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House Of Cards in Commodities, From Beer Cans to Silver Bars

[heading]House Of Cards in Commodities, From Beer Drinkers to Silver Bars[/heading]

“Many more of our clients today have commodity exposure than they ever had before, or they ever realized they had. It’s important to our business.” –  Gary Cohn, Goldman president and chief operating officer. “

The gaming of the aluminum market has cost aluminum purchasers an extra $3 billion, an expense that has been passed onto beer and soda drinkers.

For that reason, MillerCoors will take its turn at Goldman Sachs and JPMorgan on Tuesday in a long line of disgruntled subjects of banking oligarchy.r-BEER-large570According to the major US brewery, the Federal Reserve ought to toughen oversight of big banks such as Goldman Sachs and JP Morgan due to their negative influence over commodities like aluminum for beer cans.  This disgruntlement over Goldman Sachs’ and JP Morgans’ treatment of can drinkers comes on the heels of alleged manipulation across commodity markets by the two banks.

The Coors Light and Miller High Life producers will argue to the Senate Banking Committee that financial groups, through their ownership of warehouses, are distorting the aluminum market by controlling how much aluminum flows out of their storage facilities.

Simultaneously, the Federal Reserve is reconsidering if banks should be able to have anything to do with commodities.

goldman-sachs-hq-is-worth-176-million-less-now-than-it-was-last-year“The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies,” stated the Federal Reserve.

Bank revenues from commodities trading have soared since 2003, fueled by increasing global demand from emerging markets like China and India, requiring more oil, metal and raw materials.

Ten keystone global banks have generated nearly $50 billion off their commodities business over the past five years, according to Coalition, a financial data provider.

JPMorgan, Goldman and Morgan Stanley last year were the top three global banks in commodities revenue, Coalition said. Ten major banks generated some $6 billion in commodities revenue in 2012.

These banks’ involvement in the commodities trade has met criticism from individuals who believe that some banks are manipulating markets so as to boost their own profit.

Senator Sherrod Brown (D-Ohio) will convene a Senate Banking Committee hearing on Tuesday during which MillerCoors and experts critical of banks’ involvement in physical commodities activities and infrastructure assets such as storage facilities and pipelines are likely to heavily criticize banks like Goldman and JPMorgan, which both own large warehouses that store aluminum and trade derivatives contracts reflecting commodity prices.
jp-morgan-beats-expectationsMillerCoors looks to shed light on bank ownership of metals’ warehouses, where companies like MillersCoors store aluminum for beer cans. In recent years, industrial companies have complained about long waits to move their aluminum from warehouses to plants and to settle contracts with purchasers of the metals. These waits have led to increased rental income for the banks that own the warehouses.

Bart Chilton of the Commodity Future Trading Commission said that he was”becoming increasingly concerned that prices are being impacted by warehousing bottlenecks.”

“We need to work to ensure that markets are fair and that prices are based on supply and demand fundamentals,” Chilton said.

The fight over aluminum between industrial companies and Wall Street transpires alongside increasing Fed worries about banks’ storage and transportation of physical commodities. The Fed reserves broad authority over banking activities, and researchers from the Federal Reserve Bank of New York have speculating that the Fed is looking to crackdown.

Not only is the Fed reviewing its 2003 decision, but it is also investigating whether to allow Goldman and Morgan to continue operating key commodities businesses involving storage units, tankers, pipelines and other activities. The two banks received an exemption in 2008 as they converted bank holding companies during the financial crisis. This exemption expires in autumn.

 

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