Wall St reshapes commodities business to fend off regulation

Wall Street’s most powerful banks have accelerated efforts to transform the structure and focus of their commodity trading desks to preserve their multibillion-dollar empires from tightening regulation.

Scrutiny of their activities in electricity markets, metals warehousing and oil trading is reaching fever pitch ahead of a Federal Reserve decision in September that may decide how deeply banks can delve into the world of petrol tankers, piles of copper and power plants.

Mounting regulatory and political pressure has already forced Morgan Stanley, Goldman Sachs, and JPMorgan Chase, the three Wall Street banks known for their commodities trading prowess in the past decade, to openly consider exiting key businesses.

Morgan Stanley explored selling its vaunted commodities trading desk last year; Goldman Sachs has already sold off its power plant division, and both Goldman and JPMorgan Chase are now considering a sale of their metal warehousing firms, sources said.

Wall Street firms have also adopted more subtle manoeuvres, reconfiguring operations to placate regulators, expanding into new markets, and trying to find ways to preserve the value of their investments if they are forced to sell or spin them off, according to a Reuters review of regulatory filings and more than a dozen interviews with top traders and bankers.

The three banks declined to comment on their plans for this article.

Among the manoeuvres that have not been reported previously: JPMorgan reshuffled the board of its Henry Bath metals warehousing company last year in an attempt to qualify it as a “merchant banking” investment, sources say.