By Brian Witte
The Associated Press
Source: http://www.armytimes.com/article/20130731/NEWS/307310005
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By David Sheppard and Lauren Tara LaCapra
NEW YORK (Reuters) - Goldman Sachs responded to mounting political pressure and regulatory scrutiny of its Metro International metals business on Wednesday, by offering customers immediate access to aluminum stored in its warehouses.
In a statement outlining the bank's proposals to cut waiting times at all London Metal Exchange (LME) warehouses, Goldman said it would let major consumers swap aluminum held in its warehouses for metal the bank has acquired, without the need to pay a steep cash premium.
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.
"We feel horrible for consumers if they can't get metal. We don't believe that to be the fact," Chief Operating Officer Gary Cohn, said on CNBC. Cohn, who started his career in Goldman's commodity business, said the bank had secured metal from producers over the past week, but had yet to find a single customer ready to take it up on the offer to swap metal.
Still, it marks the bank's first effort to address years of complaints over the long waits, an issue that finally erupted last week as U.S. senators questioned why banks should be involved in owning warehousing and chartering oil tankers.
The bank's move came as a surprise to traders and end-users, many of whom had been bracing for a drawn-out investigation.
It also highlights a sharp divide in how Wall Street's biggest banks are responding to 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.
"We will end up selling Metro at an appropriate time," Cohn said. Goldman Sachs bought Metro under as a private equity exemption, he said, which allows the firm to keep it as an investment for up to 10 years. "We are staying in the commodity hedging business."
But rival JPMorgan Chase & Co. said on Friday that it was quitting the business due in part 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.
Pressure is expected to shift to traders like Glencore and Trafigura, which also bought warehouse operators following Goldman's purchase of Metro International Trade Services for some $550 million in early 2010.
Metro's flagship facility in Detroit stores more than 1.4 million metric tons of aluminum, a quarter of the LME's stockpile. Over 60 percent of that is waiting to be delivered out.
NO TAKERS YET
The news met with some positive reaction in Washington.
"That's great news and any pricing manifestations due to warehousing issues will hopefully resolve going forward," said CFTC commissioner Bart Chilton, a frequent critic of the role of banks and other financial firms in commodity markets.
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.
On Wednesday sources said Britain's regulator was also considering a deeper investigation.
"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. A Goldman source said the metal would be swapped out at the LME price, allowing end-users to avoid paying a cash market premium. (For a link to the Goldman statement: http://r.reuters.com/cyv99t)
Goldman said its offer applies only to large metal consumers like carmakers and soft drink producers, not to financial traders like hedge funds, or rival merchant commodity traders like Glencore Xstrata or Trafigura.
The warehouse owners and outgoing LME CEO Martin Abbott have said the complaints over long lines are unjustified, arguing there is no shortage of metal.
Instead, they said the long lines have been created by traders trying to move metal to rival warehouses that are offering financial incentives in a bid to boost their own rental income.
Goldman didn't address questions about offering financial incentives for companies to store their metal at Metro sheds, which some say contributed to the backlog of aluminum.
"It sounds to me like they're offering ice in the winter," said U.S. anti-trust lawyer Robert Bernstein, a partner at New York-based Eaton & Van Winkle LLP, who works on behalf of U.S. copper fabricators.
"The problem is the queues have jacked up the premiums."
The U.S. Senate Banking Committee held its first hearing on the warehousing 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.
The warehouses and the LME, 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 metric tons or more metal have to load out 3,500 metric tons of metal.
The LME has proposed an overhaul of its warehousing policy that would come into effect in April.
(Additional reporting by Josephine Mason in New York and Susan Thomas in London; Editing by Jonathan Leff, Lisa Von Ahn and Leslie Gevirtz)
Source: http://news.yahoo.com/under-fire-goldman-offers-way-round-warehouse-lines-180830825.html
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Source: http://www.lansingstatejournal.com/article/20130730/NEWS08/307300068/1002/NEWS01
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2 hours ago
Stocks opened sharply higher on Thursday, with the S&P 500 topping the 1,700-point mark, as Wall Street cheered upbeat economic data from China and Europe and a better-than-expected jobless claims report.
The Dow Jones Industrial Average was 118 points higher in early morning trading.
The S&P 500?rose 15 points to move through the 1700 barrier and the Nasdaq also rallied at the open. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
Major averages closed out their best July since 2010 on Wednesday. For the year, the Dow and S&P 500 have spiked more than 18 percent for the year, while the Nasdaq has surged nearly 20 percent.
On the economic front, weekly jobless claims tumbled 19,000 to a seasonally adjusted 326,000, dropping to a 5-1/2 year low, according to the Labor Department. Economists surveyed by Reuters expected a reading of 345,000, compared with 343,000 in the prior week.
Also, the number of planned layoffs at U.S. firms declined modestly in July, with employers announcing 37,701 cuts last month, down 4.2 percent from 39,372 in June, according to the report from consultants Challenger, Gray & Christmas.
Meanwhile, the pace of growth in the U.S. manufacturing sector accelerated in July to the highest level in two years as new orders surged, according to a report by the Institute for Supply Management. The data supported the view the economy will pick up in the second half of the year.
The ISM said its index of national factory activity rose to 55.4 from 50.9 in June, topping expectations for 52. It was the highest since June 2011. New orders also racked up their best level in more than two years, jumping to 58.3 from 51.9.
The reports came ahead of Friday's widely-watched government jobs report. Analysts polled by Reuters expect to see a gain of 184,000 in July, after a 195,000 uptick in the previous month.
(Read more:July jobs report key to Fed action)
Stocks ended flat on Wednesday after the Federal Reserve did not signal when it would start tapering its bond-buying program. However, it did raise concerns about rising mortgage rates and flagged the risks of inflation falling too far below its target. In addition, the central bank slightly downgraded its outlook for economic growth.
(Read more:Best S&P valuestocks to get through August)
Asian stocks rallied on Thursday after China's official PMI (purchasing manager's index) data showed the country's manufacturing sector continued to expand in July, defying forecasts of a contraction. But the picture was mixed, with a private gauge of factory activity by HSBC showing an 11-month low of 47.7 in July. Japan's Nikkei rallied to a one-month peak on the news, the Shanghai Composite hit a one-week high and South Korea's Kospi touched a seven-week high.
"Official PMI is more skewed to larger companies, and the HSBC figure reflects the smaller companies and that is where you get this divergence," said Frederic Neumann, co-head of Asian economics research at HSBC.
(Read more: Will China PMI mark the end of negative data surprises?)
In Europe, the European Central Bank kept its main interest rate unchanged at a record low of 0.5 percent, and reiterated that rates would remain at present or lower levels for an extended period of time.
"Labor market conditions remain weak. Looking ahead to the remainder of the year and 2014, euro area growth should benefit from a gradual recovery in global demand," said ECB president Mario Draghi in a press conference following the announcement. "Our monetary policy stance remains accommodative for as long as necessary. We have unanimously confirmed the forward guidance we gave last time."
Euro zone manufacturing activity grew for the first time in two years in July, with the purchasing manager's index (PMI) climbing to 50.3 in July. A reading above 50 indicates an expansion.
And the Bank of England left its interest rates unchanged at 0.5 percent, as expected, under its new governor, Mark Carney.
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