Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is Goldman Finally Doing the Right Thing?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Reports circled yesterday that Goldman Sachs (NYSE: GS  ) was getting ready to spin off its proprietary trading group. This would be great news ... right?

It'd certainly be great PR for Goldman, which has found its formerly gilded reputation a bit tarnished in the wake of the financial meltdown. This would make the company look like it's making nice with Uncle Sam, by getting right on top of complying with new rules under financial reform. It'd also be a nice moment for folks like Chris Dodd to crow, "Look, I did good!"

But if you'll allow me a bit of cynicism here, I have to wonder why Goldman would rush to make such a move. The letter of the law gives financial companies years to chop off their prop trading desks, and it seems like it would make little sense for Goldman to hurry up and lose that source of income.

So what's really going on? In the press coverage of the potential spinoff, I noticed the assertion that Goldman makes roughly 10% of its revenue from proprietary trading. But that number is pretty tough to pin down. In the most recent quarter, Goldman's Principal Investments group accounted for a bit more than 10% of revenue, but it was much less for all of 2009. Of course, the statement may refer to company's broader proprietary activities -- activities about which Goldman provides few specifics.

But we do know though that for 2009, the Trading and Principal Investments division put up 76% of Goldman's total revenue, and 87% of its pre-tax profit. Now for the multibillion-dollar question: How much of that is truly client-driven activity, and how much is proprietary?

Goldman Sachs is no longer the advisory-based company that it once was. It's a trading company. Now that the reform bill has passed, I'm thinking the company will tread very carefully, in hopes that regulators don't end up ripping apart its trading operations. If the rumors are true, I'd look at the quick move to spin off some proprietary activities as a peace offering, with the unspoken plea, "Please, Hammer, don't hurt us!"

Of course, this is also a big issue for many of the financial players, and we've already started to see reaction elsewhere. Morgan Stanley (NYSE: MS  ) is supposedly thinking about spinning off its FrontPoint Partners hedge fund, while Citigroup (NYSE: C  ) and Bank of America (NYSE: BAC  ) have both announced plans to shed private equity and hedge fund exposure. I don't expect that JPMorgan Chase (NYSE: JPM  ) will be far behind.

I wouldn't suggest Goldman as comfortable retirement investment, but my fellow Fool Jordan DiPietro thinks these five stocks could make retirees rich.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 07, 2010, at 12:26 AM, kesehc wrote:

    Short answer: NO

    Answer in the form of a question: Are you kidding?

    There's a joke they tell in Russia that goes:

    "Everything our government told us about Communism was lie, but everything they told us about Capitalism was true!"

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1262065, ~/Articles/ArticleHandler.aspx, 10/27/2016 5:22:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 8 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
BAC $16.87 Up +0.15 +0.90%
Bank of America CAPS Rating: ****
C $50.01 Up +0.42 +0.85%
Citigroup CAPS Rating: ***
GS $177.07 Up +1.52 +0.87%
Goldman Sachs CAPS Rating: ***
JPM $69.13 Up +0.33 +0.48%
JPMorgan Chase CAPS Rating: ****
MS $33.59 Up +0.24 +0.72%
Morgan Stanley CAPS Rating: ****