Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGIN

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Are the TBTF entities getting risk averse?
Thu, 21 Jul Pre-Open

Goldman Sachs, once renowned for placing winning bets, has taken a significant hit in its trading revenues. The firm has cut down its risk exposure to lowest since the third quarter of 2006. To those with a myopic perspective, it may seem to be a bad decision to take too little risk. However, we believe that risk averseness has helped the firm to contain the potential losses. Even with less capital at stake, the firm has ended up either making losses on bets or taking up expensive hedges that eroded the profits. Imagine the extent of damage had it subjected more capital to the same losing bets in the wake of rising Europe debt crisis and U.S fiscal deficit

The recent disclosure marks a significant turning point in firm's strategy in response to regulatory, political and economic uncertainties. And the trend seems to be making its way across other Wall Street offices as well. The focus is shifting away from trading operations to regulation and risk management. And firms are really justified in doing so. While it may be hard to resist the temptation of earning revenues based on speculative bets, this greed is no good. Such a trend will only lead to an asset bubble that will ultimately burst leading to another round of other bank failures. And considering the futility of previous round of bail outs, there may be none this time.

Seems like the firms such as Goldman Sachs have retained the lessons learnt from the previous financial crisis. The 'too big to fail' (TBTF) logic might not come to rescue them this time should they goof up once again. The stability of nation can't be left to the mercy of reckless decisions of selected people at these firms where the ability of financial regulators to oversee their operations is limited. Any sort of government guarantee against failure can only lead to market distortions. It will only incentivize executives to take more risks to realize maximum short term gains and ignore the risks that tag along. Even if the government manages to control fiscal defict, a lack of control on speculative trades could lead to a bank failure and the resulting bail out will bring the situation back to square one.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

View all commentaries | Archives

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Are the TBTF entities getting risk averse?". Click here!

  
ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
TRENDING TOPICS
FREE NEWSLETTERS
EQUITYMASTER SUPPORTS
  • HelpYourNGO
  • You Tube
  • Linkedin
  • Twitter
  • Telegram
  • Google Play

Copyright © Equitymaster Agora Research Private Limited.

Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap

Phone +91-9136015013

Equitymaster Agora Research Private Limited (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407

Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com

LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.