Exclusive: Goldman puts Metro metals warehousing unit up for sale

NEW YORK Tue May 20, 2014 9:21pm EDT

A Goldman Sachs sign is seen over their kiosk on the floor of the New York Stock Exchange, April 26, 2010. REUTERS/Brendan McDermid

A Goldman Sachs sign is seen over their kiosk on the floor of the New York Stock Exchange, April 26, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Goldman Sachs (GS.N) has begun a formal process to sell the metals warehousing business it purchased four years ago, a spokesman said on Tuesday, disclosing the first definitive effort to shed the operation amid regulatory and political pressure.

The Wall Street firm, one of the few major global banks that has not retreated from commodity markets in recent months, decided to explore a sale after receiving interest from potential buyers, the spokesman said in an email to Reuters.

The bank looks to hive off the most contentious part of its commodities business, but there is no sign it is backing away from the J Aron franchise it bought three decades ago and built into one of Wall Street's biggest commodities traders.

The bank contacted possible bidders about buying Detroit-based Metro International Trade Services on Monday, a source familiar with the matter told Reuters on Tuesday.

A second source said the bank had approached his company informally about a potential sale.

The discussions suggest Goldman is making a clear effort to move forward after a year of on-and-off talks over the fate of Metro, a cash cow for the bank amid soaring global metal inventories but a business that has more recently become the focus of lawsuits, regulatory scrutiny and public outrage.

The identity and number of possible Metro bidders contacted by Goldman is not known, but one of the sources said they included other banks, merchants and warehousing companies inside and outside of the United States. Goldman purchased Metro for some $550 million four years ago.

"They've got people they're approaching. They've never gone out and approached anyone before," said the person, adding that the approaches were made on Monday.

Tightening regulation and intense political scrutiny are transforming the U.S. physical commodities landscape, forcing some Wall Street banks to retreat from the lucrative business of dealing in goods ranging from oil to copper to grains.

JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) are divesting all or part of their physical commodities businesses.

Goldman executives have repeatedly said the bank is committed to its decades-old commodities trading business, deeming it too important to clients to exit.

"Metro is not strategic to our client activities, and the firm has concluded that this is the right time to explore a sale, given recent interest by potential buyers," the bank's spokesman said.

'VICTORY' FOR METAL USERS

Some U.S. lawmakers welcomed news that Goldman is taking steps to exit the metals warehousing business that end-users such as Coca-Cola Co (KO.N) and MillerCoors which use aluminum to make beverage cans say has led to long wait times and inflated physical metal prices.

"Today's announcement is a victory for beer and soft drink makers and for the safety and soundness of our financial system," said Senator Sherrod Brown, an Ohio Democrat and staunch critic of banks' involvement in the physical commodity business, in a statement.

The lawmaker, who chairs a powerful committee overseeing Wall Street, also renewed his call for U.S. regulators to clamp down on banks' ownership of other commodity assets such as oil pipelines and tankers.

Goldman first began exploring a possible sale of Metro early last year, just before a wave of public and political scrutiny over Wall Street's role in the raw material markets, including two Senate hearings by Sherrod's committee and a Federal Reserve review of such activities.

It has become increasingly clear over the past year that the Fed, which oversees Goldman, has taken a dim view of banks investing directly into the supply chain, which it fears may expose them to untold liability risk.

Last November, the bank was said to be resuming talks with potential buyers but was not actively seeking bidders.

Goldman executives have said they own Metro as an arm's length "merchant" investment they should not be required to sell until 2020.

In Tuesday's statement, the Goldman spokesman said the bank can hold Metro as an investment for a defined period, but did not give a time frame.

Metro, a 23-year-old firm, has become a focus of ire for metal consumers due to the emergence of nearly two-year waiting periods to withdraw physical aluminum from its vast Detroit location, a trend they say has driven up their costs.

Metro operates in 13 locations in the London Metal Exchange's global storage network from South Korea to New Orleans.

The issue captured public and political attention last year. The Department of Justice and Commodity Futures Trading Commission are looking into the issue.

A class-action lawsuit has accused Goldman, JPMorgan, their warehousing businesses and the LME of conspiring to manipulate the aluminum market. Goldman has consistently said Metro has not broken any laws or rules. JPMorgan and the LME also have denied the allegations.

Earlier this month, the LME, which has also been fiercely criticized for failing to address the delivery logjam, said that Metro's Detroit warehouse had the second-longest waiting time to deliver aluminum: 683 days. The next-longest queue was just 44 days, their data show.

(Reporting by Josephine Mason; Additional reporting by Douwe Miedema in Washington; Editing by Jonathan Leff, Peter Henderson and Lisa Shumaker)

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