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Maybe Goldman traders are still making money after all

De-risking is de-rigueur, but this doesn’t mean all GS traders are losing out.

According to a note issued last week by Bernstein Research, Goldman has indicated that its trading performance will be unaffected by new leverage limits associated with becoming a bank holding company because –

…widening bid-offer spreads and less competition in the marketplace will result in higher margins and increasing market shares which could offset the lower leverage.

The FT has also emphasised the joys of being a market maker in the current bid-offer environment.

Whether the flow trading renaissance will continue when spreads narrow remains to be seen.

If Goldman’s flow traders have become an important profit centre, what happened to the GS pre-eminent prop trading business? Morgan Stanley and JPMorgan have both publicly pulled back from prop trading, but Goldman has been quiet about its intentions in the area.

Hintz says it’s biding its time until the regulatory fog lifts. “Goldman says there are still prop trading opportunities in the market place. You’d want to see what kind of regulations come out of all this from Basel, the European Union etc.”

Comments (14)

Comments
  1. Henry is going to be back with a vengeance…..

  2. Is Goldman the new Morgan Stanley?

  3. I dont think Henry is ever coming back after that much slating him on his article ..

  4. Are Goldman traders the next wave of sarah-predicted-to-be-damn-good traders?

    LLoyds Blankfein Reply
     
  5. Can we have some ‘proper’ comments please?

    Sarah, Editor, eFinancialCareers Reply
     
  6. Is Bernstein Research the new McDonalds?

    Ronald McDonald Reply
     
  7. Sarah, im afraid to say, your supposedly “headline grabbing” articles and strange infatuation with the Goldman franchise leads to these poor comments. Anyone who was done elementary fiance class knows flow desks at most banks are doing well due to increased credit/ swap spreads. And of course as we are in a dislocated market there will be trading opportunities, providing you can take the carry.

  8. Ok, I’ll avoid headlines mentioning Goldman Sachs. The interesting thing here isn’t so much that Goldman’s flow desks are making money, but that the increased profitability of the flow desk is offsetting the impact of lower leverage.

    Sarah, Editor, eFinancialCareers Reply
     
  9. a useful hedge.

    will be interesting to see what happens when spreads tighten in a world of lower leverage/ highter capital requirements. also important to factor in the the reliance on prop and client business (which can be both vanilla and exotic). banks with a strong client franchise will do well here…

    however, for sure, such activities will not plug the gap with respect to the heady profitalbility of the 2005-2007 years.

  10. Sarah, Flow is by definition a commodity. It will provide stable, but reduced profits as soon as spreads temper and more institutions jump into the game. It will most definately not off-set the losses in profitability from reduced leverage. (If you could get leverage profitability with low risk flow, why ever would banks have gone into prop trading?)

    Best,

  11. I appreciate that armagedon, but Goldman told Bernstein that flow was offsetting the loss of leverage. Hence the article.

    Sarah, Editor, eFinancialCareers Reply
     
  12. Henry – your comment please

  13. Is the new Goldman the olde Goldman?

    merchant banker Reply
     
  14. Should I send my wife to be on one of these elementary fiance courses?

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