NEW YORK, Jan 17 (Reuters) – Morgan Stanley (MS.N) benefited from higher wealth management revenues, while Goldman Sachs (GS.N) suffered from higher costs and increased rainy weather, Wall Street investment bank The financial status of the giants has diverged day by day.
Goldman Sachs fell 6.5 percent after reporting fourth-quarter profit of $3.32 a share, missing Wall Street expectations of $5.48, according to Refinitiv IBES data.
Morgan Stanley rose 6 percent after reporting adjusted diluted earnings of $1.31 a share, well above analysts’ expectations of $1.19 a share, according to Refinitiv IBES data.
The bank’s release caps off a mixed fourth-quarter earnings season for the largest U.S. banks.
“This round went to Morgan Stanley because they seem to be one of the best bank returns,” said Edward Moya, senior market analyst for the Americas at OANDA.
Revenue at Morgan Stanley’s wealth management business rose 6% in the quarter, as interest income rose as the Federal Reserve raised rates for most of last year.
Goldman’s results also included a $660 million net loss in its platform solutions unit, which owns transaction banking, credit cards and financial technology businesses, as provisions for credit losses increased as businesses expanded.
Goldman Sachs is curbing its consumer banking ambitions as Chief Executive David Solomon refocuses the bank’s resources on strengthening its core businesses such as investment banking and trading.
Even so, Goldman’s full-year performance remains resilient in the face of tough market conditions, said David Fanger, senior vice president at Moody’s Investors Service.
Both banks reported a plunge in investment banking revenue as Wall Street dealmakers that handle mergers and initial public offerings face a sharp decline in business in 2022.
Goldman Sachs Chief Executive David Solomon confirmed the bank will cut 6% of its workforce, or about 3,200 jobs, and is making adjustments to its consumer business in response to an uncertain outlook for 2023.
“We’re trying to do too much too quickly,” he said of the bank’s consumer business. “We didn’t execute perfectly in some areas, so we looked at those and then you made adjustments.”
Analysts at UBS wrote in a note that the core trend for Morgan Stanley in the fourth quarter was encouraging and broke out of lows.
Revenue from Morgan Stanley’s investment banking business fell 49% to $1.25 billion in the fourth quarter, with revenues falling across the bank’s advisory, equities and fixed-income divisions.
A slowdown in investment banking weighed on the company’s net income, which fell 12 percent to $12.7 billion.
“I’m very confident that when the Fed pauses, there will be an increase in deal activity and underwriting,” Chief Executive James Gorman told analysts on a conference call.
Still, Chief Financial Officer Sharon Yeshaya told Reuters earlier on Tuesday that the bank was happy with its headcount following recent layoffs. Morgan Stanley cut 2 percent of its workforce, or about 1,600 jobs, in December, a source told Reuters.
Trading has been a surprise bright spot for Morgan Stanley, with revenue at the unit rising 26% in the fourth quarter as clients look to hedge market risk by shifting portfolios into more defensive assets.
Looking ahead, Gorman said the bank’s wealth and investment management business is expected to account for an increasing portion of the company’s pre-tax profits in the coming years.
The wealth management unit also helps the bank keep funding costs low through rate hike cycles, the chief executive added.
Mark-to-market losses on corporate loans were $876 million as interest rates rose. That includes debt to Twitter, the chief financial officer said. Morgan Stanley is one of many banks that lent Elon Musk $13 billion to buy the social media company.
Updating Morgan Stanley’s outlook, the chief financial officer said the bank’s net interest income, or the money banks get from interest payments, has yet to peak, although growth rates are likely to be lower this year.
Reporting by Manya Saini and Mehnaz Yasmin in Bangalore and Carolina Mandl and Saeed Azhar in New York; Additional reporting by Amruta Khandekar; Editing by Shounak Dasgupta, Mark Porter and Anna Driver
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