Investment banks into warehousing businesses!!

Why banks are investing in warehouse services?
An interesting piece of news that came out in March was that of investment banking firms buying warehouse services companies. Chief users of warehouses services are mining companies and traders such as Glencore, Gerald Metals or Noble, and physical hedge funds such as Red Kite. However, Goldman Sachs, JP Morgan and Trafigura’s recent interest in warehousing services is an event of note.

- In March, Goldman Sachs bought US-based Metro International in a deal that rival bankers and warehouse executives valued about $550mn.
- In February, JPMorgan acquired UK-based Henry Bath as part of a deal to buy a large chunk of the RBS Sempra Commodities business for $1.7bn.
- Swiss-based oil and metals trader Trafigura also bought UK-based warehouse company NEMS Ltd for an undisclosed sum in the month of March.

Goldman Sachs and JPMorgan will be paid a so-called “free-on-truck” fee when metal starts to move out of depots, increasing profits.

Comment:
This could mean that the major banks and traders are bearish on metals in the short term but bullish in the long term. China’s tightening measures appears to be the main roadblock in the short term. But down the road, the expected continuance of the quantitative easing in major economies will drive currencies down, but hard asset prices up. Commodities ‘not in the ground’ are the asset class most sensitive to the global economic cycle.