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Post: Earnings Results: Goldman Sachs, Morgan Stanley, Citigroup report lower earnings

Goldman Sachs Group Inc., Wells Fargo & Co., Citigroup Inc. and Morgan Stanley on Thursday all reported lower first-quarter profits in a tough start to the year, but the quartet managed to beat Wall Street’s earnings expectations.

Shares of Goldman Sachs
Morgan Stanley
and Citigroup

all rose, gaining back some of their losses for the year. For most of 2022, investors have cast a bearish eye on banks in the face of inflation and the war in Ukraine. Wells Fargo

shares fell back, however, after it missed revenue expectations.

Goldman eyes turbulence

Goldman Sachs Chief Executive Officer David Solomon described the latest quarter as turbulent and dominated by the Ukraine war.

“The rapidly evolving market environment had a significant effect on client activity as risk intermediation came to the fore and equity issuance came to a near standstill,” Solomon said.

Goldman Sachs Group’s profit dropped to $3.83 billion, or $10.78 a share, from $6.71 billion, or $18.60 a share, in the year-ago quarter.

Revenue at the megabank dropped to $12.93 billion from $17.7 billion.

Goldman Sachs was expected to earn $8.90 a share on revenue of $11.86 billion, according to a FactSet survey.

Shares initially rose as much as 3.4% in morning trading, before pulling back.

Citi analyst Keith Horowitz reiterated a buy rating a $400 price target for Goldman and said the bank turned in a “really good quarter” with well-controlled expenses and improved tangible book value.

Kenneth Leon, analyst at CFRA Research, said Goldman’s results got a boost from fixed-income trading and growth in its consumer and wealth management units. A 36% drop in investment banking revenue was partly offset by higher corporate lending revenue and wider spreads on hedges and transaction banking.

Prior to Thursday’s trades, Goldman Sachs shares were down 15.8% so far in 2022. The stock is a component of the Dow Jones Industrial Average
which has fallen 4.9% this year.

Wells Fargo shares fall into the red

Wells Fargo shares retreated by more than 4% after the bank said its first-quarter earnings dropped to $3.67 billion, or 88 cents a share, from $4.64 billion, or $1.02 a share, in the year-ago quarter, beating the Wall Street target of 81 cents, according to FactSet.

Revenue fell to $17.59 billion from $18.53 billion in the year-ago quarter, to miss the FactSet consensus of $17.78 billion.

The latest quarter’s resulted were included a $1.1 billion, or 21 cents a share, decrease in the allowance for credit losses.

CEO Charles Scharf said efforts by the U.S. Federal Reserve to tame inflation “will certainly reduce economic growth,” and along with the impact of the war in Ukraine will, add downside risk to the economy.

Citi analyst Keith Horowitz said Wells Fargo’s earnings beat was driven by larger than expected reserve release and equity gains. Its core pre-provision net revenue (PPNR) missed by about 10 cents to 15 cents relative to expectations largely on higher first-quarter expenses, he said.

Janney Montgomery Scott analyst Chris Marinac told MarketWatch that Wells Fargo managed to grow its loan business by 2%, but said the bank’s earnings will likely gain traction in the next two quarters on higher interest rates. Investors bidding down the stock are “missing the point” because “there’s a better time coming” for Wells Fargo, he said. 

Prior to Thursday’s trades, Wells Fargo shares were up 1.2% so far in 2022, compared with a drop of 6.7% by the S&P 500 and a loss of 4.5% by the Financial Select SPDR ETF XLF.

Morgan Stanley revenue shows strength

Morgan Stanley shares rose 1.2% after the investment bank said its first-quarter earnings fell 11% to $3.54 billion, or $2.02 a share, from $3.98 billion, or $2.19 a share, in the year-ago quarter. Adjusted earnings dropped to $2.06 a share from $2.22 a share.

Revenue dipped 6% to $14.8 billion, from $15.72 billion.

Morgan Stanley was expected to earn $1.71 a share on revenue of $14.25 billion, according to a FactSet survey.

JMP analyst David Ryan said stronger revenue, a modestly lower compensation ratio and lower non-compensation expenses drove the bank’s outperformance.

Citi analyst Horowitz also cited the bank’s strength in trading revenue, while the bank maintained a strong capital position.

Prior to Thursday’s trades, the stock is down 14.3% so far in 2022.

Citigroup hikes credit loss allowance for Russia impact

Citigroup shares rose 1.8% after the bank said its first-quarter profit fell 46% to $4.3 billion, or $2.02 per share from $7.9 billion, or $3.62 per diluted share in the year-ago quarter.

Revenue declined to $19.2 billion from $19.7 billion, as higher net interest income was more than offset by lower non-interest revenue across businesses, the company said.

Citi beat the analyst forecasts for earnings of $1.43 a share and revenue of $18.19 billion, according to a survey by FactSet.

The bank attributed its drop in net income to higher cost of credit, higher expenses and lower revenue.

The latest quarter’s results included Asia Consumer divestiture-related impacts of approximately $677 million.

The bank reported an additional $1.9 billion allowance for credit losses (ACL) related to its exposure to Russia and the broader impact of the conflict in Ukraine.

Keefe, Bruyette & Woods analyst David Konrad said Citi posted better-than-expected net interest income and trading, which offset higher expenses.

Prior to Thursday, Citi’s stock was down 17% so far in 2022.

Also Read: JPMorgan Chase profit misses targets as war, inflation and supply-chain issues cause it to boost reserves

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