What happened
Shares of Goldman Sachs (GS -0.23%) are falling today, down by 7.5% as of 11:56 a.m. ET after the investment banking giant reported disappointing earnings results for the fourth quarter of 2022.
So what
Goldman posted Q4 earnings per share (EPS) of $3.32 on total revenue of $10.59 billion, which missed estimates by a mile. Analysts had been expecting the company to report $5.48 in EPS on total revenue of $10.83 billion. It was Goldman's worst miss on earnings in a decade.
The big issue appears to be operating expenses, which were a little over $8 billion in Q4, up 11% year over year thanks to transaction-based expenses, higher technology expenses, and the inclusion of losses due to past acquisitions such as the consumer finance company GreenSky. Depreciation and amortization expenses rose 49% year over year.
"Against a challenging economic backdrop, we delivered double-digit returns for our shareholders in 2022. Our clear, near term focus is realizing the benefits of our strategic realignment which will strengthen our core businesses, scale our growth platforms and improve efficiency. The foundation of all of our strategic efforts is our client franchise which is second to none," CEO David Solomon said in a statement.
In the fourth quarter, Goldman generated just a 4.4% return on equity. For the full 2022 year, the company had an elevated efficiency ratio (expenses expressed as a percentage of revenue) of 65.8%.
Now what
Goldman had a difficult year in 2022 due to the extreme slowdown in investment banking and its previous announcement that the company would be abandoning its consumer banking ambitions.
Goldman still has a big moat in investment banking and sales and trading that should keep it relevant long term, but it could face some struggles in the near term as it refocuses its broader strategy and waits for investment banking to rebound.
