Goldman may close fixed-income prop group

Goldman Sachs Group, the US bank that relied on fixed-income trading for the largest portion of its revenue, will shut its global macro proprietary trading desk, a person with knowledge of the decision said.

The eight-person desk, which traded currencies and stocks as well as products tied to interest rates and other fixed-income markets, would close in the days ahead, said the person who declined to be named because the decision wasn’t public. Stephen Cohen, a Goldman Sachs spokesman, declined comment.

There “are no real surprises,” said Christopher Wheeler, a London-based analyst with Mediobanca SpA, who has a “neutral” recommendation on Goldman Sachs. “Keeping the prop business going will have little benefit and closing it will be seen as a positive move to comply with Dodd-Frank.”

Morgan Stanley and JPMorgan Chase are among the Wall Street firms breaking off or winding down such trading units to comply with the Volcker rule, a provision of the Dodd-Frank financial law that prohibits banks from betting capital for their own accounts. The intent was to avert losses that might cause the collapse of firms and the financial system.

The group reported results through Goldman Sachs’s fixed-income trading division, the person said. That division generated revenue of $13.7 billion in 2010, 35 per cent of the firm’s total.

Morgan Stanley
Last year, Goldman Sachs shut down an equity proprietary-trading group, Goldman Sachs Principal Strategies, to comply with the Volcker rule. Pierre Henri Flamand, the former head of Goldman Sachs’s Principal Strategies group, retired last year to start his own hedge fund.

On January 19, the bank said earnings dropped 52 per cent in the fourth quarter, its third straight quarterly decline.

Last month, Morgan Stanley, the world’s top merger adviser, said it planned to break off its largest proprietary-trading group, Process Driven Trading, as an independent advisory firm by the end of 2012. New York-based Morgan Stanley might also turn its Equity Trading Lab proprietary group into an electronic client-trading unit, two people with knowledge of the matter said this month.