Goldman Sachs (NYSE: GS) plunges around 3% to trade at $329.60 in early session on Tuesday as the firm under pressure of profits and revenue increased at Bank of America (BAC) during the first quarter while declining at Goldman Sachs (GS), providing a conflicting view of how the two financial behemoths fared during a difficult period for the banking industry and the markets.
Goldman’s earnings was around $3.1 billion in the March 31 quarter, down from $3.83 billion the previous year as some of its key businesses stalled. Investment banking revenue fell 26% as new transactions stagnated, while advising fees fell 27%. Fixed-income trading revenues, another traditional Goldman strength, decreased as well.
Bank of America, which has a considerably larger consumer lending business than Goldman, reported $8.2 billion in earnings, a 15% increase over the first quarter of 2022. In pre-market trading, the company’s shares were up 2.6%.
Net interest income, which is the difference between what a bank makes on loans and what it pays out on deposits, was a primary driver of profitability.
The Federal Reserve’s rapid rise in interest rates over the last year increased this measure of income for Bank of America and other large consumer banks, such as JPMorgan (JPM) and Wells Fargo (WFC), since it allowed them to charge higher interest rates on their loans. Net interest income of Bank of America increased by 25% year on year.
The risk now is that those margins will continue to collapse throughout the sector as banks begin to spend more aggressively for deposits and offer higher rates to attract new clients. Bank of America’s net interest income decreased by only $233 million from the previous quarter. However, the corporation revised its projection, stating that it now expects less income from this approach in the future for every 100 basis point increase in interest rates.
Bank of America’s interest expenditure increased by $12.8 billion year over year and $3.8 billion in the fourth quarter, indicating that the bank is paying much more for deposits.
Even before the March turbulence, institutions large and small were losing depositors to money market funds prepared to pay better rewards. Bank of America was unable to buck the trend. Its deposits were $1.9 trillion at the end of the quarter, down $20 billion from the end of 2022 and $162 billion from the previous year.
“Banks do have a deposit conundrum,” Argus Research’s director of financial services research Stephen Biggar told Yahoo Finance on Monday.
A comparable exodus occurred at Goldman Sachs. Deposits were down 3% year on year and quarter on quarter, with consumers withdrawing $11.6 billion from Goldman’s banking business during the first three months of the year. Deposit balances at the end of the quarter were the lowest since the fourth quarter of 2021.
Goldman has been rethinking its consumer banking venture and exploring strategic options for that segment of the company. Its earnings, reported Tuesday, included a $470 million loss on the partial sale of a loan portfolio.
