Goldman Sachs Profit to Fall 45% This Quarter

04/05/2016 9:20 am EST


Michael Berger

President & Founder,

After twenty-two analyst said that they expect Goldman Sachs to report 45% lower earnings per shares when compared to the same period last year, Michael Berger, of, discuss why he thinks the bank will report weak first quarter earnings this month.

The last three months of 2015 were not good for Goldman Sachs Group Inc. (GS) and the first three of months of 2016 have not been any better.

Over the last month, according to Bloomberg, twenty-two analysts have cut $0.94 off the average estimate for Goldman Sachs’ adjusted earnings per share.

This is the fourth straight quarter that they revised projections right before announcing earnings and this revision is among the largest for the firm since the financial crisis.

Profit to Tumble 45 Percent

The leading Wall Street bank, one of the most dependent on revenue from trading and deals, had its per-share profit estimates cut by 45% when compared to the same period last year, representing the most significant decline among the largest United States banks.

On March 30th, Goldman Sachs’ research analysts said investment banking is off to its worst start in a decade.

The IPO market dried up during the first quarter and the amount of capital raised has fallen by 67% when compared to the same period last year. Sales of high-yield domestic debt have not been much better, falling 54% when compared to the same period last year.

Citigroup and JP Morgan Cite Concerns

Although the first quarter is usually Wall Street’s strongest, firms such as JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) have issued warnings about lower trading and deal revenues as unstable markets have led to fewer trades.

In early March, Citibank CFO John Gerspach said that he expects first-quarter revenue from fixed-income and equity trading to fall 15%. Gerspach also expects revenue from investment-banking operations to fall 25%.

In February, JPMorgan’s investment bank said that a slowdown in debt and equity underwriting may contribute to a 25% drop in fee income. At the time, they reported that revenue from sales and trading was already down about 20%.

Short Targets

As JPMorgan gets ready to lead off earnings season for the domestic banking industry next week, traders can profit from being short on bank stocks.

During 2015, GS generated two-thirds of its net revenue from trading and investment banking, and an additional 16% from investing and lending. Banks like JP Morgan and Well Fargo are less reliant on those businesses when compared to Goldman and those banks’ estimates have not changed much over the last month. GS on the other hand saw analysts cut the average estimate by $0.14 and $0.15, respectively.

Although Goldman used to benefit from this type of revenue concentration, we think the turn in the market will cause shares to suffer this quarter.

By Michael Berger, President of

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