Gary Townsend On Why Spinning Off Prop Trading Will Hurt Profits

gary townsend

Gary Townsend, an analyst and the CEO of Hill-Townsend Capital, is worried that Goldman’s decision to unwind proprietary trading will hurt Goldman’s profits.

Financial regulation just took a shot in the dark and said, we don’t think depository institutions should be able to prop trade, he says.

(If we were to believe Townsend’s argument, we’d have to believe that prop traders never did anything but make money.)

He told Bloomberg TV:

I’m not a great fan of how this was done and in particular the Volcker Rule. It really strikes me as an aesthetic issue, as an opinion with respect to depository institutions and what they ought and oughtn’t do.

We know that Goldman Sachs is not much of a depository institution. It really doesn’t take a great deal of insured deposits whatsoever, yet its forced to do things that are not helpful to the firm.

And now, Goldman will have to struggle to find a way to profit off this spin off, he says.

This is change, this is going to happen whether it’s going to happen whether its aesthetics or risk management, but at the end of the day, this is hopefully going to be done in a way that’s going to generate some capital for Goldman when these functions are put out into a new organisation, but we’re yet to see that.

In an ideal world, the prop traders might have continued making money at the banks they are now employed at, not elsewhere.

Keep in mind that many of these people do proprietary trading and have done it for years. They’re very good at it. They make a great deal of money for their company and they can do it elsewhere.

And for this mistake, he blames financial regulators.

They’re really pressuring Goldman to make some decisions that will allow them to move with some alacrity into the next state of their lives and that is causing this to happen so quickly.

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