Sunday, July 10, 2011

Big banks are stashing commodities---By Shan Saeed

Commodities prices are driving the banks to stockpile in order to benefit in the long run...Big Wall Street banks have long been involved in commodities, mainly through trading them. Now they are storing them, metals especially.

Within the last two years, Wall Street financial institutions such as Goldman Sachs and JPMorgan Chase have found they can make money through buying warehouses and storing metals such as aluminum, iron ore, copper and zinc.

Companies that own the warehouses are raking in about $1 billion in rental revenue each year, according to data compiled by the London Metals Exchange.

For Wall Street, warehouses are a way to earn extra income, especially as core businesses like trading are suffering. The facilities represent a relatively small but profitable way to bet on commodities markets without actually trading.

Some end users of commodities, such as can maker Novelis, worry that banks can cut supply in order to tweak prices, which is bad for their business. This is inappropriate.

Banks need to make as much money as they can these days now that equity and bond trading appears to be slowing. Bank of America has slashed about 60 positions in its equity-sales and trading division, while Goldman Sachs plans to eliminate 230 jobs.

The new banking regulations like in part for the firings, including new capital requirements, overdraft-fee limits and proprietary-trading bans could be threatening for the banks.

The banks are reacting to these new constraints on their activities by shrinking, sending jobs and business functions overseas, and beginning to cut employment in this country.

Disclaimer: This is just a research piece and not an investment advice. All financial transactions carry a RISK

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