Goldman Sachs has positioned itself well in the more challenging environment posed by new financial reform regulations, banking analyst Dick Bove said.
The Wall Street giant is likely to spin off its proprietary trading unitas early as Friday, a move that Bove said shows Goldman "was not sitting and waiting to see what would happen (with financial reform) in order to know how to react."
"Consequently, what is likely to emerge is a series of strategic thrusts which will allow the company to maintain its revenues and earnings in the new environment," Bove, of Rochdale Securities, said in a note to clients. "Not just that, but actually to improve upon its position."
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 spinoff.
The result of the moves would be to make Goldman's prop trading unit an independent hedge fund. The new regulations require banks to shed prop trading, usually defined as those activities that benefit the company itself and not clients.
"Overall, this new financial regulation act should be viewed as an opportunity," said Bove, who has been a harsh critic of the new laws. "The functioning of the financial sector is being forced to adjust. Goldman is likely to make the adjustment first and capture new and profitable opportunities."
Disclosure information was not available for Bove or his company.
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