April 18, 2022 | Premium Service | Last week Goldman Sachs (GS) and Morgan Stanley (MS) reported Q1 2022 earnings. Both firms managed the return to “normal” reasonably well in terms of overall results, but the former continues to evidence a high degree of volatility in line items that ought to be stable.
Dick Bove put the situation well last week, saying that Goldman Sachs needs to demonstrate “to what degree can it control its destiny?” That is the right question for readers of The Institutional Risk Analyst to ask as the FOMC is prepares to end QE, significantly raise interest rates and normalize credit costs along with it. Both MS and GS essentially have three business lines:
Institutional Securities, including capital markets and investment banking
Wealth Management, including advisory and brokerage services for individuals, and
Investment Management, including institutional investment services and funds
GS further breaks down its institutional securities business into global markets and investment banking, a revealing choice that illustrates the firm’s dependence upon trading the markets and other transactional business. The stable periodic income generated by the MS wealth and investment management lines stand in sharp contrast to Goldman's volatility. Neither firm breaks out commercial lending as a separate business line, but in the case of GS, credit may be a future vulnerability.