Goldman Sachs (GS 1.58%) is known for a few things, and one of them is frequently delivering earnings numbers well in excess of analyst estimates. So, it's not a surprise that investors were disappointed with the bank's rare miss in its recent fourth-quarter report. In this Fool Live video clip recorded on Jan. 20, Fool contributors Matt Frankel and Jason Hall discuss whether Goldman looks like a smart stock to buy on the dip.
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Matt Frankel: Goldman Sachs was actually down pretty big after earnings. Goldman is known for, if analysts are expecting, say, $8 a share in earnings, Goldman will post $15. They are well-known for blowing away expectations every quarter. You're familiar with that trend. This was a rare miss on bottom line for Goldman Sachs, they missed earnings expectations. The big reason I mentioned expenses, their operating expenses were up 23% year-over-year and were $500 million above what analysts thought they would be.
That's a recipe for missing earnings right there. Higher pay was a big reason they cited. All in all, Goldman had a good year, maintained its number one share in M&A equity underwriting, investment banking revenue was up 45%. Listen to this. Goldman produced the highest revenue and earnings of all time for the bank in 2021, $59.45 in earnings per share. That means the stock is trading for Western six times trailing earnings. Six times. Going forward and here's my theory as to why that is, Goldman doesn't get nearly as much benefit from rising interest rates as it's counterparts.
Jason Hall: Yeah, as a matter of fact, there could be some challenges to a lot of M&A and that kind of thing.
Frankel: Right. The rising interest rates and inflation could definitely slowdown M&A, could slow down debt underwriting, especially. Companies don't want to issue new debt when interest rates are higher. Their consumer banking division makes up about 2% of their revenue at the moment, it's growing fast, but it's two percent. They don't get to pass on the benefit of higher interest rates to their customers in the way that a Bank of America (NYSE: BAC) would.
Hall: Yeah, and the other thing too is we also saw, you were talking about the credit quality and with Bank of America, the flip side because Goldman is growing that commercial banking and actually had to increase their credit loss provisions a little bit because their credit card business is growing so quickly so they didn't get that. It's artificial, but they didn't get that bump in their earnings by freeing up capital.
Frankel: Yeah. I am a big bull on Goldman Sachs when it comes to their consumer banking potential and people who have listened to me know that. They just got into the credit card business I think about a year and a half ago?
Hall: Yeah.
Frankel: They have Apple (NASDAQ: AAPL), they have General Motors (NYSE: GM). Any bank would love to have Apple as their credit card partner. That's a pretty impressive first get.
