Jim Armitage: Goldman trader blurs lines between gambling and serviceComments Off on Jim Armitage: Goldman trader blurs lines between gambling and service
Tom Malafronte is a popular guy.
The Goldman Sachs market-maker just booked his firm a $100 million profit in six months. His technique: buying junk bonds from clients, holding them, sometimes for weeks, then flogging them when the price rose.
Fellow traders tell the Wall Street Journal he’s a genius, an amazing risk-taker, a hero of the old school.
Why, on some days, he was single-handedly responsible for a third of all global trades in the companies he was speculating on. The balls on this guy!
But what if the markets had moved against him?
If the financial crisis taught us anything, it’s that genius traders are mainly just lucky ones. And their luck usually runs out. When it did in 2007 and 2008, taxpayers picked up the tab. The regulations that resulted were explicitly designed to stop banks taking on too much risk.
The days of proprietary trading, betting with the bank’s money, were over.
Market-making, where banks act as middlemen, buying stock, holding it and pricing it to sell, was retained.
That’s a good thing. Market-makers like Malafronte mean there’s always a buyer and a seller for stock, keeping capitalism operating smoothly. But with profits like his, surely Malafronte must be blurring the lines between making a market for clients and prop trading for the bank. Lines are there for a good reason. Stories like his can only embolden regulators to sharpen them up.
Enjoy your bonus, Tom. You may not see another like it for a while.
City’s clear winner
I’m not going to pretend the London Clearing House is the sexiest part of the City. But, as figures from its owner, the London Stock Exchange, showed today, it’s lucrative and growing at a lick.
LCH settles the world’s foreign-exchange, bond and derivative trades. In the last three months, its revenues jumped 18% to £90 million. That was in return for settling, among other things, $160 trillion — trillion — of interest rate swaps, 90% of all global trade.
It is a true London champion.
Some in the City, though, want to proffer up the euro-stuff it clears to Brussels in return for retaining passporting rights post-Brexit.
As LSE boss Xavier Rolet says, this would be daft, stripping LCH of the scale that make it competitive. Global clearing would leave London — not for Frankfurt, but to the US.
We beat off one European attempt to take our euro clearing away last year. Why reverse that victory now? Carsten Kengeter, the LSE’s German overlord-in-waiting, must keep fighting Rolet’s good fight.