Goldman Sachs is now the number one bank in commodities.
It recently overtook JP Morgan for the top spot after that bank sold a chunk of its commodities business to Mercuria Energy Group, a trading house.
Here’s why this might sound like a crazy move: post-financial crisis regulation forbids investment banks from owning global commodities businesses — investments the banks are making with their own money.
Soon, banks will need to spin off these investments, and while the Fed recently voted to extend that deadline from 2017 to 2019, most other banks are starting to get out now.
Credit Suisse, Deutsche Bank, Morgan Stanley, and now JP Morgan are scaling back. So why is Goldman amping up commodities investments?
Because they can pick up these commodities businesses, cheap, in a firesale — and make money in the process.
So the bank is not violating any laws — it’s just waiting until the last second to unwind. Until then, the bank will remain king of commodities.