Goldman Sachs Falls 36% As Bank Of America Notches Earnings Beat

Key Takeaways

• Goldman Sachs profits drops 36% as dearth of dealmaking continues to weigh on investment banking
• Bank of America notches earnings beat with 10% jump in profits, though the company continues to hold substantial unrealized losses on debt assets

Goldman Sachs and Bank of America have announced a markedly opposite set of financial results as the run of bank earnings calls continues.

Bank of America stock jumped on the announcement of the winnings numbers, while Goldman Sachs understandably fell on news of the 36% drop in profits.

Let’s dig into the results and see just how these two big banks fared, and look at their forecast for the coming quarter.

Goldman Sachs profit drops 36%

Let’s start with the good news. Goldman Sachs investment banking division managed to increase their revenue over the previous year, for the first time in almost two years. With mergers, acquisitions and IPOs all but dead in 2022, the increase suggests that this activity is starting to tick up.

But that was one of the few bright spots in what was a fairly bleak earnings call. Profit is down 36% in Q3, which makes it eight straight quarters in a row of falling profits. The bank is undergoing structural change as it pulls back from retail banking, as well as continuing to suffer losses on its real estate exposure.

Net income came in at $1.88 billion for the quarter, below analyst forecasts of $1.92 and way down on last year’s figure of $2.96 billion.

Included in these numbers was a loss on sale of GreenSky to a private equity fund, as well as $358 million in write downs on their real estate assets. The company noted that the GreenSky sale means most of their Marcus loan book has now been offloaded, which should help earnings numbers in upcoming quarters.

Essentially, Goldman Sachs continues to be hit hard by the slowdown in investment banking activity. Unlike competitors like JPMorgan Chase and Bank of America, Goldman has a far narrower number of income sources. That makes the recent downturn in deal-making activity a much bigger problem for them.

Going forward Goldman Sachs is looking to increase their asset and wealth management divisions, and shareholders will be looking to see progress in these areas in future earnings calls.

With all of that said, it’s not surprising that Goldman Sachs stock was down. It closed down 1.58% on Tuesday, extending its slide of almost -11% year to date.

At least the bank’s spokespeople don’t have to field questions about CEO David Solomons latest DJ set. No, that’s not a joke, the Wall Street executive has been known to DJ at many high profile events in the Hamptons, and even made an appearance at Lollapalooza 2022.

After the bank’s board of directors expressed concerns over the media attention Solomons’ DJ side hustle was getting, he agreed to hang up the decks.

Bank of America earnings beat estimates, up 10%

Bank of America had a much better story to tell. Revenue was up 10% to $7.8 billion, putting earnings per share at $0.90 against analyst forecasts of $0.83.

Revenue was up too, gaining 3% to come in slightly above estimates at $25.2 billion.

It wasn’t all good news though. The bank is holding a large number of debt assets it purchased at record low rates, which are all now significantly underwater until they reach maturity or rates recover.

Unrealized losses on these bonds hit $131.6 billion, which is up substantially from the $105.8 billion in June. Bank of America doesn’t plan to sell these assets, meaning the losses won’t be realized, but it also means they can’t use them as security for loans or investments.

All in all it was a positive result for the bank, and the stock responded in kind. It bounced 2.26% on Tuesday, but that’s not enough to make up for the performance in recent months, with the stock down 17.58% year to date and almost 21% over the last 12 months.

The bottom line

Banks are being particularly hard hit in the current economic environment. High interest rates have completely dried up the mortgage market, banks are having to pass on more interest to savers, and as is particularly relevant to Goldman Sachs, investment banking activity has been dry.

But as always, investors should look to the long term to decide whether to invest or not. Let’s face it, the banking sector isn’t going anywhere. That’s not to say that every bank is a good long term investment (ahem…Bear Stearns and Lehman Brothers) so investors should tread carefully, but there is obviously a lot of value to be had for investors who enter the sector intelligently.