Chart explains why 2022 has been so bleak for Wall Street bankers: Morning Brief

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Wednesday, January 18, 2023

Today’s newsletter is at Myles Udland, head of news at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and other market news wherever you are Yahoo Finance app.

Goldman Sachs’ (GS) quarterly results released on Tuesday served as a final marker for a year that investment bankers won’t want to remember anytime soon.

The world’s largest banking brand reported fourth-quarter earnings per share down 69% from a year ago and full-year earnings per share down 49% from 2021. Goldman’s flagship investment banking unit fell 48% for the full year.

In a conference call on Tuesday, Goldman CEO David Solomon said: “Put simply, our quarter was disappointing and our business mix proved particularly challenging. These results are not what we aspire to offer to shareholders.”

The results come after the bank laid off 6% of its employees last week in the sharpest reaction the industry has ever seen amid a slowdown in transactions resulting from the most aggressive interest rate hikes in the world. the Federal Reserve for a generation.

Goldman Sachs shares fell 6.4% on Tuesday.

David Solomon, Chairman and CEO of Goldman Sachs, speaks during the Milken Institute Global Conference on May 2, 2022 in Beverly Hills, California. (Photo by Patrick T. FALLON/AFP) (Photo by PATRICK T. FALLON/AFP via Getty Images)

Now, like in any industry, talk to five banking executives and you’ll get 10 different perspectives on the environment, economy, and customer demand.

But the challenges facing traders on Wall Street last year were simple, and the following chart from S&P Global Market Intelligence that hit our inbox early Tuesday sums up the story in a clear picture.

The US IPO market boomed in 2021 and all but came to a standstill in the second half of 2022. (Source: S&P Global Market Intelligence)

The US IPO market boomed in 2021 and all but came to a standstill in the second half of 2022. (Source: S&P Global Market Intelligence)

In the United States, IPO activity in the fourth quarter of 2022 was down 92% compared to the same period last year.

For the full year, trading volumes fell by 86% – to 149 IPOs in 2022 from 908 IPOs launched in 2021. The number of IPOs completed during the entire 2022 would not have matched the quarterly count in the previous three months. year.

And while the IPO market is the easiest pocket of the investment banking world to follow, results from Wall Street banks this quarter suggest that this sector of the market hasn’t been the only one to see. volumes drop.

As Bloomberg reported last week, the leveraged loan market also came to a halt in 2022 after a bumper year in 2021. As Richard Zogheb, global head of debt capital markets at Citi, the told Bloomberg: “The dislocation is more pronounced and longer lasting than anything since the Great Financial Crisis.”

Downturns in cyclical activities like banking are of course part of this business cycle or any other.

Rising interest rates make borrowing money for anything – a house, a car, a business takeover – more expensive. Which means potential buyers either pay more or move on. On Wall Street, the preference last year was clear.

But the challenges facing the banking world are doubly so this time around given the frenetic state of the business just two years ago.

In the spring of 2021, readers may recall, junior bankers at Goldman Sachs complained of “inhumane” conditions as teams were pushed to the brink to serve the glut of deals flooding markets as the economy was reopening aggressively and interest rates were pinned to the floor.

As a result, junior staff got a raise.

At the time, Solomon responded to those complaints by saying, “We’ve always been a pay-for-performance organization. We’re high performers.”

Now Solomon tells a different story.

And it’s not hard to see why.

What to watch today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applicationsweek ending Jan 13 (1.2% over previous week)

  • 8:30 a.m. ET: New York Fed Services Business ActivityJanuary (-17.5 over the previous month)

  • 8:30 a.m. ET: Advance on retail salesmonth-over-month, December (-0.9% expected, -0.6% in prior month)

  • 8:30 a.m. ET: Retail sales excluding autosmonth-over-month, December (-0.5% expected, -0.2% in prior month)

  • 8:30 a.m. ET: Retail sales excluding automobiles and gasolinemonth-over-month, December (expected 0.0%, -0.2% in prior month)

  • 8:30 a.m. ET: Retail Control GroupDecember (-0.3% expected, -0.2% in previous month)

  • 8:30 a.m. ET: PPI Final Demandmonth-over-month, December (-0.1% expected, 0.3% in prior month)

  • 8:30 a.m. ET: PPI excluding food and energymonth-over-month, December (0.1% expected, 0.4% in prior month)

  • 8:30 a.m. ET: PPI excluding food, energy and trademonth-over-month, December (0.2% expected, 0.3% in prior month)

  • 8:30 a.m. ET: PPI Final Demandyear-on-year, December (6.8% expected, 7.4% in prior month)

  • 8:30 a.m. ET: PPI excluding food and energyYear-over-Year, December (5.6% expected, 6.2% in prior month)

  • 8:30 a.m. ET: PPI excluding food, energy and tradeyear-on-year, December (4.6% expected, 4.9% in prior month)

  • 9:15 a.m. ET: Industrial productionmonth-over-month, December (-0.1% expected, -0.2% in prior month)

  • 9:15 a.m. ET: Manufacturing (SIC) ProductionDecember (-0.2% expected, -0.6% in previous month)

  • 9:15 a.m. ET: Ability to useDecember (79.5% expected, 79.7% in previous month)

  • 9:15 a.m. ET: Business inventoriesNovember (0.4% expected, 0.3% in previous month)

  • 10:00 a.m. ET: NAHB Housing Market IndexJanuary (31 planned, 31 in previous month)

  • 2:00 p.m. ET: The Federal Reserve publishes a beige book

  • 4:00 p.m. ET: Just long-term ICT flowsNovember ($67.8 billion)

  • 4:00 p.m. ET: Total net ICT flowsNovember ($179.9 billion)

Earnings

  • Charles Schwab (SCW), Discover financial services (DFS), PNC Financial Services (PNC), Kinder Morgan (KMI), JB Hunt Transportation Services (JBHT), Premier Horizon Corp. (FHN), Alcoa (AA), Wintrust Financial (WTFC), H. B. Fuller Company (COMPLETE), Prologue (PLD)

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