Wall Street’s largest banks can still make big profits without prop trading, said Dinakar Singh, the former Goldman Sachs Group Inc. (GS) proprietary trader who runs $4 billion hedge fund TPG-Axon Capital Management LP.
“These firms make a lot of money doing their old job and they still need some very good people doing it,” Singh, 43, said today on Bloomberg TV’s “Market Makers.” “The business is going to look like it looked 10 years ago.”
Wall Street’s five biggest banks reported their lowest first-half profit since 2008 and blamed a drop in trading and deal-making on concerns about European government finances and slowing growth in the U.S. and China. Singh said he thinks those firms’ fortunes will recover and that he has a more negative view on the prospects for regional U.S. banks because he doesn’t believe their stock prices reflect the effect low interest rates will have on their earnings.
Singh joined Goldman Sachs in 1990 and ran the firm’s principal strategies trading unit before leaving in 2004 to set up TPG-Axon. Goldman Sachs, the most profitable securities firm in Wall Street history before converting to a bank in 2008, has shut down its principal strategies unit and other prop-trading divisions to comply with the 2010 Dodd-Frank law, which prohibits such activities at banks.
The rule is “not so bad for us” because “if Goldman Sachs and Morgan Stanley (MS) and others are very aggressive in prop trading, they’re competing with us,” Singh said. He said Goldman Sachs, Morgan Stanley and Credit Suisse Group AG (CSGN) still employ “terrific” people even if they don’t include proprietary traders.
Proprietary traders at big Wall Street banks have an advantage over hedge-fund managers because they can reach out to colleagues throughout the organization to learn about a variety of topics, Singh said. “The bad news is, you were restricted on a lot of things.”
Hedge-fund managers learn that they have to produce good returns to keep investors happy, Singh said.
“When you’re young you think everything is easy,” Singh said. “Hedge-fund investors themselves are under a lot of pressure.”
To contact the reporters on this story: Erik Schatzker in New York at firstname.lastname@example.org Stephanie Ruhle in New York at email@example.com Christine Harper in New York at firstname.lastname@example.org