Big banks that once made big bucks in physical commodities markets are now looking to pull out of those markets as new rules regarding capital requirements for those physical holdings take effect. The Federal Reserve has been reviewing its policy and is considering imposing a surcharge on bank-owned commodities and warehouses in an effort to get the banks to reduce their investments in the risky and volatile commodities trading business. The comment period on new rules just ended and a decision is expected later this year.
Morgan Stanley (NYSE: MS) has already sold its global oil-trading business to Russia’s OAO Rosneft and now is seeking a buyer for its stake in TransMontaigne Partners L.P. (NYSE: TLP), a pipeline and terminal company with operations in Texas and the southeast United States, as well as along the Mississippi and Ohio rivers. The bank owns the general partner of TransMontaigne Partners and 20% of the common units of the master limited partnership.
Goldman Sachs Group Inc. (NYSE: GS) is reportedly seeking to sell its commodities warehousing subsidiary, Metro International Trade Services, which is based in Detroit and has been sued for manipulating the price of aluminum and, last week, was sued for manipulation in the zinc markets along with the London Metals Exchange, JPMorgan Chase & Co. (NYSE: JPM) and London-traded Glencore.
During the long bull market in commodities, both Morgan Stanley and Goldman Sachs profited handsomely from their commodities trading and warehousing businesses. The current bear market has made it less lucrative, and the expected capital requirements from new Federal Reserve rules have made commodities one of those businesses that the big banks can live without.