Goldman Sachs disappoints with a 58% drop in profit in the second quarter of 2023. Analysis of performance and winners and losers among the big Wall Street banks.
Goldman Sachs is the last of the large US banks to release second quarter 2023 accounts. The numbers presented were mixed, with a 58% drop in earnings compared to the same period a year earlier.
While other banks such as JPMorgan, Wells Fargo and Bank of America beat expectations, benefiting from higher interest rates and earning higher net interest income, Goldman Sachs showed signs of concern.
Citigroup and Morgan Stanley also saw profit declines, but Goldman Sachs saw the largest decline relative to its peers.
Let’s see in detail the data contained in the report, analyzing the performance of the investment bank, and highlighting the positive aspects and the challenges faced in the current financial context.
Goldman Sachs second quarter results
In the second quarter of 2023, Goldman Sachs reported lower than expected earnings, highlighting the negative impact of some specific extraordinary components. The bank recorded losses related to investments in the Asset & Wealth Management division. This led the bank to exit this sector. In addition, losses associated with the sale of GreenSky contributed to an adverse effect on overall results.
Net income of the US investment bank in the second quarter reduced by 58% year-over-year, reaching $1.22 billion.
In parallel, diluted Earnings per Share (EPS) fell 60% to $3.08, falling below its forecast range of $3.16 to $3.18.
Overall revenues were down 8% to $10.9 billion. Despite this decline, revenues still beat analyst estimates, expecting $10.6 billion to $10.7 billion.
Return on Equity (ROE), or return on shareholders’ investments, reached 4%, reflecting a lower rate than the bank’s past performance.
These quarterly results have sparked interest and concern among investors and industry analysts. The combination of losses in certain investment sectors and capital loss sales had a significant impact on overall Goldman Sachs results. The bank will face challenges and make strategic decisions to address them and improve future performance.
Additionally, reduction in revenues and net income may require a review of the bank’s operating strategies and financial goals for the upcoming period. Investors may be wary of the steps Goldman Sachs will take to address the situation and improve its market position.
Goldman Sachs passed rigorous stress tests mandated by the Federal Reserve, demonstrating robust capital levels well above required thresholds. Following the lead of its competitors, the bank announced its intention to increase its shareholder dividend to $2.75 starting in the third quarter, an increase of 25 cents.
Overall, Goldman Sachs’ quarterly report reflects a phase of significant challenges and changes for the bank, which will now have to focus on corrective actions and recovery strategies to return to growth and regain investor confidence.
US Big Bank Quarterly: The Winners
The second quarter saw the big US banks’ results be a performance mix. Bank of America, the second largest bank, reported better-than-expected earnings, with global markets and investment banking businesses stealing the show. Net interest income from the bank’s primary revenue stream grew 14% year-over-year. Although slightly lower than expected, Bank of America forecast an 8% increase in net interest income for the full year, showing optimism for the second half of the year.
JPMorgan reported second-quarter profit ahead of expectations, thanks to higher interest income and the First Republic Bank deal. CEO Jamie Dimon reassured investors about the economy’s strength but also highlighted risks such as high inflation and the war in Ukraine. Results were positive in the consumer banking and investment banking sectors, with signs of recovery. However, financial markets revenues declined and operating expenses were reduced through layoffs. An amount more than doubled has been set aside to cover credit losses, but there are hopes of a recovery of financial markets activity. The future remains subject to challenges and uncertainties in the current economic environment.
Wells Fargo beat Wall Street estimates in the second quarter, with earnings per share and revenue up. The bank earned $4.9 billion, a 57% increase from a year earlier. Net interest income grew 29% at higher interest rates to $13.2 billion. Although net interest income was down slightly from the first quarter, Wells Fargo is confident about the US economic outlook. The bank set aside $1.7 billion for credit losses, reflecting expectations of weakness in the commercial real estate market. Despite this, Wells Fargo’s shares increased.
We also count Citi among the winners of this earnings round, although its performance has not been brilliant. Citigroup reported earnings above expectations in the second quarter but down 36% on weak trading. However, the net interest margin increased by 19%, thanks to the higher loan yield. Markets sector revenues fell 13% on less activity in fixed income and equities, while investment banking fees fell 24%. Despite the challenges, the consumer sector helped mitigate some weaknesses. Net income fell to $2.92 billion due to reserves for non-performing loans and increased net chargebacks.
...and the vanquished
Meanwhile, Morgan Stanley reported a 12% decline in profit year-over-year in the second quarter. While less negative than expected, both trading and investment banking disappointed, albeit slightly better than expected. However, Morgan Stanley’s broader asset management business helped balance revenues, cushioning underperformance from other divisions.
At the same time, Charles Schwab reported lower profits, with a 28% decline in net income year-over-year. Additionally, deposits were down 31% from a year earlier, signaling concern for investors. Charles Schwab has faced challenges related to shifting deposits to higher-yielding accounts, but this trend appears to have slowed recently, affecting the bank’s stock behavior.
The black jersey for quarterly results, therefore, goes to Goldman Sachs, which does not exceed Wall Street’s estimates and reports the lowest quarterly profit in the last three years. The bank was hit hard by continued weakness in investment banking and trading, its historic profit engines, by a $504 million writedown of GreenSky and another $485 million writedown of investment property.
For smaller banks, deposit costs are becoming critical. Bank of America increased deposit costs by $1.4 billion from the previous quarter, a significant figure that could also be reflected in regional banks’ performance. In particular, the Western Alliance report will be an important reference point for understanding how deposit costs are affecting smaller banks.
Overall, the earnings season for the big US banks offered a mixed picture of performance in the second quarter. While Bank of America beat expectations, Morgan Stanley signaled lower profits but with some bright spots. Goldman Sachs’ disappointing results make us wonder how the banking sector will meet the challenge of rising deposit costs.
Original article published on Money.it Italy 2023-07-19 15:59:12. Original title: Trimestrali Big bank USA, Goldman Sachs chiude il cerchio: vincitori e vinti
