Brokeman Sachs & More-Gains Stanley
Batman vs. the Joker, Coke vs. Pepsi, The Red Sox vs. The Yankees - usually, rivals are pretty evenly matched competitors. Not this time.
Yesterday, we talked all about the more consumer-oriented banks, the ones that allow you to have money without having to fist-fight strangers over your "hard-earned" money. Goldman and Morgan Stanley, on the other hand, specialize in the clients that pay double my annual salary every year just to not have to sit next to you and me on flights.
All of these 6 major banks have a hand in pretty much every sector of the financial industry, but it's their specializations that can tell an economic story. For instance, Morgan Stanley was able to dance on Dj D-Sol's grave for the day yesterday, thanks to the bank's outsized exposure to wealth management
And dance they did. At close, after rising almost 6% on the day, Morgan Stanley became roughly 38.9% larger than Goldman, whose shares fell 6.4%.
So what happened? Well, I'm glad you asked.
Let's start with the good. Morgan Stanley narrowly squeezed past both sales and EPS estimates, despite profits dropping 40% compared to last year. Still, this was evidently priced in already, and investors were clearly pleased.
The bank leans on its wealth management division to drive profitability, a much more stable sector in the world of banking. Plus, as rates rise, the spread earned on loans - particularly those issued at the private bank - padded the earnings stats where dealmaking revenue sank like a rock. Some stats:
- Wealth Management revenue: $6.63bn, +6.0% YoY
- Trading revenue: $3.02bn, +4.5% YoY
- ROTCE (a clutch measure of bank profitability): 16%
- Total revenue: $12.75bn, -12.2% YoY
Goldman, on the other hand, primarily focuses on investment banking (dealmaking) revenue, which last quarter was about as reliable as George Santos's resume.
While bottles were popping in Jim Gorman's office, GS CEO David Solomon presided over the bank's worst earnings miss since immediately post-GFC. As valuations tumbled, rates spiked, and balance sheets grew shakier, M&A activity fell to a level almost as nonexistent at Solomon's hair. Gotta be fair, so here are some more stats:
- Investment Banking fees: $1.87bn, -49% YoY
- Asset & Wealth Management revenue: $3.56bn, -27% YoY
- ROTCE: 11%
- EPS: $3.32, a nice 69% down YoY; consensus estimates were for $5.48
Massive growth in credit loss provisions, as well as spiking OpEx and huge severance expenses driven by terminations, were the primary culprits to Goldman's miserable Q4. The firm sees a rough road in 2023, or maybe it's just cover-your-a** time.
And there you have it. The large-cap American bank earnings szn is basically over, and it looks like it was even more of a doozy than expected. We got plenty more to celebrate the Most Wonderful Time of Year all this and next week, so don't worry. Might be even more humiliating when European banks, such as UBS, Credit Suisse, and Deutsche Bank, drop their reports in the coming weeks.
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