Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

On Wall Street, it's rare that laggards are rewarded. But there are always exceptions.

Goldman Sachs Group Inc. has been slower than some of its peers in complying with the Volcker Rule, a regulation born of the financial crisis that's designed to make the system safer by restricting banks from betting their own money for the shot at lucrative profits. While most banks have shuttered their proprietary trading desks and retreated, for the most part, from merchant banking activity, Goldman has continued to hold on to some of its wagers. 

As per the bank's Sept. 30 filings, Goldman held investments across private equity funds, credit funds, real estate funds and hedge funds worth $6.9 billion, and had another $1.8 billion committed to such funds, for a grand total of $8.7 billion. By comparison, Morgan Stanley and Citigroup had $2.2 billion and $900 million of non-conforming investments in funds subject to the Volcker Rule, respectively. 

Taking Time
Goldman Sachs has until July 2017 to reduce most of its interests in certain funds, although President-elect Trump's plans to dismantle the Dodd-Frank Act and the Volcker Rule could give it wiggle room.
Source: Company filing

Goldman says it has until next July to reduce "most of its interests" in those funds under a deadline extension granted by the Federal Reserve.   But now, planned policy changes by President-elect Donald Trump may mean it won't have to. 

The Volcker Rule is part of the Dodd-Frank Act that Trump's transition team has pledged to dismantle, and any regulatory easing could lay the groundwork for making such holdings acceptable. By taking its time, Goldman may stand to benefit -- for one, it would be able to quickly put more of its own money to work than rivals that have spun off their various private equity arms.

Speaking of benefit, bank stocks gained further ground on Thursday, with the biggest banks from Wells Fargo & Co. to JP Morgan Chase & Co. all rising as much as 5 percent or more on optimism a Trump Administration would be friendly to the industry and lighter on regulation. The KBW Bank Index added as much as 4.8 percent, reaching its highest level since May 2008. 

Trump Effect
Banks led by Wells Fargo & Co. have outperformed since Trump won the election, in part due to likely reduced regulation and the potential that his spending plans will drive inflation (and interest rate hikes)
Source: Bloomberg

Trump's transition team said it would replace Dodd-Frank "with new policies to encourage economic growth and job creation". There's no doubt that Wall Street is looking forward to granular details. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Morgan Stanley already expects to request extensions for the "overwhelming majority" of its investments. 

  2. This likely rattled U.S. regulators who are rushing against the clock to issue limits on Wall Street pay, though it's unclear how quickly or easily their efforts may be unwound. 

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net