GOLDMAN SACHS could hive off its proprietary trading activities within months to prevent talented traders defecting to hedge funds, as US financial reform legislation takes effect.
Under the so-called “Volcker rule” banks have four years to cut their proprietary trading exposure to three per cent of tier one capital. But Goldman, which at 27 per cent has Wall Street’s highest exposure, wants to make a decision “the sooner the better” to reassure staff, a source said.
One option would be to move its 50 or so traders to an independent hedge fund. Another would be to roll them into its standalone investment division, Goldman Sachs Asset Management.
Under chief executive Lloyd Blankfein, Goldman has increased its reliance on proprietary trading, with 10 per cent of its revenues coming from the area last year.
But Rochdale Securities analyst Dick Bove told City A.M. the Volcker rule would not necessarily reduce the flow of cash to Goldman’s coffers.
A carefully arranged third party contract would ensure the same level of cost-adjusted prop revenues, Bove said, while boosting Goldman’s capital. “If you put a bunch of politicians up against Goldman, there’s no way the politcians will win,” he added.