This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Volcker Stealing Goldman Sachs' Mojo: Analyst

Stocks in this article: GS MS

NEW YORK ( TheStreet) -- Goldman Sachs (GS) might lose its sheen if the current draft of Volcker rules are implemented, Bernstein Research analyst Brad Hintz said in a note on Friday.

The latest draft of the rule, which seek to limit the amount of risk firms can take with their own capital, could bring about changes to the fixed income trading model if implemented and ultimately lead to banks cutting back the amount of capital allocated to trading businesses in order to generate a reasonable return on equity.

For Goldman Sachs, which has historically brought in sales and trading revenues well above peers, the days of its outsized success might be over, according to Hintz.

According to Hintz, the "guilty until proven innocent" theme in the Volcker draft rules attempts to "minimize aberrations in trading performance among firms." "We believe the spirit of Volcker attempts to limit outsized risk taking by individual firms, but may effectively narrow the gap between the Street's best traders and peers," the analyst writes.

In the period between 2002 and 2006, Goldman continually outperformed on sales and trading revenues, even though it reported losses on 20% of the days over that period compared to an average of 5% among its peers. The trading success was largely attributable to "a more sophisticated and granular capital and risk allocation system that, combined with its risk management processes, is inherent to the firm's partnership culture." A culture, Hintz, says that has traditionally been impossible to duplicate.

Still, with the implementation of the Volcker rules, Goldman will have to go through a major overhaul.

"We expect Goldman to implement changes within its global fixed income and institutional equities businesses to automate market making activities; reduce staffing on trading floors and shrink overhead to enhance business margins," Hintz wrote. "The balance sheet usage of trading will be tightly constrained and flow will be pursued in an attempt to provide liquidity while using less capital. Turnover rates of inventory, revenue sources, risk metrics will be tightly monitored to stay within the Volcker limitations."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs