Goldman Expects to Keep Cake, Eat Same, Stick Public with Tab

Dick Bove says that Obama's proposal will be good for Goldman Sachs because it will take away the prop trading from banks that have deposits, but will not affect Goldman Sachs who will once again eliminate more competition.

So buy the stock. Hard to imagine anything short of Armageddon that would cause the word 'sell' to emanate from his bloviateness when he is talking his book.

And Goldman Sachs says that it is 'unrealistic' to take away their place at the Fed's teats as a subsidy sucking bank holding company.

"Goldman Sachs 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."

Perhaps they will lobby for a special category of bank. Some banks are more equal than others? The public might be dumb enough to buy it, but doubtful Lloyd's peers on the Street would not raise a fuss.

More likely that the corrupt Congress takes this idea of Volcker's, and leads it up a blind alley, and strangles it with delays, transitions, and deceptions, and grandiose discussion of new regulatory architectures, rather than simple but elegant focus on primary mission, and the elimination of conflicts of interest.

The threats of 'lack of competitiveness,' 'stifling the recovery,' and 'portfolio diversity' are already resounding from the canyons of Wall Street and their pond skimming sibyls on financial television.

Bloomberg
Goldman Will Benefit From Obama’s Proposal, Bove Says
By Rita Nazareth

Jan. 21 (Bloomberg) -- Goldman Sachs Group Inc. will benefit from President Barack Obama’s proposal to limit Wall Street risk because it may force deposit-taking banks to unwind trading operations, Rochdale Securities analyst Dick Bove said.

Obama called for limiting the size and trading activities of financial institutions as a way to reduce the risk of another financial crisis. The proposals would prohibit banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds.

He also proposed expanding a 10 percent market-share cap on deposits to include other liabilities such as non-deposit funding as a way to restrict growth and consolidation.

“Banks with large deposit bases have distinct advantages in certain sectors of the market,” Bove wrote in a report today. “If the banks are told they cannot use deposits in this fashion in the future, it ‘levels the playing field’ for companies like Goldman Sachs. This is not a time to sell this stock, it is a time to buy it.”

Goldman Sachs shares erased an early advance as Obama prepared to outline his proposal. The shares lost 4 percent to $161.15 in New York at 2:56 p.m. after rising as much as 1.9 percent at the start of trading.

Bonus Pool Slashed

Goldman, the most profitable securities firm in Wall Street history, reported record earnings that beat analysts’ estimates as the bank slashed its bonus pool. Net income of $4.95 billion, or $8.20 per share, for the three months ended Dec. 31 compared with a loss of $2.12 billion, or $4.97 a share, for the same period in 2008. The average estimate of analysts in a Bloomberg survey was $5.18 a share.

The record profit came as Goldman Sachs, facing criticism from politicians and labor unions for near-record compensation, set aside $16.2 billion to pay employees, the smallest portion of revenue since the firm went public in 1999.

“The adjustment of compensation lower leaves more money for shareholders,” Bove wrote.

Bove said that if the bank had not slashed its bonus pool, earnings may have been only about 3 cents to 5 cents a share in the quarter, “under certain assumptions concerning compensation,” because of a slowdown in trading.

“Investors are reacting sharply to the fourth quarter results at this company,” Bove wrote. “However, all indicators -- M&A, new financings, increasing volatility in a number of markets, growth in the money supply -- all suggest that this quarter may be a one-time event.”

Goldman Sachs 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.

Obama Proposes to Restrain the Banks from Speculation

A good first move, but almost a year late.

It still remains to be seen if it can pass with any teeth in it through a deeply conflicted and compromised Congress. The devil is in the details, loopholes, and exceptions.

Allowing the banks to speculate for their own accounts in the markets inexorably intermingles their risks with those of the broader financial system. It is also a tilt to the playing field to allow these market makers with access to proprietary information, very favorable positioning with the exchanges, and the Fed discount window and special programs to sit at the same table with other investors and funds.

This is so basic a move that one has to wonder why Obama waited so long to propose it. Or rather to listen to Paul Volcker who has been advising it, and largely unheeded.

Goldman and perhaps Morgan Stanley will give up the charade of commercial banking to become a full time investment bank, aka hedge fund, again. One positive outcome is that the next time they get into trouble they are on their own. And given their blind greed it won't be all that long before they do.

It is nice to see Paul Volcker gaining a voice in an administration dominated by Wall Street sychophants.

Let the threats, whining, tales of doom, financial media spin, and an army of lobbyists now go forth from Wall Street to try and stop this very basic reform.

It's a beginning. Barney Frank is already talking about putting a five year transition period on the change. Ludicrous really considering the banks that just grabbed their charters. Barney is part of the problem. A bigger part than most people probably suspect.

A good next step would be fire Larry Summers and Tim Geithner, and to permit Bernanke to gracefully step aside and go back to grading term papers. Obama needs to nominate someone with a stronger practical experience profile in that job. Volcker could do quite well.

National Post
Wall Street reels over plan to ban prop trading
Jeff Mason and Kevin Drawbaugh, Reuters
January 21, 2010

WASHINGTON -- President Barack Obama proposed stricter limits on financial institutions' risk-taking Thursday in a new populist-tinged move that sent bank shares tumbling and aimed to shore up the president's political base.

Mr. Obama, a Democrat who is just starting his second year in office, laid out rules to prevent banks or financial institutions that own banks from investing in, owning or sponsoring a hedge fund or private equity fund.

He also called for a new cap on the size of banks in relation to the overall financial sector that would take into account not only bank deposits, which are already capped, but also liabilities and other non-deposit funding sources.

"We should no longer allow banks to stray too far from their central mission of serving their customers," Mr. Obama told reporters, flanked by his top economic advisors and lawmakers.

"Too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward."

The rules, which must be agreed by Congress, would also bar institutions from proprietary trading operations, unrelated to serving customers, for their own profit.

Proprietary trading involves a firm making bets on financial markets with its own money, rather than executing a trade for a client. These expert trading operations, which can bet on stocks and other financial instruments to rise or fall, have been enormously profitable for the banks but also increase market volatility.

The White House blames the practice for helping to nearly bring down the U.S. financial system in 2008.

Mr. Obama's move is the latest in a series to crack down on banks and comes as he reels from a devastating political loss for his Democratic Party in Massachusetts on Tuesday, when a Republican captured a U.S. senate seat formerly held by the late Democratic senator Edward Kennedy.

Bank shares slid and the dollar fell against other currencies after Mr. Obama's announcement.

JPMorgan Chase & Co fell 5.8%, helping push the Dow Jones Industrial average lower.

Citigroup Inc fell 6.36% and Bank of America Corp fell 7% while Goldman was down 5.5% despite posting strong earnings Thursday.

"This is going to have a tremendous impact on big-name brokerage firms like Goldman Sachs and JPMorgan," said Ralph Fogel, investment strategist at Fogel Neale Partners in New York.

"If they stop prop trading, it will not only dry up liquidity in the market, but it will change the whole structure of Wall Street, of the whole trading community."

Mr. Obama targeted banks for taking big risks while assuming taxpayers would bail them out if they failed.

"When banks benefit from the safety net that taxpayers provide, which includes lower-cost capital, it is not appropriate for them to turn around and use that cheap money to trade for profit," Mr. Obama said.

"That is especially true when this kind of trading often puts banks in direct conflict with their customers' interests," he said.

Before the announcement, Mr. Obama met with Paul Volcker, the former Federal Reserve chairman who heads his economic recovery advisory board and who favors putting curbs on big financial firms to limit their ability to do harm.

The House approved a sweeping financial regulation reform bill on Dec. 11.

The House bill contains a provision that empowers regulators to restrict proprietary trading by financial firms subjected to stricter oversight because they are judged to pose a risk to the stability of the financial system.

The Senate has not yet acted on the matter, but the Senate Banking Committee continues to seek bipartisan agreement on financial regulation reform.

Employment Numbers Surge (at the New York Fed) To Manage Its Bank Subsidy Programs

It is good to see that the downturn in employment is being counteracted by robust hiring and promotion in the cost-plus, quasi-governmental, financial service sector, or more specifically, a bull market in central banks managing subidies to the banking sector.

It appears that this flurry of promotions and hiring is for the new group that will oversee the bank's investments in Maiden Lane III and of course, AIG.

Ah, to be employed in a cost plus monopoly. What a sinecure.

NY Fed
New York Fed Creates New Group and Names Sarah J. Dahlgren Executive Vice President and Head of Group
January 21, 2010

NEW YORK—William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York, announced today the formation of a new Special Investments Management Group. The Bank’s board of directors promoted Sarah J. Dahlgren to executive vice president and named her as head of the new group. She will also become a member of the Bank’s Management Committee.

This move represents an additional enhancement to the Bank’s governance and risk management in light of the tremendous expansion of the Bank’s balance sheet over the past eighteen months by separating out the management of the new investments from the Bank’s financial risk management. Among the Group’s responsibilities will be managing the Bank’s credit extension to AIG and its Maiden Lane LLC portfolios.

Ms. Dahlgren has been the senior vice president in charge of the AIG relationship since September 2008. Prior to that, Ms. Dahlgren was responsible for the relationship management function in the Bank Supervision Group, with oversight responsibility for the Group’s portfolios of domestic and foreign banking organizations. Previously, Ms. Dahlgren was responsible for the Bank Supervision Group’s information technology and payments systems exam programs, as well as its Year 2000 readiness efforts....

NY Fed
New York Fed Names Seven Senior Vice Presidents and Ten Vice Presidents
January 21, 2010

NEW YORK – The Federal Reserve Bank of New York announced that its board of directors has approved the promotion of seven senior vice presidents and ten vice presidents.

NY Fed
New York Fed Names 11 Assistant Vice Presidents and 29 Officers
January 21, 2010

NEW YORK—The Federal Reserve Bank of New York announced that its board of directors has approved the promotion of eleven officers to assistant vice president and named twenty-nine new officers at the Bank.

The Republicans Have Taken the Massachusetts Senate Seat