Goldman Sachs (GS) in 2023 recorded the lowest profit since David Solomon’s first year as CEO but posted a sizable gain in the fourth quarter as equities trading and wealth management rose.
Goldman reported Tuesday that its full-year net income of $8.52 billion for 2023 was down 24% as dealmaking slowed across the industry and the firm absorbed costs associated with an exit from consumer lending.
That was the worst mark for Goldman since it earned $8.46 billion in 2019, Solomon's first full year in charge. He became CEO at the end of 2018.
The 2023 drop is also the second-largest among the big banks for 2023, trailing only Citigroup’s 38% profit plunge.
But it did benefit in the fourth quarter from a trading turnaround. Its earnings of $2 billion rose by 51% from the year-ago quarter, helped by a surge in equities trading and higher asset and wealth management revenues.
Its investment banking revenues, however, were still down 12% from a year ago but up 6% from the third quarter of 2023.
The 24% drop in profit during 2023 coincided with a challenging year across much of Wall Street as dealmaking slowed, thousands of jobs were cut, and bonuses were slashed.
By one measure, it was the worst in a decade for the industry. Revenue from investment banking was the lowest of any year since 2013, according to data from Dealogic.
A Look at Wall Street
No firm was under a bigger spotlight than Goldman and its CEO. Solomon spent much of the year attempting a tricky retrenchment from consumer lending while focusing the firm on its core strengths of investment banking, trading, and asset management.
An expansion into consumer banking has cost the firm $4 billion since 2020. Over the course of 2023, it has taken several steps to exit that business.
Goldman, in late August, announced it found a buyer for a personal finance unit catering to the mass affluent. Then in early October, it announced the sale of specialty lender GreenSky to Sixth Street Partners and a consortium of other firms.
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The slump weighing down much of Wall Street is two years in the making. It started in 2022, following a boom in 2021 when Goldman earned more than $21 billion.
Clients turned cautious about everything from the direction of interest rates to relations with China to the larger US economy, dampening the optimism needed to go public, buy companies, or take on more debt.
Last year was supposed to be when things turned around, fueled by a series of public offerings that would finally break open an IPO logjam. Several companies did go public in the third quarter — including ARM Holdings (ARM), Instacart (CART), and Klavyio (KVYO) — but some fell in price after their market debuts.
That mixed performance raised questions about whether other companies considering an IPO would follow. Those doubts intensified amid higher borrowing costs, concerns about an extended period of high interest rates, volatility from geopolitical tensions, and new worries about the possibility of a recession.
Many executives that had been touting signs of "green shoots" warned it would now likely take longer for any sustained gains to show up.
Many on Wall Street predict this coming year will be better, with more mergers and initial public offerings returning after a long drought.
But many things have to go right for that to happen. Not only does the economy have to take off, but leaders of companies need to become a lot more certain about the future.
Wall Street is betting the spark will be the end of the Federal Reserve’s aggressive monetary tightening campaign and that interest rate cuts could start as early as March.
One danger is that the Fed doesn’t act on that same timetable, or that inflation surges again, forcing the central bank to hold rates higher for longer.
Another is that rates come down because a recession is raging.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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