Business & Finance
Morgan Stanley and Goldman Sachs have Reported Strikingly Different Quarterly Results, Revealing a Divergence in their Performances
Wall Street giants Goldman Sachs and Morgan Stanley endured a tough fourth quarter in 2022 as the pandemic weighed on their investment banking divisions. Goldman Sachs reported a net loss of $660 million at its Platform Solutions unit due to higher provisions for credit losses, while Morgan Stanley’s net revenue was down by 12% to $12.7 billion.
Goldman Sachs’ Chief Executive Officer David Solomon revealed that the bank was cutting 6% of its headcount, or around 3,200 employees, and making changes to its consumer business to deal with the uncertain outlook for 2023. He stated that they had “tried to do too much too quickly” and that adjustments had been made accordingly. On the other hand, analysts from UBS wrote that Morgan Stanley’s fourth-quarter core trends were encouraging and cleared the low bar set beforehand.
Revenue from Morgan Stanley’s Investment Banking business showed a 49% fall in comparison to prior quarters, with declines across all three segments: Advisory, Equity, and Fixed Income. CEO James Gorman expressed confidence about the return of deal activity and underwriting activity when the Federal Reserve eventually pauses its interest rate hikes. The bank also took measures to reduce headcount by 2%, or 1,600 jobs, in December 2022. Surprisingly, trading revenue jumped by 26%, attributed to clients looking to hedge against market risks via defensive asset allocations.
The CFO Sharon Yeshaya also revealed that mark-to-market losses on corporate loans amounted to $876 million due to rising interest rates – this included debt associated with Twitter which Morgan Stanley had lent money for Elon Musk’s acquisition of it back in 2022. Furthermore, she outlined prospects for net income where growth is likely to reduce but not peak yet as wealth and investment management take up an increasingly larger portion of pre-tax profits each year – helping keep funding costs lower amid the rate hiking cycle, according to Gorman himself.
Overall, both banks have put up resilient numbers despite difficult market conditions – this can be attributed largely to interest rate hikes through most of last year, along with reasonable handling of investment portfolios towards more defensive assets during a period of uncertainty like this currently facing today. It will be interesting as we move forward into 2023 how these financial institutions manage their operations and balance sheets, given the new normal brought upon us by the COVID-19 pandemic, which has drastically altered how businesses approach their day-to-day operations across many industries worldwide.