Goldman Sachs has reported its lowest annual profits in four years, as losses caused by its pullback from retail banking compounded a slowdown in its core business.
Despite the U.S. business media's concentration on the 4th quarter figures, the 2023 data shows Goldman was the weakest of the big six banks, outside of Citi, which is a special case as it is in the middle of long restructuring.
Goldman Sachs reported annual revenues of $US46.25 billion, down 2% from 2022, while net earnings of $US8.52 billion for the year to December 31 were down 24% from 2022's $US11.26 billion.
The giant saw an 11% surge in costs to $US34.49 billion for 2023, 11% higher than 2022. With weak revenues and the sharp rise in costs, the bank's efficiency ratio (cost to income ratio in Australian banking) was 74.6% for 2023, compared with 65.8% for 2022. That is unsustainable.
Goldman said earnings for the December quarter jumped 51% to $US2.008 billion, from the same quarter of 2022 when earnings fell to just over $US1.3 billion when the bank was hit by large loan loss provisions and surging expenses.
But the 4th quarter profit was $US50 million lower than the weak $US2.058 billion reported for the September quarter.
Revenue for the 4th quarter rose 7% to $US11.32 billion on growth from asset and wealth management and platform solutions divisions. But that was also less than the September quarter, which Goldman reported revenue of $US11.81 billion.
Goldman CEO David Solomon has endured a tough year, thanks to dormant capital markets and strategic moves such as the attempt to become a consumer banking and financial business. But investors hope Goldman can turn a corner after moving away from Solomon's failed consumer banking efforts (which included linking with Apple Pay, which has now been abandoned).
The growth engine for the bank, Solomon, is now its asset and wealth management division, which other banks and private finance groups are all chasing. That's not surprising given that the bank's asset and wealth management revenue jumped 23% from a year earlier to $US4.39 billion, topping analyst estimates by nearly $US550 million, on higher revenue from equity and debt investments and rising management fees.
Other Goldman divisions met or slightly missed expectations. For instance, while platform solutions revenue jumped 12% to $US577 million, that was below the $US612 million market estimate.
Goldman's core activities of investment banking and trading didn't rebound strongly in the fourth quarter, but analysts will want to hear about the possibility of a recovery in 2024.
In the company's trading division, stronger-than-expected results in equities mostly offset a miss in fixed income. Equities trading revenue saw good news, jumping 26% to $US2.61 billion, thanks to derivatives activity and financing fees, topping the $2.22 billion analyst forecast. But fixed income posted $US2.03 billion in revenue, a 24% decline from a year earlier on weak interest rate and currencies trading, and well below the $US2.53 billion estimate. That business is a Goldman staple and shows just how weak the actual performance was.
Investment banking fees, another Goldman staple, saw a 12% drop to $US1.65 billion, as the industry's slump in completed acquisitions continued into late last year.
The bank's return on tangible equity, a key metric tracked by investors and analysts, was just 8.1% last year, half its target range of 15% to 17%.
Goldman Sachs said it slashed headcount by 7% last year to just over 43,000 (or 3,200 positions) from the end of 2022, with most of the cuts coming a year ago.
Goldman is among the banking giants that will pay a special assessment fee to refill the U.S. government's deposit insurance fund (DIF) that was drained of $US16 billion by the collapse of two regional banks last year. It recognized a $529 million expense tied to the fee in the fourth quarter. That was a fraction of the $US2.9 billion to come from JPMorgan and shows how far Goldman Sachs is now behind the U.S. banking industry leader.
