Goldman Sachs and Morgan Stanley report lowest profits in 4 years

NEW YORK: Goldman Sachs and Morgan Stanley have reported their lowest annual profits in four years, as the Wall Street rivals suffered from slowdowns in their investment banking and bond trading businesses.

The results capped a challenging year for the two banks, as a dearth of deals and public listings weighed on their fee income.

At Goldman, the decline in investment banking was compounded by losses caused by its pullback from retail banking, including the sale of its GreenSky online lending business. Net income at the bank fell 24 per cent in 2023 to $8.5bn.

Morgan Stanley reported an 18 per cent drop in full-year net income to $9.1bn in its finalresults under longtime chief executive James Gorman, who has been succeeded by former investment banking boss Ted Pick. Profits at the bank’s investment banking and trading division fell about a third.

Despite its lacklustre annual profits, Goldman’s fourth-quarter results were still better than analysts had expected. Shares in Goldman were up about 1.6 per cent in midday trading while those in Morgan Stanley fell more than 4 per cent.

Goldman’s net income for the quarter rose 51 per cent from a year earlier to $2bn, with the bank’s asset and wealth management and equities trading businesses driving the gains. Analysts polled by Bloomberg had forecast quarterly net income of about $1.5bn.

However, the drop-off in dealmaking activity continued to weigh on its investment bank, where revenues in the quarter were 12 per cent lower than a year earlier. David Solomon, Goldman chief executive, described the operating conditions in 2023 as “not a B+ or an A environment” but expressed optimism for this year.

“As we enter 2024, the potential for rate cuts in the first half of this year has renewed optimism for a soft landing,” Solomon told analysts. “We are already seeing signs of potential resurgence in strategic activity, which is reflected in our backlog” of investment banking business.

Pick said that geopolitical tensions and the trajectory of the US economy represented the two biggest risks but that Morgan Stanley was starting 2024 “with confidence”.

“Based on the evidence we see — our building M&A and IPO pipelines, improving boardroom confidence, and an increasingly positive tone from our retail and institutional clients — we remain constructive on the year ahead,” Pick told analysts.

Morgan Stanley’s powerhouse wealth management business has transformed its fortunes over the past decade, but profits at the division fell slightly in 2023. The bank’s fourth-quarter profits fell almost a third, as wealth management costs climbed and it reached a $249mn deal with regulators to settle a block-trading probe.

Under Solomon, Goldman has sought to emulate Morgan Stanley’s diversification, building up its asset and wealth management division to balance out the lumpier investment banking business.

Goldman on Tuesday said it had surpassed a fundraising target of $225bn at its so-called alternatives business, a vital plank of that strategy that includes private equity, private credit and real estate. The bank had previously said it would hit the goal by the end of 2024; it has now raised $251bn.

Morgan Stanley's former CEO James Gorman, who became executive chairman at the start of the year, turned the bank into a wealth management powerhouse that was less dependent on volatile revenue from trading and investment banking.

In his first strategic update as CEO, Pick reiterated the target set by his predecessor of reacing $10 trillion in assets under management.

He praised Gorman's "positive mojo." Asked about his management style, Pick said he and the bank's long-tenured leaders were determined to create durable and consistent

performance to meet their targets. Revenue in wealth management was flat at $6.65 billion compared to last year.

Morgan Stanley's fixed income and equity revenue were also flat in the fourth quarter. The results compare with fellow Wall Street giants that reported lower profit on Friday, clouded by special charges and job cuts.