Investment banking slump rattles Wall Street: Profits plunge at Goldman Sachs and Morgan Stanley
Profits plunged at Wall Street rivals Goldman Sachs and Morgan Stanley as investment banking fees dried up.
Goldman shares tumbled 7 per cent in New York after profits for the fourth quarter of last year dived to £1.1billion from £3.2billion in the same period in 2021.
The figure was also well below analyst estimates of £1.8billion. Goldman’s profits for the entire year slumped to £9.2billion from £17.6billion previously.
Wall Street blues: Goldman shares tumbled 7% after a sharp fall in profits, while rival Morgan Stanley’s total revenue for the quarter fell to £10.4bn from £11.8bn
The grim results marked the bank’s fifth consecutive quarter of falling profits as it slashed jobs and cut spending in its biggest cost reduction plan since the 2008 financial crisis.
Fees from Goldman’s investment banking division dropped sharply, and as AJ Bell analyst Danni Hewson said: ‘Wheeling and dealing has been rather on the back burner as inflation and rate hikes became the primary focus of investors and business.’
Goldman’s spending on pay and benefits also rose 16 per cent in the fourth quarter to £3.1billion despite the cost-saving plans.
Boss David Solomon told investors the fourth quarter had been ‘disappointing’.
Morgan Stanley also saw fourth quarter profits slide from £3billion a year ago to £1.8billion this time around. But shares rose nearly 8 per cent as the figures beat analyst forecasts.
Morgan Stanley’s total revenue for the quarter fell to £10.4billion from £11.8billion.
Like Goldman, Morgan Stanley has also been laying off staff, with the bank late last year cutting around 1,800 jobs.
Despite the drop in profits, the performance of the group’s wealth management arm will bolster boss James Gorman’s efforts to reduce its reliance on revenues from volatile investment banking arena.
It will also provide food for thought for Solomon, who is trying to replicate the strategy over at Goldman Sachs.
Crypto crisis spreads
A crypto bank linked to disgraced Sam Bankman-Fried tumbled to a loss as it was hit by the collapse in digital currency markets.
Silvergate Capital, which offers services including bitcoin-backed loans, reported a loss of £815million for the final quarter of last year, down from a profit of £15million for the same period in 2021.
Customer deposits at the bank plunged by 56 per cent year-on-year to £5.1billion at the end of December.
Silvergate provided services to crypto tycoon Bankman-Fried’s empire before the collapse of his crypto exchange FTX in November and his arrest in the Bahamas weeks later.