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Goldman Buyers Seize on Spinoff Report

Goldman shares jumped on Wednesday following reports the bank plans to spin off its proprietary trading unit, although it's not clear exactly what businesses might be involved.
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) --

Goldman Sachs

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shares were rallying Wednesday on a


report that said little and stated the obvious.

Though Goldman's stock was up all morning, it was trailing shares of rival

Morgan Stanley

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until midday. But once


reported Goldman would "spin off" its "proprietary trading business"-- two terms that raise more questions than they answer -- Goldman's shares passed those of its rival.

What does a spinoff mean, exactly, in this case? It seems to mean the "business"--whatever that is-- is not being sold to an already existing entity. So it is presumably a different kind of deal from when


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sold its interest in various hedge funds to SkyBridge Capital


That Citigroup deal, by the way, is so complicated in its structure many followers of the bank may never know if it was a good deal for Citigroup without doing some serious detective work -- probably not worth doing, since the deal is peanuts in the grand scheme of things at Citigroup.

What Goldman does with its internal hedge funds is a much more important question, since Goldman relies on these businesses much more than rivals like Citi, Morgan Stanley,

JPMorgan Chase

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Bank of America

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. It was hardly a secret Goldman would have to reduce its exposure to these businesses.

The question is how Goldman will go about it. Rochdale Securities analyst Richard Bove told me

last month

he thought Goldman would find a way to create a legal structure that would allow it to keep earning management fees from its private equity unit, a strategy that could presumably be applied to its various hedge fund businesses as well.


's Kate Kelly, who broke the news, suggested that was the probable strategy. However, she made clear she didn't know which of Goldman's various proprietary trading businesses would be affected.

I'm not faulting Kelly. All of us in the instant news business have to go with what we know when we know it, and one key element to her story was that the spin-off could happen within the next month.

Optimists could read that as a modest positive for Goldman, since it suggests the firm has already figured out a way to address the Volcker Rule--the relevant provision in the Dodd-Frank financial services reform bill requiring banks to cut their hedge fund and private equity stakes.

Whether Goldman's strategy -- whatever it is and whichever trading desks it affects -- proves successful remains to be seen. Still, my gut tells me investors are looking for any reason to buy Goldman. At $156.22, the shares are still well below their $185 price back in mid-April, just before the

Securities and Exchange Commission

unveiled civil fraud charges against the firm.

Those charges have since been settled -- taking a giant monkey off Goldman's back. Of course the whole market is down since April 15, and Goldman's second-quarter earnings were mediocre, marred by a

clumsy trade

in its equities derivatives businesses.

Still, few people think Goldman has lost the magic that has made it an undisputed industry leader for more than a decade, and investors are presumably looking for any excuse to dive into the stock, hoping for a bargain.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.