Goldman's Giant New Rival: Collateral Damage

NEW YORK (TheStreet) -- Goldman Sachs (GS) and other big securities dealers made bundles of money last quarter because they faced fewer competitors, but now BlackRock (BLK) is hoping to change that.

BlackRock, soon to be the world's largest money manager, is working on a way to cut out the middleman on a lot of its equity trades, according to a report in the Financial Times on Saturday. Currently, it executes trades through banks like Goldman, Morgan Stanley (MS), JPMorgan Chase (JPM) or Citigroup (C). While that list is far from exhaustive, it got significantly smaller with the failure or acquisition during the crisis of important players like Bear Stearns, Lehman Brothers and Merrill Lynch.

As the article notes, BlackRock CEO Larry Fink complained in July about the easy money the Wall Street banks were making by charging hefty commissions for simple trades.

It is probably only a matter of time before BlackRock starts trading bonds and currencies and other products on its own, and other big money managers like Fidelity Investments and PIMCO follow suit.

This will hurt Wall Street not just because of the lost commissions, but also because they will lose some of the market intelligence they currently enjoy by being in the middle of trades.

For Bank of America, the news is mixed. While it won't do as many trades with BlackRock, it will benefit from BlackRock's cost savings since it holds a large stake in the money manager.