As rivals fade, Goldman stands firm on commodities

Fri Dec 6, 2013 1:10pm EST
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By Jonathan Leff and Dmitry Zhdannikov

NEW YORK/LONDON (Reuters) - Just over three decades ago, Goldman Sachs (GS.N: Quote) bought a niche coffee-and-gold trading firm called J. Aron & Company, becoming one of the first banks to enter the commodity markets.

A year from now, the Wall Street giant may be one of the last ones standing as the former J. Aron traders who now run Goldman mount a lonely defense of their right - and customers' need - to buy and sell copper, crude or corn. Few others are sticking around as a rocky, on-and-off romance between financial firms and raw material markets turns sour again.

Rising regulations, political pressure, falling profit margins and fierce competition from newcomers - including overseas banks - is forcing Goldman's rivals to retreat, or scale back, particularly in the costlier trade of physical commodities, a critical core for many banks.

On Thursday, Deutsche Bank, one of the five biggest players of the past decade, said it would quit commodities trading under regulatory pressure, cutting 200 jobs. That follows similar moves by smaller players like UBS and Credit Agricole in recent years.

Top rivals JP Morgan (JPM.N: Quote) and Morgan Stanley (MS.N: Quote) are in the process of selling out from commodities trading while Barclays (BARC.L: Quote) has cut its division by a fifth.

Several other big banks that have yet to signal their longer-term plans have generally remained silent on the matter of commodities - except Goldman, whose top executives have given unequivocal support to the roughly 250 J. Aron traders who helped deliver a blockbuster $5 billion in revenues in 2009. By last year that had dropped to less than $1 billion.

Chief Executive Lloyd Blankfein, who started his carrier at J. Aron in precious metal sales in the early 1980s, said in September it was a "core, strategic business".

Gary Cohn, who ran J. Aron in the late 1990s, said the bank's clients "really need us to be in that business". A spokesman said on Thursday those statements still stand.   Continued...

A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013. REUTERS/Brendan McDermid