New York CNN  — 

Let’s not make a deal? Investment banking powerhouses Goldman Sachs and Morgan Stanley both reported substantial drops in revenue and profit for the fourth quarter on Tuesday, largely due to the dearth of merger activity and initial public offerings in the final three months of the year.

Earnings for Goldman Sachs (GS) missed by their widest margin since the third quarter of 2011. Revenue tumbled 16% for Goldman Sachs (GS) in the fourth quarter, and profits plunged 66%. Morgan Stanley’s (MS) revenue fell 12% from a year ago while earnings were down nearly 40%.

Goldman Sachs CEO David Solomon said in the company’s earnings release that the company faced “a challenging economic backdrop.” Morgan Stanley CEO James Gorman called it “a difficult market environment.”

Goldman Sachs said that investment banking fees plummeted 48% in the fourth quarter from the same period in 2021, as acquisition activity dried up and fewer companies looked to raise money by selling stock or issuing debt. Morgan Stanley was hit by the slowdown too, with investment banking revenue dropping 49% from a year ago.

Research firm S&P Global Market Intelligence said Tuesday that only 20 IPOs made it to market in the United States during the fourth quarter last year, down from 234 in the fourth quarter of 2021.

Despite a strong market rally in October and November, stocks ended the fourth quarter with a thud, sliding in December. And Wall Street suffered its worst year since 2008. That made companies less willing to go shopping for acquisitions, too.

“Fourth-quarter 2022 M&A activity marked a weak end to a depressed year in North America as rising interest rates and a slowing economy dissuaded companies from expanding,” S&P Global Market Intelligence said in a report.

Morgan Stanley’s overall revenue and earnings topped analysts’ forecasts though, while Goldman Sachs posted revenue also missed Wall Street’s targets. Shares of Morgan Stanley were up about 7% in midday trading Tuesday. Goldman Sachs, a Dow component, fell nearly 7%.

Both investment banking titans did report some bright spots though. Morgan Stanley said that revenue for its wealth management unit was up 6% from a year ago.

Goldman Sachs also posted strong revenue gains for its small, consumer-oriented banking business. Goldman Sachs disclosed in a regulatory filing last week, however, that this division has lost more than $3 billion since 2020.

During a conference call with analysts Tuesday, Solomon said that Goldman Sachs will no longer offer new loans on its Marcus consumer platform, adding that the company has “narrowed our ambitions on our consumer strategy.”

Both Goldman Sachs and Morgan Stanley are trying to attract more “Main Street” customers in order to expand beyond trading, investment banking and other traditional Wall Street businesses.

But it’s been a tough time for all financial services companies. Rising interest rates, tumbling home prices and concerns about an imminent recession are hitting all banks hard. JPMorgan Chase (JPM), Citigroup (C), Wells Fargo (WFC) and Bank of America (BAC) all reported mixed results last week and gave mostly cautious outlooks about the economy.

Still, Gorman was hopeful that there will be a resurgence in deals later this year. He said he believes that once the Federal Reserve stops hiking interest rates — which many investors believe may happen later this year if inflation pressures continue to abate — then companies will be more willing to make acquisitions or go public.

“I am highly confident that when the Fed pauses, deal activity and underwriting activity will go up. I would bet the year on that, in fact,” he said during Morgan Stanley’s conference call with analysts.