[credit provider=”UTexas” url=”http://www.utexas.edu/features/archive/2002/veil.html”]
Why should Goldman Sachs be “freaked out” by the Volcker Rule, and lobbying hard to debilitate it?One word: Glencore.
The firm has been spending millions to sway lawmakers in Washington against severe interpretations of the new regulation, and has assembled an all-star team to do so. Even Blankfein is getting in on the lobbying action.
And it makes sense.
For both Goldman and also Morgan Stanley, “two of Wall Street’s biggest commodities-trading firms, the year’s largest initial public offering represents a nightmare come true: the rise of unregulated rivals,” Bloomberg points out.
That much-discussed IPO is of course Glencore’s, which will make hundreds of its employees millionaires when it goes public, and at least five of its partners will be billionaires. The commodities trader, based in Switzerland, reportedly already has orders for all $11 billion shares on offer, and the sale only began yesterday.
And the event shows why it’s totally understandable that Goldman and Morgan have made Volcker-disabling a top priority.
In the wake of the financial crisis, governments and regulators such as the Federal Reserve and Basel Committee on Banking Supervision are cracking down on risk-taking at New York-based banks like Goldman Sachs and Morgan Stanley.
“Glencore is unregulated and competes in many of the same businesses… It’s based in Switzerland and can do a lot of things that Goldman can’t do anymore.”
Glencore, a 37-year-old company that primarily focuses on physically moving commodities around the world, faces no limits on leverage, proprietary trading or compensation.
Glencore, like rivals such as Hong Kong-based Noble Group… and Amsterdam-based Trafigura Beheer BV, can take bigger trading risks in the commodities markets, helping to make them more profitable and more appealing as employers for top traders.
So not only will Volcker cost the bank $3.7 billion in annual revenue, it will also cost them the best talent. Prop traders will take one look at Glencore’s billionaire and millionaire employees, and have no reason to pursue the likes of Goldman and Morgan, which will also be dealing with more stringemt compensation rules.
Glencore is also lucky in one other respect. The CFTC and SEC are still deciding whether to exclude “commodity producers, refiners and consumers, known as “end users,” from the requirements” of Dodd-Frank, and because Glencore actually owns mines and refineries, there’s a good chance it will be freed from the shackles of Volcker in two veteran commodities traders told Bloomberg.