The Merchants of Wall Street: Banking, Commerce, and Commodities

Saule. T. Omarova, Associate Professor of Law, University of North Carolina

In June 2011, Coca-Cola ran out of patience ... and aluminum. So the company filed a complaint with the London Metal Exchange (“LME”), the world’s largest organized market for industrial metals, claiming that, for months, a wholly-owned subsidiary of Goldman Sachs Group, Inc. (“Goldman”) had hoarded enough commercial aluminum in its metal warehouses in Detroit to drive global aluminum prices to record levels.2 For Coca-Cola, which uses aluminum cans to package its iconic soft drinks, this artificial delivery bottleneck at Goldman’s metal warehouses meant an unjustified rise in operational costs and potential disruptions of its production process.

On September 20, 2012, the Federal Energy Regulatory Commission (“FERC”) issued an order threatening to penalize JPMorgan Ventures Energy Corp., a wholly-owned subsidiary of JPMorgan Chase & Co. (“JPMC”), for potentially misleading the agency in its probe of the company’s allegedly manipulative trade practices.3 The FERC began its investigation in June 2012, after receiving complaints from electric power grid operators in California and the Midwest alleging that JPMC’s power traders had intentionally inflated wholesale prices at which the company supplied these important regional markets with electricity.4

In July 2012, the Financial Times reported that JPMC, Goldman, and Morgan Stanley had struck similarly-structured deals, under which they would supply crude oil to several major U.S. oil refineries and buy those refineries’ output for resale in the open market.5 Under the terms of these deals, financially-strapped refineries would not have to worry about any of the logistical details of buying, storing, and transporting oil supplies or shipping their jet fuel and gasoline to customers – the experts at JPMC, Goldman and Morgan Stanley would take care of all of these operational details.6
On the surface, there is nothing particularly surprising about these seemingly unrelated snippets of recent news stories. Yet, when read together, they reveal something quite extraordinary and puzzling about current trends in the U.S. banking sector – and the current state of U.S. bank regulation...



1 David Sheppard & Alexandra Alper, As Banks Deepen Commodity Deals, Volcker Test Likely, REUTERS, July 3, 2012 (quoting an anonymous Wall Street bank executive).

2 Dustin Walsh, Aluminum Bottleneck: Coke’s complaint: 12% of global stockpile held here, boosting prices, CRAIN’S DETROIT BUSINESS, June 26, 2011.

3 Kasia Klimasinska, JPMorgan Power-Trading Business Faces Suspension, FERC says, BLOOMBERG, Sept. 20, 2012.