* Goldman closed one desk in 2010, closing another now
* Cites Dodd-Frank financial reform law
* Estimates legal losses could reach $3.4 billion
* Shares down 1.25 percent in midday trading
(Updates to add BreakingViews link)
By Maria Aspan
NEW YORK, March 1 Goldman Sachs Group Inc
(GS.N) said it is winding down two businesses that trade the
bank's own money to comply with new U.S. financial reform
The statement from the bank, featured in its annual report
filed with regulators on Tuesday, is its most direct
acknowledgment so far that it is shutting down units whose sole
purpose is so-called proprietary trading to comply with the
Dodd-Frank financial reform law signed in July.
The bank also estimated that legal losses from outstanding
litigation could be as much as $3.4 billion.
In 2010, Goldman Sachs liquidated most of the positions
held by the principal strategies proprietary trading desk in
its equities unit, the filing said.
In the current quarter, it started closing the global macro
proprietary trading desk in its fixed-income unit.
The bank said in the filing that it took these actions "in
light of the Dodd-Frank Act." A Goldman spokesman declined
further comment. See BreakingViews column: [ID:nN01147878]
The Dodd-Frank act includes a provision known as the
Volcker rule that limits the extent to which banks can make
bets with their own money.
Regulators still must clarify some portions of the Volcker
rule to distinguish between "proprietary trading," or making
bets on markets with a firm's own money, and "principal
trading," where firms buy and sell securities that they expect
customers to look to sell or buy.
Principal trading will be allowed under the new
regulations, but some industry observers have noted that
principal trading can involve as much risk-taking as
Other major U.S. banks have also been liquidating their
private equity and proprietary trading holdings in light of the
On Tuesday, Goldman rival Morgan Stanley (MS.N) completed
its split from $4.5 billion hedge fund FrontPoint Partners,
which it acquired four years ago. [ID:nN01105239]
But Goldman has not entirely eliminated some businesses
that make bets with its own capital. Its investing and lending
business -- in which the company lends to clients and buys
public and private securities -- comprised 19 percent of its
2010 net revenue, and nearly a third of its pre-tax earnings.
The unit generated $7.54 billion in net revenue and $4.18
billion in pre-tax earnings for 2010.
Also in the filing, Goldman estimated its potential
"reasonably possible losses" from outstanding litigation could
run as high as $3.4 billion.
The estimate was lower than JPMorgan Chase & Co's (JPM.N)
estimate for its potential legal losses, but higher than rivals
like Bank of America Corp (BAC.N).
Goldman has been at the center of regulatory controversy
over the last year, including settling with the SEC for $550
million -- the largest settlement ever -- over allegations the
investment bank failed to properly disclose to investors how
some mortgage backed securities were created.
Goldman also said it recently resumed some foreclosure and
eviction activities in its mortgage servicing unit.
Goldman shares were down 1.25 percent to $161.74 in midday
trading on the New York Stock Exchange.
(Reporting by Maria Aspan; Additional reporting by Joe Rauch
in Charlotte, North Carolina; Editing by Lisa Von Ahn and John