Goldman Sachs to shut principal strategies unit

Don't want to miss the best from Business Standard?

Goldman Sachs Group Inc was disbanding its principal-strategies business, one of the groups that makes bets with the firm’s own money, to comply with new US rules aimed at curbing risk, two people with knowledge of the decision said. Wall Street’s most profitable investment bank plans to hold-off on announcing the wind-down, while the 65-70 members of the global unit seek new jobs, the people said, speaking anonymously because the internal discussions about the process are confidential. Some traders and support staff might get roles within the New York-based firm, while a team in Asia might raise money for a new hedge fund, the people said.

“The Dodd-Frank bill caused them to have some damage to the business here, and they said it’s done, let’s get rid of it,” Michael Holland, who oversees more than $4 billion as chairman of Holland & Co in New York. “They’re saying, ‘We don’t want these people to be worrying about what they’re going to be doing a couple of years from now, we’re just going to get rid of the uncertainty.”

Goldman Sachs, which says about 10 per cent of its revenue comes from proprietary trading, is grappling with a provision of the Dodd-Frank financial-overhaul act that prohibits banks from risking capital by betting for their own accounts. JPMorgan Chase & Co plans to close its prop-trading units in response to the law, signed by President Barack Obama in July. JPMorgan last month told in-house commodities traders in London they might lose their jobs, a person briefed on the matter said this week.

Four years
The Dodd-Frank Act allows banks at least four years to bring their proprietary trading into compliance, with a potential extension of as many as three years, according to a time line prepared by Davis Polk & Wardwell LLP, the New York law firm.

“What’s motivating people is that they need to know where they are going, and no one wants to be the last group out the door,” Gary Townsend, president of Hill-Townsend Capital LLC, said. “It’s really the personnel decisions that are driving this to happen sooner rather than later.” Townsend’s Chevy Chase, Maryland-based investment firm specializes in financial companies.

Ed Canaday, a spokesman for Goldman Sachs, said he couldn’t comment. Goldman Sachs posted its biggest one-day percentage gain since May 2009 on September 3, climbing $7.51, or 5.4 per cent, to $147.29 in New York Stock Exchange composite trading.