Goldman Sachs forced to close Principal Strategies Unit by US government

September 3rd, 2010 - this article is free to republish with open public license

When the financial initiative called the Dodd-Frank act takes effect, companies who bet on their own accounts will have to make a change. It is one of the financial reforms put in place to curb Wall Street graft. The Principal Strategies group at Goldman Sachs will have to adjust their infrastructure to be in compliance. Banks will have four years to come under the new regulations, giving the company plenty of time to re-organize.

Every few years new methods are contrived by the financial industry, to circumvent pre-existing protections. Greater risk means greater reward, and over the past decade there has been less fear of losing, as financial services companies became bolder, knowing that government assistance would be waiting. This initiative is a way to stabilize the system and increase investor confidence.

Bloomberg – Goldman Sachs Group Inc. is shutting its principal-strategies business, a group that makes bets with the firms own capital, to comply with new U. S. rules aimed at curbing risk, two people with knowledge of the decision said.

Wall Street’s most profitable investment bank plans to hold off on announcing the wind-down while the 65 to 70 members of the global unit seek new jobs, the people said, speaking anonymously because the internal discussions about the process are confidential. Some traders and support staff may get roles within the New York-based firm, while a team in Asia may raise money for a new hedge fund, the people said.

Whats motivating people is that they need to know where they are going, and no one wants to be the last group out the door, Gary Townsend, president of Hill-Townsend Capital LLC, said on Bloomberg Television. Its really the personnel decisions that are driving this to happen sooner rather than later. Townsends Chevy Chase, Maryland-based investment firm specializes in financial companies.

Goldman Sachs, which says about 10 percent of its revenue comes from proprietary trading, is grappling with a provision of the Dodd-Frank financial reform act that prohibits banks from risking capital by betting for their own accounts. JPMorgan Chase & Co. plans to close its prop-trading units in response to the law, signed by President Barack Obama in July. JPMorgan last month told in-house commodities traders in London that they may lose their jobs, a person briefed on the matter said this week.

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Date September 3, 2010