March 26, 2023

Under Scrutiny, Goldman Offers to Speed Metal Delivery

Under scrutiny for the long waits that have cost manufacturers — and ultimately consumers — many millions of dollars, Goldman said on Wednesday that its warehouse unit, Metro International Trade Services, would give customers who store aluminum at the warehouses immediate access to their metal.

Through Metro International, Goldman stores vast amounts of aluminum in and around Detroit. An investigation by The New York Times found that Metro routinely shuffled tons of the metal from one warehouse to another, a tactic that profited Goldman but pushed up the price of aluminum across much of the nation.

Goldman also said on Wednesday it would suggest ways to improve the metal storage system, whose rules are dictated by the London Metal Exchange.

Regulators at the Commodity Futures Trading Commission are examining practices at warehouse operations controlled by financial firms and trading houses such as Glencore Xstrata, the Noble Group and Goldman. These operations store aluminum for companies like Coca-Cola and MillerCoors, as well as for speculators.

Congress has taken an interest in the issue as well. Earlier this month, the Senate Banking Committee convened hearings on Wall Street’s push into the physical commodities markets and whether its involvement had raised prices. The Senate Permanent Subcommittee on Investigations, led by Carl Levin, a Michigan Democrat, has also been privately questioning big banks like Goldman, JPMorgan Chase and Morgan Stanley on their commodities businesses.

In Congressional testimony on Tuesday, Mary Jo White, the chairwoman of the Securities and Exchange Commission, said she had asked the agency’s staff to examine the issue.

Goldman said its offer to speed up delivery of metal was open only to industrial customers of its Metro warehouses. If a customer wants immediate delivery of its metal, Goldman said it would go into the open market and buy the amount requested, then swap it to the customer. Goldman said it would pay the difference between the market cost and the higher price that includes the storage premium. Goldman said none of its customers had taken up its offer yet.

Goldman also said that it supported recent efforts at the London exchange to increase the amount of metal allotted for delivery from its large warehouses, like those owned by Metro.

Last week, in the face of rising regulatory concerns about the big banks’ commodities operations, JPMorgan said it was looking to sell its physical commodities businesses, which include sprawling storage and transportation facilities. But Goldman does not appear to be following suit.

In a television interview on Wednesday, Gary D. Cohn, Goldman’s president, said the bank had no immediate plans to sell Metro International. Under the terms of the regulatory exemption provided to Goldman when it bought Metro, the bank has until 2020 to sell it.

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DealBook: Regulators and HSBC Faulted in Report on Money Laundering

Banks that ignore money laundering rules are a big problem for our country, said Senator Carl Levin.Andrew Harrer/Bloomberg News“Banks that ignore money laundering rules are a big problem for our country,” said Senator Carl Levin.

8:55 p.m. | Updated
The global bank HSBC has been used by Mexican drug cartels looking to get cash back into the United States, by Saudi Arabian banks that needed access to dollars despite their terrorist ties and by Iranians who wanted to circumvent United States sanctions, a Senate report says.

The 335-page report released Monday also says that executives at HSBC and regulators at the Office of the Comptroller of the Currency ignored warning signs and failed to stop the illegal behavior at many points between 2001 and 2010.

In one case, an HSBC executive successfully argued that the bank should resume business with a Saudi Arabian bank, Al Rajhi Bank, despite the fact that Al Rajhi’s founder had been an early benefactor of Al Qaeda. HSBC’s American branch ended up supplying a billion dollars to the bank.

The report is the product of a yearlong investigation by a Senate subcommittee, the Permanent Subcommittee on Investigations. It points to the problems at HSBC, Europe’s largest financial institution, as indicators of a broader problem of illegal money flowing through international financial institutions into the United States.

“Banks that ignore money laundering rules are a big problem for our country,” said Senator Carl Levin, a Michigan Democrat who leads the subcommittee. “Also troubling is a bank regulator that does not adequately do its job.” He called HSBC’s compliance culture “pervasively polluted for a long time.”

HSBC executives are expected to apologize for shortcomings in the bank’s internal controls in a hearing of the subcommittee on Tuesday. The company said in a statement on Monday that “we will apologize, acknowledge these mistakes, answer for our actions and give our absolute commitment to fixing what went wrong.”

Mr. Levin, however, said on Monday that HSBC had promised to fix similar problems in years past and failed. “While the bank is saying all the right things, and that is fine, it has said all the right things before,” he said.

The hearing is unlikely to be the end of HSBC’s problems. The bank has disclosed in regulatory filings that the issues with money laundering are also being investigated by the Department of Justice and could lead to criminal charges and “significant” fines, which analysts have said could reach $1 billion.

The report on HSBC is the latest of several scandals that have recently rocked global banks and highlighted the inability of regulators to catch what is claimed to be widespread wrongdoing in the financial industry. The British bank Barclays recently admitted that its traders tried to manipulate a crucial global interest rate, and multiple major banks are under investigation. JPMorgan Chase disclosed last week that its employees may have tried to hide trades that are likely to cost the bank billions of dollars.

Mr. Levin said that wrongdoing in the financial world has been exacerbated by the relatively light touch of government regulators. “As long as a bank just sees that it is going to be dealt with kid gloves, I think we are going to continue to see these shortfalls that have been so endemic,” Mr. Levin said.

The Office of the Comptroller of the Currency has come under particularly harsh criticism for showing too much deference to the banks it regulates. The new leader of the agency, Thomas J. Curry, has promised a stricter approach since he took over in April.

Mr. Curry said in a statement on Monday that members of his staff “fully embrace” the subcommittee’s report, and he is expected to testify Tuesday that the agency is already carrying out many of the report’s recommendations.

Regulators have been paying close attention to the willingness of global banks to facilitate illegal flows of money from outside the United States. The Treasury Department announced last month that ING Bank had agreed to pay $619 million to settle charges that it moved money into the United States from Cuba and Iran, despite sanctions against those countries, for nearly two decades. Since 2009, there have been five similar settlements between American regulators and other banks, including Barclays and Credit Suisse, over illicit transactions.

In the Senate report, HSBC is facing accusations that it helped its clients circumvent rules intended to stop transactions from countries facing international sanctions, and in some cases flouted laws in pursuit of profits.

While HSBC is accused of moving money into the United States from North Korea and Cuba, the most extensive problems involved accounts in Iran. An independent audit, paid for by HSBC, found that the bank facilitated 25,000 questionable payments involving Iran between 2001 and 2007. In some cases, HSBC executives counseled Iranian financial institutions on how to evade the filters of American regulators, the report says.

When the bank developed a way to process transactions for Iran’s largest retail bank, an HSBC executive wrote an e-mail to his colleagues that said, “I wish to be on the record as not comfortable with this piece of business.” None of his colleagues responded and the deal went ahead, according to the report.

The subcommittee also found evidence of widespread wrongdoing in HSBC’s failure to stop money laundering through accounts tied to drug trafficking in Mexico. The bank is accused of shipping $7 billion in cash from Mexico to the United States in 2007 and 2008 despite several warnings that the money was coming from cartels that needed a way to return their profits to the United States.

In many of the cases detailed in the report, the Office of the Comptroller of the Currency is said to have spotted the problematic behavior. But in nearly every case, the subcommittee found that the agency gave HSBC only a warning or mild punishment and did not push the bank to make large-scale changes.

The agency ultimately issued a cease-and-desist order against HSBC in 2010 after other law enforcement agencies began looking into the problems. Mr. Levin, though, said that his subcommittee found that some of the problems had not been fixed by the time the subcommittee began looking into them over the last year.

A new chief executive took over at HSBC early last year and he has committed to making sweeping changes at the company. In its statement, the bank laid out several steps it had recently taken to increase oversight of international flows of money.

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New Fuel Economy Rules Win Broad Support

But now that the standards have been proposed, nearly everyone involved in the process is on board with the results, as a public hearing held Tuesday in Detroit showed.

More than 90 people who spoke throughout the day asserted that the stricter fuel economy requirements would create jobs, reduce oil consumption, create cleaner air and save drivers money, all while helping automakers increase their profits.

“We’re celebrating something that has taken a long time to reach,” said Representative John D. Dingell, a Michigan Democrat who helped quash previous efforts to impose higher mileage standards. “There appears to be no significant opposition amongst responsible persons.”

The National Automobile Dealers Association, however, did speak out against the idea of setting requirements for vehicles made more than a decade from now until more is known about the strength of consumer demand for more fuel-efficient vehicles.

Don Chalmers, a Ford dealer in New Mexico and the group’s government relations chairman, said he worried that vehicles would become too expensive for some consumers to afford. “Before rushing headlong into a set of new mandates aimed at doubling today’s fleet fuel economy, we need to understand better the potential ramifications,” Mr. Chalmers said. “If our customers do not purchase these products, we all lose.”

The proposed new standards call for automakers to increase the average, unadjusted fuel-economy rating of their vehicles to 54.5 miles per gallon by 2025, up from about 27 miles per gallon today. Because of the way testing is done, the 2025 requirement correlates to a window-sticker rating of about 36 miles per gallon, according to the automotive information Web site, or roughly what Toyota’s tiny new Scion iQ car achieves today.

Additional hearings on the standards will take place Thursday in Philadelphia and Jan. 24 in San Francisco. The Obama administration this month extended the public comment period for the proposal by two weeks, to Feb. 13, and expects to finalize the regulations this summer.

The administration says the higher standards will cause vehicle prices to increase about $2,000 but that owners will save an average of $6,600 over the life of the vehicle by using less fuel. The rules also will create 484,000 jobs and cut oil consumption in the United States by 1.5 million barrels a day by 2030, according to the Go60mpg coalition, an association of environmental advocacy groups that support the proposal.

Mr. Chalmers said the government’s analysis greatly underestimates how much the rules will cause vehicle prices to rise. He said the actual increase could be up to $5,000, causing an average buyer’s monthly payments to go up by $60 or $70 and potentially locking out shoppers who would not be able to obtain financing for the higher price, regardless of their fuel savings later on.

Some individual dealers disagreed, though, and said they welcomed the new requirements.

“Our customers strongly desire more fuel-efficient vehicles,” said Doug Fox, who has five dealerships in Ann Arbor, Mich., selling Nissan, Hyundai and other brands. “Everyone seems to win on this deal.”

Michael Robinson, vice president for sustainability and regulatory affairs at General Motors, said the company probably would submit recommendations for some technical changes and clarifications to the rules, noting that the proposal is 1,000 pages long. But G.M. is “over all, very satisfied” with the standards, he told reporters.

“We are on a good path toward meeting the early requirements that this proposal will create,” Mr. Robinson said during the hearing. “But we will need further breakthroughs in technology and good customer acceptance of the additional vehicle changes, technologies and costs that will be associated with providing the vehicles needed in future years to allow us continued success in meeting the aggressive requirements down the road.”

G.M., the Ford Motor Company, Chrysler, and other automakers agreed last summer to support the framework of the higher standards.

The Alliance of Automobile Manufacturers, a trade group, said all of its members supported the standards through 2016, when they would be required to achieve 36 miles per gallon. The German carmakers Volkswagen and Daimler have not endorsed the requirements past that point.

The president of the United Automobile Workers union, Bob King, said he supported increasing the fuel economy of vehicles because it would create jobs and better protect the jobs of current workers by helping the industry thrive.

“The proposed rules are sensible, achievable and needed,” Mr. King said. “They are good for the auto industry and its workers, good for the broader economy, good for the environment and good for our national security.”

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DealBook: Regulator Troubled by MF Global Dealings

The top regulator tasked with overseeing the bankrupt brokerage firm MF Global said Thursday that the search continued for more than $630 million in missing customer money, warning that the protection of client assets is essential to doing business on Wall Street.

Gary Gensler, chairman of the Commodity Futures Trading Commission, said his agency was investigating the firm, a powerhouse commodities brokerage run by a former New Jersey governor, Jon S. Corzine.

“The most troubling aspect about the MF Global situation is the shortfall of customer money at the firm. Segregation of customer funds is the core foundation of customer protection in the commodity futures and swaps markets,” he said in prepared testimony. “Segregation must be maintained at all times. Simply put, that’s every moment of every day, down to the nanosecond.”

Mr. Gensler added that taxpayers aren’t on the hook for MF Global’s bankruptcy.

Gary Gensler of the Commodity Futures Trading CommissionJoshua Roberts/Bloomberg NewsThe Commodity Futures Trading Commission, led by Gary Gensler, is said to have become concerned in late October.

“This was an example of a financial institution having the freedom to fail,” he said in response to questioning from Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations. “I don’t think there’s any taxpayer money behind this.”

A basic tenet of the brokerage business requires that money handed to the firm by one customer is not mixed with the firm’s own money. MF Global filed for bankruptcy on Monday after weeks of anxiety weighed on the firms stock and liquidity. Investors were spooked by the revelation of an outsize bet Mr. Corzine had placed on European sovereign debt, a risky trade given the uncertainty clouding the Continent.

The exposure prompted regulators to force MF Global to set aside more cash as a cushion in the event of losses, and helped persuade Moody’s rating agency to downgrade the firm. That set in motion a week of panic, where it drew down its credit line and lenders demanded extra cash to protect themselves. MF Global had hoped to orchestrate an 11th-hour deal to sell a piece of itself, but those hopes were dashed when the money came up missing. It is unclear where the money went.

Mr. Gensler first spotted a potential shortfall late last week, calling MF Global’s lawyer to alert the firm. But it was not until around 2 a.m. Monday that the firm fully recognized the magnitude of the missing money. The disclosure sent bidders fleeing and the firm had no choice but to file for bankruptcy.

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