Goldman Closes an Era in Commodities With Coal Mine DisposalJavier Blas
Goldman Sachs Group Inc. closed a nearly 35-year era of investments in commodity assets such as power plants and refineries with the sale of a Colombian coal mine.
The disposal is the latest sign of how Wall Street banks are responding to pressure from U.S. regulators and disappointing returns as raw materials prices plunged.
Goldman Sachs has invested in physical commodity assets since 1981, when it bought what was then a small trading house called J. Aron. Over the years, the company has owned oil refineries in Rotterdam, power plants in Virginia and Colorado, and warehouses to store aluminum and copper around the world.
The U.S. Federal Reserve has been working on a rule to rein in Wall Street ownership of commodity assets. Federal Reserve Governor Daniel Tarullo, who is spearheading the Fed’s regulatory efforts, questioned in March whether banks should be allowed to own such properties.
“They’re the sort of things that are very hard to get a risk-management handle on as a banking regulator,” he told a U.S. Senate Banking Committee then.
The mine that Goldman Sachs sold to privately owned Murray Energy Corp. on Thursday is the last holding the bank had in a commodities asset, according to a person familiar with the situation. The person, who asked not to be named discussing internal matters, said the sale doesn’t affect the U.S. bank’s commodity trading business.
Goldman Sachs Chief Executive Officer Lloyd Blankfein has said several times over the past two years that trading remains at the “core” of the Wall Street bank.
Wall Street Refiners
Goldman Sachs and Morgan Stanley built large commodities operations, which become known as the “Wall Street refiners.” On top of trading commodities, both physical and derivatives, the banks invested heavily in assets. Pressure from regulators and investors since the 2008-09 global financial crisis, coupled with falling commodity prices over the past year, prompted the banks to sell.
The U.S. Senate ratcheted up pressure on the banks in 2014 with a 400-page report from its investigative panel. The report asserted that Goldman Sacs and Morgan Stanley had used ownership of warehouses and other commodity businesses to gain unfair trading advantages through non-public information.
In 2012, Goldman Sachs sold its power business, which included coal and solar plants, to a private equity firm, The Carlyle Group, for an undisclosed sum. The bank had acquired Cogentrix Energy LLC in 2003 for $115 million and the assumption of $2.3 billion in debt.
Goldman Sachs sold its metal warehousing business, known as Metro International Trade Services LLC, to the London-based billionaire Reuben brothers in 2014 for an undisclosed sum. The company paid $451 million for the business in 2010.
Goldman Sachs invested in two coal mines in Colombia in separate deals in 2010 and 2012. It bought one mine from Coalcorp of Canada for roughly $200 million and later another for $407 million from Vale SA, the Brazilian mining group.
The bank is selling Colombia Natural Resources to Murray for less than $10 million, the Wall Street Journal reported, citing unidentified people familiar with the sale.
Goldman Sachs declined to comment on the deal.
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