Goldman Sachs Scoffs At Obama's Proposed Rule Changes


Goldman Sachs Calls Idea of Dropping Bank Status ‘Unrealistic’

By Christine Harper

Jan. 21 (Bloomberg) — Goldman Sachs Group Inc. Chief Financial Officer David Viniar said it’s “unrealistic” to imagine the firm won’t be a federally supervised bank, even as new regulatory proposals cast doubt on that status.

Ending Federal Reserve oversight of Goldman Sachs “has virtually no chance of ever happening, it’s just not something we spend time on,” Viniar, 54, said in a conference call with journalists today. “We’re now regulated by the Fed and I expect we will be on a continuing basis.”

U.S. President Barack Obama, adopting proposals advocated for more than a year by former Federal Reserve Chairman Paul Volcker, said today that he’ll seek to prevent banks that have special access to low-cost Fed funding from operating or investing in hedge funds, private equity funds, or trading purely for their own benefit in a way that’s unrelated to serving customers.

Goldman Sachs and Morgan Stanley, both based in New York, were the two largest securities firms before converting to banks in September 2008 during the global financial crisis to gain access to Federal Reserve lending facilities. Today’s proposals raised questions about whether they would opt to revert to securities firms so they could avoid the new rules.

Separating Goldman Sachs’s private equity funds and its proprietary trading from client activities wouldn’t be easy to do, Viniar said.

“Our private equity business is an important business for Goldman Sachs, it’s very integrated,” he told analysts on another call today. “There are a lot of our very important clients invested in our business, we invest alongside other clients of the firm and we invest in clients to help them grow.”

Proprietary Trading

About 10 percent of Goldman Sachs’s firm-wide revenue, give or take a few percentage points, comes from trading that’s purely for the firm’s own profit and unrelated to clients, Viniar said. Still, he noted that it’s a “very, very hard line to draw” to determine how much of their client-related trading ends up becoming proprietary risk.

“The great majority of what we do, we do for and on behalf of our clients, because our clients want to do something,” Viniar said, in explaining the rest of the firm’s trading. “All of that risk, which is principal risk, ends up on our balance sheet.”

In 2009, 76 percent of Goldman Sachs’s revenue came from trading and principal investments, compared with 41 percent in 2008 and 68 percent in 2007, company filings show.

Viniar said restricting trading won’t necessarily help prevent another financial crisis.

“If people are focused on things that caused, or were real contributors to the crisis, it wasn’t trading,” he said. “Most trading results were actually pretty good, not just at Goldman Sachs but at most firms and that’s not really where the problems were.”

To contact the reporter on this story: Christine Harper in New York at [email protected].