Tuesday, July 06, 2010

How do we move talented traders to foreign banks and hedge funds?

Reduce what they can do in domestic banks:
Some Wall Street firms aren't waiting until the Volcker rule kicks in to shake up the trading desks that wager the banks' own money.

As the financial-regulation overhaul heads toward a final vote in the Senate next week, banks are scrambling to find new positions for star proprietary traders, who basically trade company money in hopes of fattening bank profits and their own paychecks but could become an endangered species once the rule takes effect.
Proprietary trading has always been controversial, but scrutiny of the business surged after several firms suffered massive trading losses during the financial crisis. As a result, Wall Street has been retreating from the so-called "pure" proprietary-trading desks that regularly churned out billion-dollar profits just a few years ago.

"Most firms have significantly downsized this business," Citigroup analyst Keith Horowitz wrote in a research note. Still, Goldman Sachs Group Inc. and Morgan Stanley still have sizable trading desks that "must be ceased or divested" under the Volcker rule, the analyst wrote.

Goldman has two large proprietary-trading desks, one run out of the New York company's giant fixed-income unit called Special Situations Group. The second desk, Goldman Sachs Principal Strategies, is part of the equities division. In the past, some traders who left those desks stayed at Goldman to manage hedge funds, while others left the firm.

I predict Main Street will rue this day, as our access to free checking accounts will disappear. Maybe we will start seeing FDIC fees or ATM charges bubbling up in our monthly statements, too.

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