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Goldman Loses $1Bn on Deal Because of Volcker Rule – Waaah!

March 28, 2017

[Photo: by Kyle Flood / Wikimedia Commons]


The NYPost reports that Goldman Sachs, which had already made a $1 billion profit with its early stage investment in Israeli car tech company Mobileye, lost out on nearly doubling that gain because it had to sell off its 17.5% stake in the company to comply with the Volcker Rule. That rule, as we know, restricts banks from making certain investments with their own accounts, and limits their ownership of and relationship with hedge funds and private equity funds.


Now before breaking out in a chorus of tears, let’s have a look back at September 2008. That was when Goldman Sachs and Morgan Stanley - the last 2 major independent investment banks - opted to become bank holding companies. Which made sense, given that each investment bank was rumored to be on the merger block – earlier that year, we had seen Lehman Brothers succumb to bankruptcy, and had seen Bear Stearns and Merrill Lynch 'survive' only because they were gobbled up in 11th hour rescues. 


According to the NYTimes Dealbook column, posted 9/21/08, Goldman and Morgan Stanley benefited enormously by their conversion to bank holding companies. Here were some of their incredible perks:


  • Goldman and Morgan Stanley got some breathing room and reprieve from their financial constraints.
  • Each now had a guardian angel - in the Federal Reserve - that would ensure that neither would fail.
  • Each gained immediate access to the discount window of the Federal Reserve.
  • Each had the opportunity to purchase ‘on the cheap’ banks that were failing left and right during the financial crisis.


So, in conclusion, Goldman Sachs did pretty well for itself, net-net over the past 9 years – notwithstanding this latest lost opportunity to ‘bank’ another $1 billion on Mobileye. We should all have such problems!