The conventional wisdom is that the Volcker Rule will hurt trading-intensive banks most severely, unless the rules are watered down at the eleventh hour.

So how exactly will Goldman Sachs, the uber-trader, fare in this new era? Not so well, according to a note from Brad Hintz, the respected Bernstein Research financial services analyst, as noted by the TheStreet.com. More than any other firm, Goldman Sachs has developed a distinct "secret sauce" that none have been able to duplicate. Its trading discipline was in many ways a marvel.

But Hintz wrote to clients: "We expect Goldman to implement changes within its global fixed income and institutional equities businesses to automate market making activities; reduce staffing on trading floors and shrink overhead to enhance business margins. The balance sheet usage of trading will be tightly constrained and flow will be pursued in an attempt to provide liquidity while using less capital. Turnover rates of inventory, revenue sources, risk metrics will be tightly monitored to stay within the Volcker limitations."

This suggests that the Volcker Rule may be an inflection point for Goldman Sachs. Perhaps the era of Goldman Sachs as a trading-driven firm will transition to something else. Goldman Sachs as an advisory firm, perhaps? That would no doubt please the bankers. A surge in mergers and acquisitions might fuel this. Another idea might be that the firm emphasizes principal transaction, which look like they will remain legal in the Volcker Rule era.

Keep your eye on any succession plans. They will hold some clues as to whether the board thinks the company is heading.

For more:
- here's the article

Related articles:
Blankfein on Volcker Rule, OTC derivatives   
Goldman Sachs, Morgan Stanley ponder mark-to-market accounting