Friday, March 2, 2012

Reuters: JPM, GS in Fight w/ the Fed Over Commodities Regulations

This Reuters piece fresh off the presses leads one to believe that the Fed is locked in an epic struggle with JP Morgan, Goldman Sachs, and Morgan Stanley among others over the right for the TBTF's to expand their physical commodity operations.   As last we checked the Fed and the bullion banks are on the same team, we seem to recall a quote that is apropos to this situation:
'Every kingdom divided against itself will be ruined, and every city or household divided against itself will not stand. And if Satan casts out Satan, he is divided against himself. How then will his kingdom stand?'
If anything, look for the Fed's new commodities regulations to even further ramp up the bank's commodities divisions to trading PAPER commodities.

Wall Street's biggest banks are locked in an increasingly frantic struggle with the Federal Reserve over the right to retain the jewels of their commodity trading empires: warehouses, storage tanks and other hard assets worth billions of dollars.

While the battle over proprietary trading and new derivatives regulations has taken place largely in public view since the 2008 financial crisis, the fight by JPMorgan Chase, Morgan Stanley and Goldman Sachs to retain or expand their prized physical commodity operations - most acquired in only the past six years - has remained hidden...
It may be JPMorgan, which has eclipsed long-time market leaders Goldman and Morgan under commodities chief Blythe Masters, that will be first to feel its effects.

The bank has begun sounding out possible buyers for its small operation trading metal concentrates, according to one source who examined the business late last year. It acquired that business when it bought most of RBS Sempra in mid-2010, but because metal concentrates aren't traded on any exchange they were not covered by a 2008 Federal Reserve order that allowed RBS to begin trading physical commodities.
More importantly, the sale has also raised questions about JPMorgan's ownership of its global metals warehousing business Henry Bath, which had also been excluded from the RBS waiver. The Fed's rules give banks a two-year grace period in which to divest any non-compliant businesses they acquire; sources say it's not clear why JPMorgan would be exempt from this rule. (Um, maybe because The Fed and JP Morgan are synonymous? These rules are meant for small-time banks that aren't part of the boys' club, everyone knows that!)
Goldman too faces scrutiny of its ownership of Detroit-based metal warehousing firm Metro International. Goldman has come under fierce criticism from companies such as Coca-Cola, which has accused it of inflating metal prices. (Why aren't the gold & silver producers giving the bullion banks fierce criticism for manipulating gold & silver prices lower, like large aluminum consumers are??)
Since buying the privately held firm in early 2010, the bank has taken great pains to avoid any direct involvement in its business to minimize regulatory scrutiny, according to two industry sources. But questions remain...
On the other hand, if the Fed allows Goldman, Morgan Stanley and JPMorgan to retain all their assets, it may open up a Pandora's Box. Rivals are already up in arms about the potential for a competitive disadvantage.

Read more: