Goldman downsizes its commodities operations

Mitchell Hartman May 4, 2015
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Goldman downsizes its commodities operations

Mitchell Hartman May 4, 2015
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Goldman Sachs is reportedly in talks to sell a pair of coal mines in Columbia, as it downsizes its commodities operations and possibly exits this type of business. The Wall Street Journal cites people familiar with Goldman’s negotiations, saying Goldman is trying to sell the mines, after environmental problems and labor strife have beset the open-pit coal-mining operations in Colombia.

Goldman bought its first Colombian coal mine in 2010. It then bought another mine and a railroad, for a total outlay of more than $550 million. Since then, coal prices have fallen. According to the Journal, Goldman is now trying to sell off its Colombian coal holdings at a loss. Goldman has also exited the aluminum-warehousing business and sold several power plants. Other investment banks—JP Morgan Chase and Morgan Stanley—have been getting out of commodities, too, selling off metals warehousing, oil-shipping and pipeline businesses.

Last November, the Senate Permanent Subcommittee on Investigations held hearings on investment banks’ role in commodities production and trading. Democratic Senator Carl Levin said the banks’ positions as commodity producers and warehousers could enable them to manipulate commodity supplies and prices. Republican Senator John McCain said these operations carry “dangers of toxic spills, deadly explosions and other disasters” which are not typically associated with banks. The Federal Reserve, meanwhile, is reviewing whether the biggest investment banks (deemed “systemically important”) have set aside enough capital, and carry enough insurance, to cover catastrophic losses from events such as mine collapses, pollution or oil spills. 

 “Banks are the nexus of the financial system and the lifeblood of the economy,” says Cornelius Hurley, director of the Center for Finance, Law and Policy at Boston University. “We have a stake in them being safe and sound. And quite frankly, Lloyd Blankfein doesn’t know the coal business. Moreover, bank regulators don’t know the coal business. We don’t look to our banks to be volatile—we like our banks to be boring. And this is a highly volatile business.”

 Goldman Sachs has said its commodities businesses are adequately insulated from other parts of its banking business, and that it has too small a position in the overall global commodities market to influence supplies or prices.

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