Insight: Three years on, Fed keeps BoA-Merrill waiting on commodity trade

Tue Oct 15, 2013 7:08pm EDT
 
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By David Sheppard

NEW YORK (Reuters) - In May 2010, one of Wall Street's biggest banks went to the Federal Reserve with a seemingly straightforward request: permission to expand its physical commodity operations through specialized power contracts.

The regulator had already given rivals the go-ahead for such "tolling" arrangements that allowed long-term business deals with electricity plants, and now Bank of America-Merrill Lynch (BoA-ML) wanted similar treatment as it aimed at becoming a top-three bank in the natural resources supply chain.

More than three years later, BoA-ML's commodities traders are still waiting on a decision from the Federal Reserve Board of Governors, according to documents received by Reuters through a Freedom of Information Act request.

Now, as the Fed conducts a review of how deeply involved commercial banks should be in the global trade of oil, gas, grains and metals, the Board's long deliberation on BoA-ML's request may add questions about its stance on the role of Wall Street in physical commodities.

Some regulatory and legal experts say it could suggest the Fed has been examining the growth of banks in the sector for longer than previously thought.

"The Fed is very unlikely to make a decision on BoA-ML ahead of any announcement on its far wider review of the role of banks in physical commodities," said Josh Rosner, managing director at research firm Graham Fisher & Co., who testified about the issue before the Senate Banking Committee in July.

"The Fed has known for some time that it was going to have to rule on this issue eventually."

While Goldman Sachs and Morgan Stanley appear to be the banks most clearly at risk of a regulatory crack-down on the trading of oil tankers and pallets of metal, BoA-ML also has a great deal at stake, with a $500 million a year global commodity business employing more than 200 traders.   Continued...

 
The company logo of the Bank of America and Merrill Lynch is displayed at its office in Hong Kong March 8, 2013. REUTERS/Bobby Yip