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Goldman May Spin Off Part Of Proprietary Trading Friday

Reported by Kate Kelly, written by Gennine Kelly|CNBC.com
Thursday, 5 Aug 2010 | 12:30 PM ET

Goldman Sachs may spin off part of its proprietary trading operations into an independent hedge fund as soon as Friday, people familiar with the matter told CNBC, speeding up the firm's move to comply with new rules limiting Wall Street firms from betting their own money in financial markets.

The Goldman Sachs booth on the floor of the New York Stock Exchange
Getty Images
The Goldman Sachs booth on the floor of the New York Stock Exchange

The possible move comes a day after CNBC first reported that Goldman may start shedding its proprietary trading business by the end of the month.

Though details remain sketchy, Goldman first plans to spin off its Principal Strategies Unit (GSPS) from its Equities Division. Other parts of the business, such as its Special Situations Group (SSG), which employ some proprietary traders, is less far along toward a spin off.

Goldman, in fact, is confident a number of SSG businesses can remain intact. In addition, the Wall Street giant believes it can keep its lending and distressed financing businesses.

The ban on proprietary trading, which will be phased in over several years, is part of the financial reform bill that was signed into law last month. The move is an attempt to curb the rampant speculation on Wall Street that many blame for causing the recent financial crisis.

As soon as the bill was passed, many analysts said Wall Street would quickly find loopholes in the new law or at least figure out ways to profit from it. Many banks besides Goldman are also looking to shed some of their proprietary operations, though the new rule won't take effect for several years.

Trading Shakeup at Goldman
Goldman Sachs could announce a spin out of its strategies unit as early as tomorrow, reports CNBC's Kate Kelly.

Dick Bove, a widely followed bank analyst at Rochdale Securities, told CNBC Wednesday that Goldman could actually make more money under the new financial rules.

"This financial regulation bill is giving Goldman Sachs tremendous advantages, which will enhance their earnings growth," Bove said in an on-air telephone interview.

In addition to banning proprietary trading, big banks will also have to limit how much of their own money is invested in private equity and hedge funds. The so-called Volcker rule, named after former Federal Reserve Chairman Paul Volcker, would curb such investments to 3 percent of the firm's primary—or tier 1—capital.

Right now Goldman Sachs has more that 27 percent of its capital invested in such entities, followed by Morgan Stanley at 8.9 percent; Bank of America and Citi each have 4 percent.


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