Goldman Sachs is scheduled to release its first quarter earnings statement on Tuesday, April 19. It looked like it was going to be a tough 2016 right off the bat for the investment banking firm, with the announcement in mid-January that the firm had agreed to a $5 billion settlement over the sales of faulty mortgage-backed securities leading up to the crisis.
The settlement, with both federal and state regulators, was finalized earlier in April. It was the fourth largest settlement between the federal government and a financial firm over toxic RMBS sales.
The forecast for Q1 earnings does not look promising for Goldman Sachs, either. According to Zacks Investment Research, a consensus of eight analysts' predictions says that Goldman's earnings per share (EPS) for the firm in Q1 will be $2.57—a nearly 50 percent decline from the firm's EPS in the first quarter of 2015 ($5.94).
Just how much will the recent settlement affect Goldman's Q1 profits? If 2015 was any indication, it will likely put a substantial dent in them. Last year, a $3.37 billion settlement between Goldman Sachs and the RMBS working group resulted in a reduction in diluted EPS by $6.53 and return on average common shareholders’ equity (ROE) by 3.8 percentage points.
Given the magnitude of the recent settlement, perhaps the question is not if Goldman's profits will be down in the first quarter—but instead how much they will be down.
The nation's largest financial firms, many of which released their first quarter earnings reports last week, all experienced year-over-year declines in net profits.
Existing-Home Sales for March coming Wednesday, April 20
The continuous imbalance of extremely low inventory levels and soaring demand is creating an insatiable gap in the housing market that is struggling to close. Existing-home sales have been a limbo since the start of the year mostly due to the lack of available housing options in market.
The report found that existing-home sales decreased 7.1 percent to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. However, the report noted that despite last month's large decline, sales remain 2.2 percent higher than a year ago.
Lawrence Yun, Chief Economist at NAR noted, "The main issue continues to be a supply and affordability problem. Finding the right property at an affordable price is burdening many potential buyers."
"America is experiencing a housing shortage. Not only are there fewer homes available to buyers of all income levels, those just starting out or making their first foray into home ownership are worse off than they’ve been in years," said Ralph B. McLaughlin, Chief Economist at Trulia. "There are fewer homes available, an even if they can find a home, it’s likely to be more expensive."
Ten-X's Residential Real Estate Nowcast projects a rebound in existing-home sales for March. According to the nowcast, March existing-home sales will fall between seasonally adjusted annual rates of 5.15 and 5.55 million, with a targeted number of 5.32 million, up 4.8 percent increase from the previous month and a 2.6 percent year-over-year gain.
“Though U.S. home sales have seen significant volatility in recent months due to external factors, sales remain at a high overall level,” said Ten-X Chief Economist Peter Muoio. “The housing market stands on solid ground despite global economic volatility and weaker U.S. GDP growth, with the firmer labor market and enhanced household budgets from low oil providing a boost to consumer confidence.”
Here is the lineup for the week:
Monday, April 18, 2016
Morgan Stanley Q1 Earnings Report
Tuesday, April 19, 2016
Goldman Sachs Q1 Earnings Report
U.S. Census Bureau Housing Starts
8:30 AM (EST)
Wednesday, April 20, 2016
National Association of Realtors Existing-home Sales
10:00 AM (EST)
Thursday, April 21, 2016
Federal Housing Finance Agency House Price Index
9:00 AM (EST)