With the future of SAC Capital hanging in the balance, investors are now considering just how much the firm’s problems are going to cost Wall Street. According to The Wall Street Journal’s Jenny Strasburg, surface estimates indicate a price tag of $1 billion, although the value likely goes much deeper than that.
SAC Capital’s Operations
Many investors believe SAC Capital is Wall Street’s largest hedge fund customer. Strasburg reports that at this point, the firm generates about $1 billion each year in trading commissions and other payouts to various Wall Street firms.
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The problem with putting a valuation on SAC Capital’s fall if it happens is the complex way in which it does business. Sources told the WSJ that the firm goes beyond paying out the basic fees. They said it also provides rewards for bankers or brokers who share their ideas about investments or make connections for it with doctors, analysts, executives and other market VIPs.
The WSJ reviewed a document from 2010 which indicated that SAC Capital has over 100 “sell-side relationships.” That term refers to financial firms which offer services and securities. If the hedge fund firm does shut down, every other Wall Street firm it has a relationship with will undoubtedly be affected.
Concerns About SAC Capital
Many of SAC Capital’s investors are yanking their money out as the case involving the firm develops. Although neither the firm itself nor its founder Steven Cohen has been accused of any criminal wrongdoing, federal authorities are still digging into its operations. Several executives have received subpoenas to testify before a grand jury, and concerns on Wall Street regarding the firm’s future are high.
Sources told the WSJ that if SAC Capital reduced its trading activities significantly, the trading profits from some of the Street’s biggest banks would be affected, although they wouldn’t speculate by how much. They said smaller firms which rely more heavily on SAC Capital may be forced to lay off employees.
SAC Capital’s Big Customers
The firm has a long list of prominent banks it does business with, including Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM) and Morgan Stanley (NYSE:MS), among others. Sources told the WSJ that Goldman Sachs has brought in almost $100 million per year in fees and commissions through its business with SAC Capital, although that amount has fallen along with trading volumes over the last few years.
It’s generally expected that the business and assets which leave SAC Capital will go to other firms and partially offset the losses involved with the firm’s legal problems. Nonetheless, concerns about what will happen next with the allegations against SAC Capital still abound.