Secretive Switzerland grabs another commodities giant
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Thursday 20 March 2014
Another major chunk of the global commodities industry disappeared into secretive Switzerland yesterday as JPMorgan joined the exodus of major US banks out of the raw materials supply chain.
Switzerland's dominance of trading, storing and shipping the world's minerals and foodstuffs has rocketed in the past decade thanks to light regulation and low taxes, leading to concerns about transparency in the trade of commodities, particularly from the Third World.
Yesterday JPMorgan offloaded its large physical commodities business to a Swiss trading outfit called Mercuria Energy, run by two former Goldman Sachs traders, Marco Dunand and Daniel Jaeggi. The pair's business paid $3.5bn (£2.1bn) for it.
Like many US banks, JPMorgan opted to sell the division last year under political and regulatory pressure to focus on its core banking business rather than raw materials speculation. It means it will no longer be involved in the shipping and warehousing of oil, copper and other vital goods, although it will continue vaulting gold and creating derivative hedges for the price of commodities.
Regulators in the US, including the Federal Reserve, have expressed concerns that banks which are of a size to be systemically important to the economy could suffer massive losses speculating on global commodities, while Wall Street and the City's control of the supply chain of the world's most vital foodstuffs and minerals have also caused concerns.
The Swiss-based commodities specialists such as Vitol, Glencore Xstrata and Trafigura, and smaller, more secretive players, have been stepping into the breach left by the exit of global banking giants to carve up an even bigger share of the market.
More than one in three barrels of oil traded in the world are sold through Switzerland, including 75 per cent of Russia's, while 60 per cent of coffee and half of all the world's sugar is also traded there.
The Centre for Global Development recently issued a major report into the Swiss commodities world, expressing serious concerns about deliberate underpricing of commodities from the Third World. It called for more transparency in the country to make it easier to trace the prices of country's goods as they flow from the pit or farm to the final buyer.
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