Goldman still has $6.4bn to sell by the Volcker Rule deadline – updated

The New York-based investment bank has to meet Volcker Rule standards, which requires banks reduce their private investment interests to 3% of their tier 1 capital by the new July 2017 deadline.

Goldman Sachs still has $6.4 billion to offload to meet the requirements of the Volcker Rule by the new 21 July 2017 deadline, which is unlikely to be further extended.

In Goldman’s second-quarter earnings call in July, chief financial officer Harvey Schwartz said there is $7.3 billion in its investment interests, of which $900 million is permitted under the Volcker Rule. The remaining $6.4 billion, which includes $2.1 billion in public money and $4.3 billion of private investments, is the amount the bank needs to sell, according to a source familiar with the matter.

That represents 7.9 percent of the $81.09 billion of tier 1 capital Goldman has, as of June. Under the Volcker Rule, Goldman would be permitted to hold a maximum $2.43 billion in private investments to meet the 3 percent requirement.

The July 2017 deadline may be the final straw for the banks to meet their capital requirements with the Volcker Rule, according to one private funds lawyer. The lawyer told Secondaries Investor that further exemptions from the Volcker Rule are unlikely.

The lawyer added banks looking to avoid fire sales of their private investment interests could apply for extensions on a case-by-case basis, but more time may be difficult to obtain due to the stringent conditions surrounding such proposals.

A further announcement from the Fed is expected, the lawyer said, saying there’s hope the extension process will be simplified. The Volcker Rule, a section of the US’ 2010 Dodd-Frank Act, restricts banks from trading off their own accounts and limits their investments in private investment funds to no more than 3 percent of the bank’s tier 1 capital.

The rule, which gives the US Federal Reserve three possible one-year extensions for all banks to meet the Volcker Rule requirements, was finalised in December 2013. That same month, the Fed made its first extension, to 21 July 2015. The regulator gave a second extension in December 2014, marking a new deadline of 21 July 2016. The third and most recent extension occurred during this year’s second quarter, on 7 July, to 21 July 2017.

In 2014 Goldman noted it had set up a Volcker “implementation team”, as reported by Secondaries Investor, and has consistently indicated in its quarterly earnings reports that it “expects to be able to exit the majority of such interests in these funds in orderly transactions prior to July 2017”. That indication was omitted in the most recent quarterly filing released last month.

– This story was updated to show Goldman has $6.4 billion to sell before the deadline.

– Adam Le contributed to this report.