FORTUNE — Goldman Sachs earned $1.4 billion in the third quarter, down 23% from the second. It maybe shouldn’t have even earned that much.
Unlike other banks, Goldman (GS) has been slow to shut down businesses that could soon be forbidden by the so-called Volcker Rule. Named after former Fed Chairman Paul Volcker, the rule was written into the 2010 financial reform law Dodd-Frank and is supposed to stop banks from making large investments with their own money. But the rule hasn’t been finalized, and it’s not supposed to go into effect until mid-next year, and many on Wall Street assume it will be delayed further.
Most banks have wound down their proprietary trading, which includes investing in private equity and hedge funds, in anticipation of the eventual adoption of the Volcker Rule. Goldman, as my colleague Dan Primack has highlighted in the past, is the exception. In fact, Goldman appears to have generated more of its money in the third quarter than usual from businesses that could soon be banned.
It’s hard to know exactly how much. Goldman breaks down where its revenue comes from. And in the quarter, it generated nearly $1.5 billion from the division that most people consider proprietary trading. Nearly $950 million in trading gains came largely from investments in private equity funds. The division, which Goldman calls investing and lending, accounted for 22% of the firm’s overall revenue, up from 16% in the second quarter. And it was the only one of Goldman’s four divisions to show a jump in revenue from the quarter before.
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But Goldman doesn’t break out the expenses of each of its businesses, which also include investment banking, institutional client services, and asset management. So it’s impossible to know how much of its earnings came from each unit. But it’s generally assumed that its proprietary trading unit has lower expenses than its other divisions, meaning that what Goldman calls investing and lending probably generated much more than 20% of Goldman’s profits.
Goldman maintains that it has curtailed much of its own investing. In the past, it has said it will wait to see how the rules are finalized to determine what will happen to its private equity unit. But analysts and investors seem nervous that Goldman may be generating more of its revenue from businesses it may soon no longer be allowed to have.
On a call with analysts, Guy Moszkowski of Autonomous Research asked Goldman’s CFO Harvey Schwartz whether the lending and investing division had lower costs. Schwartz dodged the question. Another analyst, Kian Abouhossein of JPMorgan Chase, asked a number of times about whether the firm’s poor trading revenue in the quarter was due to a bad trade in the currency markets. Schwartz response: “No, I didn’t answer the question, actually,” which of course is the point.