proprietary trading

If you’re a true believer in vulgar Volckerism – “banks shouldn’t be allowed to make bets with their own money” – then you have an inexhaustible source of things to get mad about, since the only thing banks do is make bets with their own money, for some values of “bets” and “own.” Bloomberg’s Max Abelson found one today, specifically that Goldman has a group that invests its own money in securities, and it is

a secretive Goldman Sachs group called Multi-Strategy Investing, or MSI. It wagers about $1 billion of the New York-based firm’s own funds on the stocks and bonds of companies, including a mortgage servicer and a cement producer, according to interviews with more than 20 people who worked for and with the group, some as recently as last year. The unit, headed by two 1999 Princeton University classmates, has no clients, the people said.

Multi-Strategy Investing happens to be part of a larger group called the Special Situations Group, which also invests the firm’s own money – as Abelson puts it:

That parent group, which uses the firm’s funds to profit from distressed and middle-market companies, has been a major profit center at the bank, sometimes the biggest, former executives told Bloomberg in 2011. Its holdings that year included debt of Melville, New York-based pizza chain Sbarro Inc.1

The phrase “uses the firm’s funds to profit from” is exquisite; Goldman would probably say “invests in and lends to.” Y’know, like a bank (or a merchant bank). Not that they’d disclaim profiting, but, yeah, investing in and lending to companies is a thing that Goldman does.2

Is this a scandal? The short answer is “naaah.” Who cares? What is the Volcker Rule for? Read more »

I enjoyed Bloomberg’s story about how the SEC was pestering JPMorgan to better disclose its proprietary trading activities well in advance of the London Whale fiasco. If you just read the headline you’d be all “oh look how prescient the SEC was,” but if you read the actual letters, not so much. Here is my favorite exchange:

SEC: Identify the trading desks and other related business units that participate in activities you believe meet the definition of proprietary trading. Identify where these activities are located in terms of your segment breakdowns. Quantify the gross revenues and operating margin from each of these units. We note your disclosure on page 59 of your Form 10-K for the year ended December 31, 2010 that you have liquidated your positions within Principal Strategies in your former Equities operating segment. It is not clear if this was the extent of your proprietary trading business. Please clarify if there are other proprietary trading businesses. If there are, please clearly identify the extent to which such activities or business units have been terminated or disposed of as well as the steps you plan to take to terminate or dispose of the rest of these components.

JPMorgan:1 … The Firm believes that the Staff’s comment regarding the disclosure on page 59 relates to the Form 10-K filed by a registrant other than JPMorgan Chase.

Hahahahaha true, it’s Goldman Sachs. Read more »