Gary Townsend, a financial analyst from Hill-Townsend Capital, told Bloomberg TV that Goldman’s decision to close its prop trading unit, Principal Strategies, is a direct result of Obama’s forcing their hand.
He basically said it’s all Obama’s fault that Goldman will lose this profittable unit so soon.
“If you could put it out 4 years, that would be nice too, so you could hold onto the revenues and earnings, but the personnel issues won’t let that happen,” he said on Bloomberg TV when asked whether Goldman’s move was a signal that the bank is interested in moving past this as quickly as possible.
And when asked why it was happening so soon after Obama signed the financial reform bill, and if it was Goldman’s own decision or if their hand was forced by Obama, Townsend said:
“The hand has been forced. It was forced with the passage and signature of the legislation. This is Wall Street adapting to the new environment as quickly as it can. The functions will go elsewhere and they will continue to generate wealth and employment.”
Prop trading will not go away at Goldman and other banks that are making similar moves to spin off the units, it will just be done in a separately capitalised form.
Trades will be “client related,” now (read about Citi’s plans for prop trader Sutesh Sharma for more details on why and how traders’ jobs will change), and are expected to be less risky.
Townsend seems to think that Goldman’s losing their prop trading unit will be bad for business because they will profit less. His sentiments echo many’s around Wall Street who believe that financial regulations imposed by the government are too heavy-handed.
However there is too much speculation that it was prop trading which largely led to banks like Goldman needing to be bailed out to leave the issue unaddressed.
By disbanding prop trading units ahead of deadlines, which Goldman, JPMorgan, Bank of America, and Morgan Stanley are doing, banks will be able to take a test-run before the rules (and fines for breaking them) are in place.
Plus, by making changes now, banks are ensuring that the traders in these prop trading units are not left waiting in limbo. Now they can get on with their lives and find another job in a hedge fund or something.