Actionable news
0
All posts from Actionable news
Actionable news in GS: GOLDMAN SACHS GROUP Inc,

How One Goldman Sachs Trader Made More Than $100 Million

One junk-bond trader at Goldman Sachs Group Inc. GS 2.15 % earned more than $100 million in trading profits for the firm earlier this year, an unusual gain at a time when new regulations have pushed Wall Street to take fewer risks.

The gains were the work of Tom Malafronte, a managing director on the bank’s high-yield-bond desk in New York. The 34-year-old trader bought billions of dollars in junk corporate debt on the cheap starting in January, then locked in profits as prices recovered, according to people familiar with the matter.

The windfall is a throwback to a previous era on Wall Street, when big banks were more eager to step in as markets turned and bond traders took bigger risks. Those bets have become less common since the crisis. Hoping to make the financial system safer, Congress passed rules that curbed banks’ ability to wager with their own money and required them to hold more capital.

Wall Street responded by shutting down its proprietary-trading desks and shrinking inventories of securities like bonds. The government allowed banks to continue trading securities in their capacity as market makers, serving as intermediaries between buyers and sellers. Regulators have said banks must show that the amount of bonds and other securities they hold on their balance sheets don’t exceed what they need to meet “reasonably expected near-term demand.”

As a market maker, Mr. Malafronte bought the bonds from clients anxious to sell them and ultimately lined up other investors to buy them—at a higher price. Goldman profited from the difference, people familiar with the matter said.

It is difficult—if not impossible—to define clearly the difference between trades made to meet clients’ demands and those conducted just to make money, said Hal Scott, a professor with Harvard Law School who has testified before Congress about efforts to regulate the banking industry.

“No one has been able to distinguish between market making...


More