This week, the government took a big first step toward shutting down the Can't Lose Room in the Wall Street Casino. It's now one comment period away from enacting the Volcker Rule, which limits the kinds of risky investments banks can make with money insured by the U.S. taxpayer.
Citigroup is closing another one of its proprietary trading groups as it and other banks prepare to comply with the Volcker Rule, which will reduce the exposure of lenders to risky trading activities. What the move will mean for financial giant's profit margins, and its stock price.
The theme for Thursday is big players adjusting to a changing world: Citigroup is shutting down a major hedge fund it used for soon-to-be-banned proprietary trading, Goldman has been subpoenaed over its role in the subprime mortgage crisis, and OPEC is thinking that it might need to pump more oil.
Investment banks are working around new regulations restricting them from putting their own capital into short-term investments: The Wall Street institutions are sidestepping the Volcker Rule by making direct purchases of securities, companies and properties, which are considered longer-term investments.
About nine members of Goldman Sachs Group proprietary trading team are joining private-equity firm Kohlberg Kravis & Roberts after entertaining offers from investment firms such as Perella Weinberg and Blackrock.
Goldman Sachs Group Inc. will reportedly shutter its principal strategies unit, as the company seeks to better comply with U.S. regulations that discourage excessive risk-taking by investment banks.
Some top financial institutions are moving surprisingly quickly to change how they operate. Question is: Did the financial reform law force their hands, or is this just a good time for big banks to rethink their business?
The bill's limits on hedge fund and private equity investments could force Goldman to divest billions in assets, which would lower its earnings. However, the bill also lets banks stretch out their compliance with the new rules by several years, postponing the pain.
The massive regulatory revision touches almost every aspect of the financial industry. In addition to rules aimed at trimming risk-taking among banks, the package prominently includes several new protections for consumers.
Goldman Sachs has disclosed that it had 131 trading days last year in which it made at least $100 million in net trading revenue -- a new record for the bank.
Bank earnings are looking pretty good. Barclays announced that it made over $18 billion in 2009. Goldman Sachs had record profits. JP Morgan results were better than expected. Barclays' numbers were driven by assets it bought from Lehman Bros. and sharp improvements at its investment bank. But results from its retail bank operation were weak. So were numbers from its commercial loans. The bank still faces write-offs of leveraged assets on its books. In short, Barclays faces the same problems as most large American financial firms, which could make for a rocky 2010.