As if commodity traders didn’t need more to worry about, the Federal Reserve on Tuesday will consider reversing a decade-old ruling allowing big banks to store, ship and own physical commodities, citing potential conflicts of interest.
A forceful removal from the physical commodity market would be a crushing blow for banks like Goldman Sachs, J.P. Morgan and Morgan Stanley, which have generated billions in revenue from housing and trading metals, oil and electricity. The Fed’s probe isn’t shocking – several banks have recently been accused of manipulating commodity markets – but few thought pulling banks from physical commodity markets was a possibility. It now appears to be.
Such a decision would send banks like Goldman and J.P. Morgan back more than a decade, when they were only allowed to trade paper derivatives. One can only assume that a loss of trading jobs would follow any decision to bar banks from the physical commodity arena. With prices falling and big banks trimming their balance sheets, commodity traders are already having trouble finding work. Job postings for the commodities sector were down 60% on eFinancialCareers in 2012.
The one thing banks and commodity traders have going for them is that it was the Fed that allowed them to become warehousing companies in the first place. A reversal of such a rule would be a clear indictment on the Fed’s own policy making. They gave Wall Street banks the keys to the car and expected them not to speed.
Intern Mole, Week Three (eFinancialCareers)
“The problem is that when there is little prospect of getting out of the office early, there’s no incentive to work hard enough to even have the chance to leave early,” says our intern mole.
Bull Market (Bloomberg)
If history is our guide, the bull market should last until at least the end of 2013. We’ll see what happens in 2014 when the Fed stops playing along.
7th Floor Fall (NY Post)
Adam Silberman, president and managing partner of private equity firm Solas Investments, reportedly jumped out the window of his seventh-floor Upper East Side apartment on Sunday following a dispute with his co-op board over his three French poodles. He survived but suffered “multiple trauma” injuries.
Claims Settled (Dealbook)
UBS on Monday reached a settlement with U.S. regulators over charges that it misrepresented mortgage-backed securities sold during the housing bubble. The fine is expected to total roughly $900 million.
Traders Fearing DB Asset Cuts (eFinancialCareers)
Deutsche Bank may need to cut its assets by as much as 20% to improve its capital ratio and appease regulators. The German bank may cut its exposure to derivatives, which would be bad news for staffers in its fixed income sales and trading business.
Back on Top (Financial Times)
The five largest U.S. banks combined to generate $17.6 billion in second quarter net income. That is the best since the same period six years ago.
Buzz Around the Office
Double Play (CBS)
Skydiving is dangerous, but usually only for the person jumping out of the plane. Chicago State shortstop Mattingly Romanin, who had a skydiver land on him during a pre-game ceremony, disagrees.
List of the Day: Quitting Gracefully
When quitting your job, do everything you can to leave on a good note. Follow these steps to avoid burning bridges.
- Tell your direct superior ahead of anyone else.
- Be constructive in your exit interview.
- Always give two weeks’ notice.