Prop Trading Losses Ain't Peanuts

NEW YORK (TheStreet) -- Proprietary trading is in the spotlight these days, thanks to the new bank reform proposals by President Obama, but Wall Street's knee-jerk response -- that it did not cause the crisis -- requires further scrutiny.

Goldman Sachs (GS) CFO David Viniar set the tone during the company's fourth-quarter conference call last Thursday, which was overshadowed to a great extent by President Obama's official announcement of his reforms.

"If people are focused on things that cause or were real contributors to the crisis, it wasn't trading. Most trading results were actually pretty good, not just at Goldman Sachs, but at most firms and that's not really where the problems were," Viniar said.

Writing for The Wall Street Journal's editorial page Monday, Peter Wallison, a fellow at the American Enterprise Institute, took things a step further, writing "proprietary trading is a profitable business for many bank holding companies, and there is no evidence that it caused serious losses for either banks or bank holding companies in the recent financial crisis."

Well, gentlemen, let me beg to differ. Without being at all methodical about it, an hour or so of clicking around turned up the following:

Citigroup (C) recorded negative revenues of $16.9 billion in the fourth quarter of 2007 in a division it called Fixed Income Markets. In a footnote, Citigroup stated "lower revenues due to write-downs on non sub-prime securitized products and in fixed income proprietary trading."

Morgan Stanley (BAC) shows $7.1 billion in trading losses under the heading "Principal Transactions" on its financial statement for the fourth quarter of 2007.