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Citigroup to Close Prop Trading Desk


PlanMaestro
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Volcker Rule having its impact, I like it. Less need to worry on what 20-something year old might be gambling.

 

http://dealbook.nytimes.com/2012/01/27/citigroup-to-close-prop-trading-desk/?smid=tw-nytimesdealbook&seid=auto

 

The bank is shutting its equity principal strategies desk, which made trades using the firm’s own capital, the firm announced in an internal memo on Friday. Most of the desk’s employees will leave Citigroup after Feb. 6, according to the memo.

 

[...]

 

In October 2010, the proprietary trading group at Goldman Sachs left the bank to start a similar operation at Kohlberg Kravis Roberts, the private equity giatn. JPMorgan Chase moved its proprietary desk out of its investment bank and into its asset management unit last year, and Morgan Stanley has said it will spin its proprietary operation into a separate entity later this year.

 

Some of those banks still have ownership stakes in their own hedge fund and private equity businesses. Under the proposed rule, they are required to bring those stakes down to 3 percent or less. Citigroup’s remaining stake in its Citi Capital Advisors unit is roughly 5 percent, according to the person, and will be brought down further to comply with the rule.

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The difference is that people on this broad that invest full time probably worked in a different industry for years to build up investible assets. The ones that do it part time probably work full time in a different industry as well.

 

I agree, young people need to stop shuffling paper around and do something worthwhile with their lives. 

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The populist outrage at bankers and traders always amuses me.  Not every banker and trader "tanked" the market.  Some actually help companies raise capital and contribute to risk management in a positive way.  The thing about it is is that people think these aren't useful occupations and in many cases I won't argue the point, but how many jobs actually are useful?  My guess is that most on this board aren't teachers, fire fighters, police officers or researching cures for cancer.  Is working for Apple and developing the Iphone58s really so much better for society?  Is working on the Xbox beneficial?  I'm not saying they don't perform useful functions, but so do some bankers and traders. 

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The populist outrage at bankers and traders always amuses me.  Not every banker and trader "tanked" the market.  Some actually help companies raise capital and contribute to risk management in a positive way.  The thing about it is is that people think these aren't useful occupations and in many cases I won't argue the point, but how many jobs actually are useful?  My guess is that most on this board aren't teachers, fire fighters, police officers or researching cures for cancer.  Is working for Apple and developing the Iphone58s really so much better for society?  Is working on the Xbox beneficial?  I'm not saying they don't perform useful functions, but so do some bankers and traders.

 

I agree. Econ will suffer if capital doesn't flow.

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The best way to prevent the large salaries is to break up the banks/brokers into smaller firms.  Each firm will incur more overhead, hire more people and diversify the risk.  This is what we did to bust the trusts in the late 1800s (versus the gov't control model of Europe) in the US and it worked pretty well.  The economies of scale in banking/brokerage accrue to the controlling emloyees versus the shareholders and the banking system.

 

Packer

 

 

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The best way to prevent the large salaries is to break up the banks/brokers into smaller firms.  Each firm will incur more overhead, hire more people and diversify the risk.

 

Totally right, IMO.  More importantly, you then don't have "too big to fail".

 

IMO It will definitely resolve the "too big to fail" issue but it won't stop large salaries or reduce risk taking.  With all that new overhead to cover there will be a temptation to push the envelope a little bit harder to make money to cover it.  There will always be risk takers and the ones who generate big revenues will get paid big bucks.  The Volker rule will likely just move the risk taking from regulated institutions to hedge funds where the transparancy and regulations are less.  That's not a bad thing as it moves that risk away from innocent depositers.

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