter is payback from the first couple of quarters following the pandemic when Wall Street was on fire, while the Main Street economy languished. This was of course due to the Federal Reserve's ultra-dovish policies with rates at zero and the government pumping trillions of liquidity into financial markets. Now, we have the opposite situation with the Fed determined to reduce economic activity and has been on an aggressive pace of hikes not seen in decades.
Inside the Numbers
In Q4, Goldman Sachs reported $3.32 in earnings per share which exceeded analysts' estimates of $5.48 per share in earnings. The company's revenue also missed expectations at $10.6 billion vs $10.8 billion. The company's earnings came in 66% below last year's earnings figure, while revenue was down 16%.
The big drop in earnings isn't surprising when considering that operating expenses were up 11% to reach $8.1 billion in an environment where revenue was down. Analysts were expecting $7.3 billion in operating expenses. The bank cited higher compensation costs, employee benefits, and transaction-based fees as factors. The company has already begun layoffs to curb these rising costs, and more are expected to follow.
Goldman also posted $973 million in credit loss reserves which were sharply higher than last year's Q4 of $344 million and well above analysts' expectations. In the conference call, CFO Denis Coleman said that the bank is noticing some 'early signs of consumer credit deterioration' due to an increase in the number of economic headwinds.
The bank's crown jewel, its investment bank, saw a 48% decline in revenue to $1.9 billion as issuance for new shares and debt remain depressed due to the Fed's intervention. Its Asset & Wealth Management division also saw a 27% drop in revenue, mostly due to marking down some of its private equity holdings and the value of its debt instruments.