By David Sheppard and Lauren Tara LaCapra
NEW YORK, July 31 (Reuters) - Goldman Sachs responded
to mounting political pressure and regulatory scrutiny of its
Metro International metals business, by offering customers
immediate access to aluminum stored in its warehouses on
In a statement outlining the bank's proposal to cut waiting
times at all London Metal Exchange warehouses, Goldman Sachs
said it would make aluminum immediately available to major
Customers and U.S. lawmakers have accused Goldman Sachs and
other warehouse owners of artificially inflating wait times and
lines to boost rents for warehouse owners and cause metal prices
to rise. One major customer estimated the delays have cost
consumers more than $3 billion.
"Goldman Sachs is contacting end users to offer to swap any
aluminum currently in the queue for immediately available
aluminum so that they have access to the metal they need to make
or package their products," the bank said.
The offer applies only to metal consumers, the bank said,
not to financial traders like hedge funds, or rival merchant
commodity traders like Glencore Xstrata or Trafigura.
The move marks Goldman's first effort to address the
long-simmering issue, which finally erupted last week as
lawmakers on the Senate Banking Committee questioned why banks
should be involved in commercial businesses like warehousing and
chartering oil tankers.
It also highlights a sharp divide in how Wall Street's
biggest banks are responding to unprecedented scrutiny of their
physical commodity businesses. Goldman, whose J. Aron trading
unit is one of the most renowned in the business, vowed to hold
onto Metro, despite having considered a sale earlier this year.
But rival JPMorgan Chase & Co. said on Friday that
it was quitting the business due to regulatory pressures,
selling or spinning off the group that includes metals
warehousing firm Henry Bath & Sons, the fourth-largest storage
business in the LME system.
"We will end up selling Metro at an appropriate time,"
Goldman's Chief Operating Officer Gary Cohn said on business
news television channel CNBC. Goldman Sachs bought Metro under a
private equity exemption, he said, which allows the firm to keep
it as an investment for up to 10 years.
Cohn said no Metro customers had taken up Goldman's offer -
Regulators including the U.S. Department of Justice and the
U.S. Commodity Futures Trading Commission have begun preliminary
investigations into Wall Street banks and other large commodity
traders which own metal warehouses, Reuters has reported.
Goldman Sachs bought Metro International Trade Services, an
international network of metals warehouses, for around $550
million in 2010, the first in a wave of such purchases by big
JPMorgan, Glencore and Trafigura are among the
other major players that also have warehouses.
The U.S. Senate Banking Committee held its first hearing on
the issue last week, when aluminum users represented by brewer
MillerCoors LLC said high physical prices have cost consumers an
extra $3 billion a year in expenses.
Others large aluminum consumers, including Coca-Cola Co
and sheet supplier Novelis Inc have also
The warehouses and the London Metal Exchange, which oversees
the storage outlets in its network, say the big stockpiles and
high physical prices are the result of low interest rates and a
market structure known as contango, which makes it profitable to
sell metal forward and store it for months or years at a time.
It is also the byproduct of LME rules, which require
warehousing companies to deliver a minimum amount of tonnages of
metal each day. According to current rules, facilities with
900,000 tonnes or more metal have to load out 3,500 tonnes of
Under fire from irate users, the LME has proposed an
overhaul of its warehousing policy that would come into effect
In its Wednesday statement, Goldman said it supported more
transparency, including disclosure of which companies hold the
aluminum and other metals in the LME system.
The bank proposed that end users like car manufacturers
should be prioritized in the lines before other users like
traders and funds. A source at Goldman also said that such
customers would not be required to pay the cash price premium
for the physical metal.