—— Ernst & Young is fined $100 million for auditor exam cheating; Goldman Sachs retail banking losses exceed $1 billion; Case-Shiller home price index moderates in April; New York rental apartment reached $1.75 billion transfer record; ESG Stock Exchange secures $100 million in financing; DB Schenker to buy USA Truck for $285m; federal budget deficit shrinks.
1. Ernst & Young is fined $100 million
The U.S. SEC revealed that Ernst & Young LLP, one of the Big Four accounting firms, admitted that its auditors cheated while answering the Ethics section of the Certified Public Accountant exam, and the company did not actively cooperate with regulators during the investigation.
The SEC announced today that Ernst & Young will have to pay a $100 million fine, a record amount for an audit firm.
In response, Ernst & Young said it will actively cooperate with the SEC in handling this incident and will enhance compliance standards.
The ethics of financial institution is particularly important to investors
Source: Bloomberg – EY Hit With $100 Million Fine After Audit Employees Cheat on CPA Ethics Exam
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2. Goldman Sachs retail banking losses exceed $1 billion
Goldman Sachs’ internal earnings forecasts show that the company’s Consumer Banking business could lose more than $1.2 billion this year, according to people familiar with the matter. If the economy continues to deteriorate, bad debt losses may continue to expand.
In recent years, Goldman Sachs has begun to expand its revenue streams beyond its core investment banking and trading business and has entered the retail market aggressively. However, the economy has turned from good to bad in the past two years, and the sluggish retail banking business has caused the company’s revenue to fall by 35%.
At present, Goldman Sachs has gained 13 million customers, and the total deposits have exceeded $ 100 billion. A spokesman for Goldman Sachs said that the company expects the retail business to have a J-shaped profit curve and that initial expenses and losses are inevitable as the market expands.
The company had previously expected the division to be break-even this year, but the macroeconomic impact may have extended the J-curve, meaning the business may not start turning to profit until later.
Goldman Sachs retail bank may take longer to be break-even
Source: Bloomberg – Goldman Sachs Sees Losses From Consumer Push Exceeding $1.2 Billion This Year
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3. Case-Shiller home price index shows an easing trend
The latest S&P CoreLogic Case-Shiller index released today shows that U.S. home prices rose 20.4% in April compared to the same period last year, down from 20.6% in March, indicating a slowing trend in home price growth.
Mortgage rates have nearly doubled compared to the end of 2021. Rising interest rates and prices helped cool the housing market, but some homes were still able to sell at high prices, supporting prices in the market as a whole.
Across the nation’s 20 hottest markets, home prices rose 21.2% in April from a year earlier, led by Tampa, Miami, and Phoenix.
Home prices in Tampa and Miami are up more than 33% from a year ago
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4. New York rental apartments deal set new record
Real estate investment firm Black Spruce Management LLC and U.S. residential developer Orbach Affordable Housing Solutions recently agreed to buy six Manhattan rental apartment towers for $1.75 billion in what is expected to be the largest deal since the pandemic, according to people familiar with the matter.
Despite the recent rise in benchmark interest rates and volatility in capital markets, many property categories are also showing a cooling trend, but the rental apartment market in the Manhattan area appears to be very strong.
The six buildings included in the deal were built by well-known New York developer Sheldon Solow and all have doormen. Recent rents for one-bedroom apartments range from $3,900 to $7,000.
Many existing tenants entered into leases when prices were lower during the pandemic, so average rents are slightly below today’s market rates. This means that the two buyer companies still have a lot of room for rent increases after the deal is reached.
Black Spruce, founded in 2009, has more than 4,000 condominium units in the greater New York area. Founded in 2009, developer Orbach develops affordable apartments with more than 6,000 condominium units in the United States.
According to Green Street statistics, rental apartments in Manhattan are stronger than in other areas
Source: WSJ – New York City Apartment Buildings to Sell for $1.75 Billion in Record Pandemic Deal
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5. ESG Stock Exchange secures $100 million in financing
Silicon Valley based Long-Term Stock Exchange (LTSE) said it received a $100 million capital injection from James Walton in June.
Due to the uncertain performance of the capital market recently, many venture capital institutions have significantly slowed down their investment efforts. In this regard, startups are forced to discount their valuations to get financing.
James is the grandson of Walmart founder Sam Walton and an active philanthropist. LTSE founder Eric Ries (Eric Ries) said that many investors who were going to participate in the C round of financing chose to withdraw halfway, but investors such as James are still optimistic about the development of LTSE.
LTSE focuses on ESG investment. On the basis of providing traditional stock trading platforms, the company will also strictly screen the ESG ratings of listed companies. Companies that want to list on the LTSE platform need to submit a long-term ESG development outlook, and LTSE will also play a supervisory role.
There are currently more than 10 stock trading platforms in the United States, but the New York Stock Exchange (NYSE) and Nasdaq are still the most popular listing and trading channels for companies.
LTSE provides a new listing channel for companies that value ESG
Source: WSJ – Stock-Exchange Startup Gets $100 Million Investment Funded by Walton Family Member
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6. DB Schenker to buy USA Truck for $285m
International logistics company DB Schenker plans to acquire truck operating company USA Truck for $285 million and expand its presence in the North American logistics market.
On Friday, DB Schenker disclosed that the purchase price of $31.72 per share was double the closing price on Thursday. Including cash and debt, USA Truck’s enterprise value (Enterprise Value) could reach $435 million.
DB Schenker is one of the world’s largest logistics companies by revenue. The deal will add 1,800 trucks to the company’s logistics network. USA Truck, which helps retailers and manufacturers run logistics, earned $710 million last year.
In recent years, the logistics market has been continuously integrated, aiming to improve operational efficiency and profitability
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7. Federal budget deficit shrinks
According to the latest statistics from the U.S. Treasury Department, the U.S. government’s fiscal deficit was $66 billion in May, down 50 percent from a year ago, mainly due to reduced government funding.
In May, federal spending fell 24% to $455 billion, mainly due to reductions in Small Business Assistance (SBA) and pandemic aid.
On the other hand, federal government revenue fell 16% to $389 billion, mainly due to lower personal income tax receipts.
So far this year, the government has spent $3.8 trillion, down 19% from the same period last year. Earnings rose 29% to $3.4 trillion, benefiting from a record-breaking personal payroll tax.
The federal budget deficit for the full year is expected to fall to $1 trillion this year, down from $2.8 trillion last year, according to estimates by the Congressional Budget Office.
The federal budget deficit this year is expected to fall to $1 trillion
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The content of this article comes from various financial news media such as The Wall Street Journal, Financial Times, and Bloomberg.