domingo, 23 de noviembre de 2014

domingo, noviembre 23, 2014
November 19, 2014 10:00 pm

Report blasts US banks’ physical commodities operations


An employee prepares to carry a roll of sheet aluminum on the production line at the Akao Aluminum Co. plant in Tokyo, Japan, on Monday, Feb. 17, 2014. Global aluminum demand may exceed output by 390,000 tons this year, Macquarie Group Ltd. said Jan. 9, as demand improves and output is curbed amid unplanned closures and bankruptcies. Photographer: Tomohiro Ohsumi/Bloomberg©Bloomberg
 
Goldman Sachs, JPMorgan and Morgan Stanley exposed themselves to catastrophic financial risks, environmental disasters and potential market manipulation by investing in oil, metals and power plant businesses, according to a Senate report.
 
The findings of the two-year probe by the Senate permanent subcommittee on investigations said the banks’ involvement in physical commodities put them in the same vulnerable position as BP, which has been hit with multiple lawsuits and billions in fines as a result of the 2010 Gulf of Mexico oil spill.

“Imagine if BP had been a bank,” said senator John McCain, the senior Republican on the subcommittee. “The liability from the oil spill would have led to its failure, leading to another taxpayer bailout.”

A 2012 Federal Reserve of New York commodities team review found that the three banks and a fourth unnamed financial group had shortfalls of up to $15bn to cover “extreme loss scenarios”, the report said. The Fed is considering restricting banks’ physical commodity activities.

In addition to potential environmental disasters, the subcommittee said the banks’ ownership or investments in physical commodity businesses gave them inside knowledge that allowed them to benefit financially through market manipulation or unfair trading advantages.

Executives of the three banks will defend their businesses in testimony on Thursday before the subcommittee. The banks say they play a crucial market making role for clients by providing financing, liquidity and hedging capabilities, while also reducing market volatility.

They also argue that they are not liable for environmental disasters, as that responsibility lies with the owner or operator of the resources or facilities.

The subcommittee’s review of Goldman Sachs focused on its Nufcor unit that trades non-enriched uranium, Metro International Trade Services, a network of metals warehouses in Detroit, and its coal operations. The bank is in the process of winding down Nufcor and is selling Metro.
 
Metro was involved in moving aluminium from one warehouse to another in what are known by critics as “merry-go-round” deals, which caused long queues to take delivery of aluminium and raised prices for consumers and companies, the report said. The bank also benefited from rental revenue.

“It gave Goldman Sachs an inside position,” said subcommittee chairman Carl Levin of Michigan. “We simply cannot allow a large, powerful Wall Street bank to have the power to influence the price of a commodity essential to our economy, especially when that bank is trading financial products related to that commodity. We need to restore the separation of commerce and banking.”

In two deals reviewed by the subcommittee, 6,500 trips were made within the Metro system. Customers such as the brewer MillerCoors, which uses aluminium in beer cans, claimed the logjams inflated raw materials costs by billions of dollars. Warehouse owners disputed this.


Gross fair value of physical commodity trading inventories
 20092010201120122013
Goldman Sachs$3.7bn$13.1bn$5.8bn$11.7bn$4.6bn
JPMorgan$10.0bn$21.0bn$26.0bn$16.2bn$10.2bn
Morgan Stanley$5.3bn$6.8bn$9.7bn$7.3bn$3.3bn
Source: Consolidated Financial Statements for Bank Holding Companies, FR Y-9C Reports, Schedule HC-D, Item M.9.a.(2).
 
 
Goldman Sachs also disputed the claims, saying that the owners of the aluminium direct the moves of those resources from one warehouse to the other, not the bank. It added that the owners, who are usually hedge funds or other investment firms, are often taking advantage of different rules governing the warehouses to reap financial gains.
 
Goldman said it makes investments in metals but it has strict conflict of interest policies regarding those businesses and separation from other parts of the bank.

“Goldman Sachs did not engage in improper ‘merry-go-round’ transactions,” it said. “Metro always complied with owner instructions as to the movement of metal, its activities complied with LME [London Metals Exchange] rules and did not impact the cost that Americans pay for cans of beer.”
 
The Morgan Stanley case study was based on its natural gas activities, and oil storage and transport businesses. Until recently, the bank controlled over 55m barrels of oil storage capacity, 100 oil tankers and 6,000 miles of pipeline, the report said.
 
“Morgan Stanley’s involvement in oil and gas rivalled that of all giant oil and gas companies,” Mr Levin said.

More than 30 power plants owned by JPMorgan, and its copper activities and trades were also studied by the subcommittee. Last year, JPMorgan had to pay a $410m penalty to settle with the Federal Energy Regulatory Commission, which accused the bank of manipulating energy markets at the expense of consumers.
 
JPMorgan said it had sold a large portion of its physical commodities business and going forward, it will focus those activities on financial derivatives. The bank added that its commodities business followed all regulations and it also had a strong risk management programme.

In its report, the subcommittee also criticised regulators for taking insufficient action to rein in the banks’ commodity businesses. Federal Reserve governor Dan Tarullo, who heads regulatory policy, is scheduled to testify in front of the Senate on Friday.

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