Goldman Sachs has $6.5 billion to offload to meet the requirements of the Volcker Rule by the current 21 July deadline unless the US Federal Reserve approves its request for extension, according to the investment bank’s fourth-quarter earnings call.
During the 18 January call with investors, chief financial officer Harvey Schwartz noted that, of the investment interests held, $1.8 billion is trading publicly on exchanges, meaning it is already liquid and in the process of being sold down.
The Volcker Rule, which is a section of the US’s 2010 Dodd-Frank Act, restricts banks from trading off their own accounts and limits their investments in private funds to no more than 3 percent of a bank’s Tier 1 capital.
The rule allowed three possible one-year extensions for all banks to meet the requirements when it was implemented in December 2013. The Fed made its first extension that same month to 21 July 2015, and the second in December 2014. The third and most recent extension occurred in July.
Schwartz noted during this month’s earnings call that Goldman has submitted for further extensions which he expects will be approved broadly across the industry, because “there’s no desire for fire sales” and the Volcker Rule “was never designed to force sales” by banks.
He added that it was too early to determine the implications of potential regulatory policy changes from the Trump administration on banks’ requirements under the regulation.
“We don’t make any decisions before we see a rule or rule change,” he said. “We would look at it and whatever is in the best interest of our clients and our shareholders, that’s how we evaluate it – just like we evaluate any rule change.”
According to New York-based Goldman’s 8-K filing with the US Securities and Exchange Commission, its Tier 1 capital stood at $72 billion as of 31 December. This means that, under the 3 percent rule, Goldman would be allowed to hold $2.16 billion in private fund investments.
Goldman’s third-quarter earnings filing with the SEC showed that the total fair value of the bank’s investments in funds stood at $6.86 billion. That included $4.8 billion in private equity fund investments, $1.1 billion in real estate funds, $478 million in credit funds and $471 million in hedge funds.