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Goldman Drags on Stocks, but Here's the Bank That's Truly Getting Crushed

The Motley Fool
The Motley Fool
 2022-01-18

The holiday weekend didn't leave Wall Street investors in a particularly good mood, as a sustained push higher in long-term interest rates continued to weigh on the stock market. As of shortly before 9 a.m. ET, Dow Jones Industrial Average (DJINDICES: ^DJI) futures were down 278 points to 35,518. S&P 500 (SNPINDEX: ^GSPC) futures had lost 42 points to 4,612, and Nasdaq Composite (NASDAQINDEX: ^IXIC) futures were off 220 points to 15,376.

Another round of earnings from bank stocks came out to begin the new week, and investors weren't entirely pleased with the trends that they're seeing. Industry giant Goldman Sachs (NYSE: GS) saw a substantial pullback after releasing its results, but its decline was small compared to those that another bank with close ties to the cryptocurrency sector suffered Tuesday morning. Below, you'll learn more about Goldman's results and then find out which bank stock is down even more sharply.

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Goldman confirms investor worries about trading activity

Shares of Goldman Sachs were down more than 4% on Tuesday morning, playing a substantial role in pulling the Dow lower. The banking giant's 2021 results were strong in many regards, but investors focused on a couple of key elements that raised concerns for the future.

Goldman saw record revenue and earnings in 2021, bringing in $59.34 billion in revenue on the year and posting net income of $21.64 billion, or $59.45 per share. The bank's 23% return on equity was its highest since 2007, and the company saw record revenue in its asset management, investment banking, and consumer and wealth management divisions. Assets under supervision hit record levels as well, and global markets division revenue was at its highest level in a dozen years.

However, investors focused on weakness late in the year in Goldman's global markets trading operations. Net revenue for the fourth quarter was down 7% from year-earlier levels and 29% from the third quarter of 2021, with a particularly sharp 11% decline in equities trading results. As a result, segment net income was down 43% year over year, echoing some of the issues that rival JPMorgan Chase had with its trading operations.

Overall, earnings of $10.81 per share for the fourth quarter fell 11% from the previous year's quarter and also fell short of what shareholders had wanted to see. That signaled a loss of momentum that could plague Goldman well into 2022 if the bank can't reverse the trend.

Silvergate gets tarnished

Falling even further was Silvergate Capital (NYSE: SI) , whose shares were down 11% in premarket trading. The crypto-focused bank saw dramatic gains in late 2020 and 2021, but Silvergate's results failed to live up to high expectations .

Silvergate's year-over-year performance in the fourth quarter of 2021 was strong. Net income of  $21.4 million was more than double the year-ago figure. Digital currency customer-related fee income of $9.3 million was up sharply from $3.8 million in the fourth quarter of 2020, with Silvergate seeing more than 400 new digital currency customers come on board to bring its total to 1,381. Full-year performance showed impressive gains as well.

However, Silvergate saw some challenges in its core banking operations. Net interest margin for the quarter plunged from 2.85% a year ago to 1.11%, as the company kept more assets on deposit at other banks. In addition, sequential results weren't quite as solid, with noninterest income falling 21% from the third quarter and pulling down earnings per share by 25% to $0.66.

In the long run, the success of the Silvergate Exchange Network in handling more than $219 billion in U.S. dollar transfers in the fourth quarter alone shows just how important the bank's crypto initiatives have been in driving growth. Investors need to be prepared for volatility, especially when tremors in the crypto markets raise doubts about the near-term future.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Dan Caplinger owns JPMorgan Chase. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy .

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