With word circulating that Congress will hear from Paul Volcker next week on his proposal to curb banks’ proprietary trading, various outlets are taking a stab at what the implications might be.
Bloomberg’s Shannon Harrington and Pierre Paulden report that Volcker’s distaste for CDOs and CDSes flies in the face of reality. Wall Street’s credit default swaps trading picked up in the December quarter for the first time since 2008. Synthetic CDOs are, meantime, are being sought out more and more by investors following the huge run-up in junk bonds last year.
Brendan Conway of Dow Jones Newswires, meantime, reports analysts comments that Goldman Sachs (GS) and Morgan Stanley (MS) could drop by a tenth under Volcker’s proposal, but selling off some units would also bring in billions for the banks. Analysts Robert Lee and Aaron Teitlebaum with Keefe, Bruyette & Woods, estimate sales of proprietary trading, principal investing, and asset management would be worth $21.7 billion for Goldman and $12.4 billion for Morgan Stanley. Their numbers, mind you, represent estimates and guesswork as to the value of the units.
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