Is Goldman Sachs a prop shop?

An article said the investment banking accounts for only 5 percent of Goldman's profits. Its largest area of activity is proprietary trading. Is it actually a prop shop?

 

not a retail prop shop, similar to saloman's setup in the early days, i believe.

 

No, they're just trading their own capital through in-house traders. The guy above me is on target - they do a lot of bond arb volume.

 

yeah. i would assume that there they are on the same side of the table with their traders regarding transaction costs.

 

Does arb need high leverage to make profits? Why don't they become another LTCM?

 

That's a broad question...plenty of people still do what LTCM had done, but LTCM was way overleveraged.

 

Absolutely agree, but they also suffered from liquidity risk. Read Roger
Lowenstein's book, "When Genius Failed', LTCM was accounting for
70-80% of Italian treasury note auction at one point.

The credit market has matured significantly since then, but you still
have the Ford/GM downgrade recently that caught a bunch of hedge funds
on both sides, corporate bonds and preferred.

 

don't forget they have fischer black, one of the guys that worked out the options pricing model. they are a huge statistical powerhouse.

 

I know a guy there, and now they do mortgage related things...so I don't think they still have the same statistical masterminds they used to.

 

They are a Global Investment Bank with mega reputation for "Champagne type service but you pay for it".

- King in M&A, or at least was.
- Bought the Hull group for half a Billion a few years back.
- Owns SLK (specialists on NYSE, REDI ECN, etc).
- Current NYSE chief was second in charge at GS a few years back.
- Fisher Black (who sadly died in the late nineties before the Nobel Prize was awarded to Merton and Scholes for the famous equation) worked with Derman at GS. Lots of big names at GS.
- Attract the best and brightest, and remunerate accordingly
- Learned the lesson from the "old" Salomon Brothers, in how to create a "special" culture.
- Have well-known analysts like Abbey Cohen (where the phrase "If Abbey Cohen sneezes, the rest of the market catches a cold" comes from).
- Were very quick on shifting focus to Fixed-Income when equities took a beating in 2000.
- Prop trading has increased with all the IBs, as profits became razor thin elsewhere.

etc, etc, etc, etc, .........