Trader Commentary On Cause Of Sudden Financial Weakness
You read it here first:
"Hearing bank selloff fueled by a competitor 's bank analyst relaying details of his conversation w/ Volker- which had a very hawkish tone. Chatter of a block of citi to trade post close."
A reader points out the following:
Subject: Brad Hintz met with Volcker - quick comments...
FYI, these comments have been making their way around the street due to what Brad Hintz said on today's AM call... I can confirm that Brad met with Paul Volcker and that this is a fair summary of what was discussed.
* Conclusion: the proposal is real, not just political theatre. Treasury is drafting a bill right now.
* "We are committed to ending investments in hedge funds and private equity.
It's a conflict of interest." They want to control hedge funds by controlling the prime brokers and cannot have the brokers owning hedge funds.
* The definition of prop trading will be narrow. They are "wrestling"
with market making risk. Looking at limitations on risk, inventory - so cannot take large bets on market making. Proprietary trading - Volcker asked Brad about how much in equities, how much in commodities. "Trading governments is fine as they will not blow themselves up."
* In Volcker's words GS is going to have to choose if they want to continue with bank charter or not. Seems to Brad like more than 10% of GS revenues at risk - keep in mind if they restrict fixed income, GS will be high ROE firm, but lower growth - if they have to sell private equity investment - will be up front gains, but what will they do with the capital as they cannot invest in trading?
* Volcker seems to expect MS will stay as a bank.
* Volcker also wanted to talk about what new players could grow to take positions of those who will be restricted. Brad sees few at this time that are big enough to be able to make the jump from AAA to the Majors