Goldman plans to spin off prop trading: report
Goldman Sachs Group Inc plans to spin off its proprietary trading business as early as this month to comply with the so-called Volcker rule, CNBC reported on Wednesday.
It would be the first move by the New York-based investment bank to adapt its business to comply with the U.S. financial reform package signed into law last month, and would follow similar moves from other banks.
As we've said all along, we are considering our options, said Goldman spokesman Michael DuVally. When we have something to announce, we'll announce it. Of course anything we do will comply with the law.
Goldman shares ended 2.1 percent higher at $156.41 on the New York Stock Exchange.
It gets them out of the way of the Volcker rule without causing any deterioration in their earnings. Therefore it's a significant positive, said Dick Bove, analyst at Rochdale Securities.
Goldman will receive a substantial number of benefits from the reform law, potentially offsetting the prop trading restrictions, Bove said.
Others took a more cautious view.
What does Goldman become without proprietary trading? said Walter Todd, co-chief investment officer of Greenwood Capital. We're going back to the old days. It starts to look like what investment banks used to look like.
FOCAL POINT
Reports of a spin-off of Goldman's proprietary trading business come just a few weeks after Goldman's chief financial officer said the impact of the new law would be difficult to predict.
The new financial regulatory legislation represents the most sweeping change for the financial industry in decades, Goldman CFO David Viniar said on a conference call.
In recent months, Goldman has been a focal point for critics of the financial sector's ills leading into the 2008 crisis.
On July 16, Goldman paid $550 million to settle U.S. Securities and Exchange Commission civil fraud charges over how it marketed a subprime mortgage product to institutional investors.
ASSET SALES
Under the new Volcker rule, named for former Federal Reserve Chairman Paul Volcker, banks are restricted from proprietary trading and have new limits on the size of private equity or hedge fund investments. Proprietary trading has been a key source of Wall Street investment bank profits.
The rule was a key, and sometimes contentious, provision in the financial reform legislation, known as the Dodd-Frank Act.
Under the act, banks are only allowed to invest up to 3 percent of their Tier 1 capital in such assets, and many are shedding such stakes as a result.
At Goldman, the bank had $15.5 billion invested in private equity or hedge funds, with another $12.1 billion in commitments at the end of first quarter, according to a securities filing.
With $68.5 billion in first quarter Tier 1 capital, Goldman's investments exceed the threshold, which would cap at $2.1 billion.
Other major U.S. banks have already begun shedding other business and investments in the wake of the new capital rules.
On Monday, CNBC reported Morgan Stanley plans to spin off its hedge fund unit FrontPoint Partners within the next three months.
Separately, the Wall Street Journal reported on Wednesday that Morgan Stanley was close to a no-cash deal to give up control of FrontPoint, but would retain a 20 percent to 25 percent stake in the unit for at least five years.
A Morgan Stanley spokeswoman declined to comment.
On July 13, Citigroup Inc announced it had agreed to sell its private equity unit to StepStone Group LLC and Lexington Partners for undisclosed terms. The deal would reduce Citigroup's total assets by $1.1 billion.
Bank of America Corp, the largest U.S. bank by assets, is shedding a $1.2 billion commitment to funds managed by Warburg Pincus LLC, and spun off a $1.9 billion portfolio of private equity investments to New York-based investment firm Sterling Stamos.
(Reporting by Joe Rauch in Charlotte, N.C., additional reporting by Maria Aspan and Matthew Goldstein in New York; Editing by Tim Dobbyn, Phil Berlowitz and Matthew Lewis)
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