Goldman Sachs's SSG: Lending or Trading?

For Goldman Sachs's (GS) Special Situations Group, corporate disasters can be a source of some of the bank's biggest profits. Now the secretive operation, which invests in the debt and equity of troubled companies and in loans to high-risk borrowers, faces its own potential calamity. The group, known as SSG, could be put out of business by new rules in the Dodd-Frank financial reform law that seek to curb proprietary trading by banks.

Goldman Sachs has already shut two units that made bets with the firm's money because such trading by banks will be prohibited under the Volcker rule, named after former Federal Reserve Chairman Paul A. Volcker. Even so, SSG continues to make investments and named a new global head last month. Executives at the New York-based bank, including Chief Financial Officer David A. Viniar, have argued that SSG shouldn't be affected because it's more of a lending than a trading business. "It is proprietary trading, but the business can also be modified if you had to," says Brad Hintz, an analyst at Sanford C. Bernstein in New York. The question, he says, is "Where will the regulators draw the line?"