Goldman blinks but no relief for Wall Street's commodity traders

Aug 01 2013, 12:46 IST
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Goldman blinks but no relief for Wall Street's commodity traders Goldman blinks but no relief for Wall Street's commodity traders
SummaryBritain's financial watchdog is considering its own investigation of metals warehouses.

Goldman Sachs' effort to diffuse intensifying pressure over its commodity business by throwing open its metal warehouse doors likely comes too late to head off further scrutiny of Wall Street's commodity trade.

Two weeks of escalating criticism of banks that own commodity assets and trade raw materials has shaken executives and the industry, with little sign of the pressure relenting. Britain's financial watchdog is considering its own investigation of metals warehouses, sources said, and two lawmakers questioned whether power regulators were tough enough.

Years of growing frustration over long waiting times and rising prices at metals warehouses across the world spilled into Washington this month, with lawmakers questioning why financial banks are so deeply involved in commercial activity and metal users including American brewer MillerCoors calling for a clamp-down.

In its first major effort to appease consumers, Goldman offered on Wednesday to immediately swap aluminum for any end-users holding metal at its Metro International warehouses, allowing them to avoid year-long waits and high premiums.

It also refuted the notion that it was causing a shortage of metal, saying none of its customers had yet taken up the offer.

But the effort met with a skeptical response among some traders who said the bank had failed to address the big financial incentives paid by warehouses to attract metal into their facilities, which critics say have stoked prices.

They also took issue with the bank's decision to limit the offer to end-users, excluding the hedge funds and other traders who are believed to account for most of the stockpiled metal.

"It sounds to me like they're offering ice in the winter," said U.S. anti-trust lawyer Robert Bernstein, a partner at New York-based Eaton & Van Winkle LLP, who works on behalf of U.S. copper fabricators.

The move is the latest effort by Wall Street's biggest banks to fend off a barrage of criticism of their role in the raw materials supply chain, where they do everything from stockpiling metal for clients to shipping gasoline to New York.

Last week JP Morgan Chase & Co said it was getting out of the physical commodity business, quitting a sector it paid billions of dollars over five years to build.

But Goldman's Chief Operating Officer Gary Cohn defended the bank's role in commodities and J Aron, its commodities trading arm, calling it a "core" business. "Commodity hedging is a core competence and one of the most important things we do in the firm

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