Goldman Sachs topped expectations in its quarterly earnings report Tuesday, sending its shares rallying to a near 12-month high, but a slump in the company’s core investment banking unit, generally blamed on the year’s interest rate hikes, continued to rear its ugly head amid a cyclical downturn in dealmaking activity.
Goldman reported $11.32 billion of sales and $5.48 earnings per share in the fourth quarter of 2023, easily topping consensus analyst estimates of $10.8 billion and $3.62 earnings per share, respectively.
Shares of Goldman gained less than 1% on the bumper earnings, trading less than 10% below their all-time high, moving against stock losses suffered from bank peers who reported quarterly earnings Friday to a cooler investor reaction.
Despite the strong quarterly results, Goldman’s earnings report finalized a few unfortunate annual milestones for the bank: Its $46.5 billion in sales marked its worst year since 2020 and its $8.52 billion in net income capped its least profitable year since 2019.
The weak annual results coincide with a tough stretch for Goldman’s highly profitable investment banking division, with its $6.2 billion in 2023 investment banking revenues and $3.3 billion in mergers and acquisitions strategic advisory revenues Goldman’s worst respective numbers since 2013 and 2020.
Rival Morgan Stanley also topped estimates for quarterly revenues in its Tuesday morning earnings report, though its $4.6 billion in annual investment banking sales was similarly down more than 10% from 2022.
Last year’s broad decline in investment banking fees in 2023 coincided with the most severe interest rate increases in decades, as higher rates tend to dissuade companies from going public or undergoing other strategic activity as borrowing costs make doing so much pricier. Last year was the weakest year for mergers and acquisitions globally since 2013, according to M&A-focused law firm Morrison Foerster. The decline followed a record stretch in 2020 and 2021, when advisory fees boomed amid the initial public offering (IPO) frenzy.