By Christian Berthelsen And Ira Iosebashvili
Goldman Sachs Group Inc. on Monday ended its four-year ownership
of its metal-warehousing unit, unloading it to an investment firm
run by two British brothers.
Just last month, Goldman executives were grilled before a U.S.
Senate panel about accusations that the warehousing unit, Metro
International Trade Services, withheld metal supplies and drove up
aluminum prices in the U.S.
Terms of the sale to Reuben Brothers, an investment firm based
in Switzerland and founded by brothers David and Simon Reuben,
weren't disclosed.
The two brothers made much of their fortune in the aluminum
industry, most prominently in Russia in the 1990s. Their eponymous
firm has also been an active property investor of late and was
mentioned earlier this year as a contender to buy the Plaza Hotel
in New York.
Goldman, which bought Metro for about $450 million in 2010,
declined further comment on the transaction.
Many other Wall Street banks have previously pulled back from
commodities businesses amid greater regulatory oversight.
For Goldman, the deal marks the exit from a business that was
increasingly fraught.
In recent years, major industrial metal consumers including
MillerCoors LLC, Coca-Cola Co. and manufacturer Novelis Inc.
complained that rental storage costs and wait times for aluminum in
Detroit skyrocketed under Goldman's ownership.
Executives and analysts testified at the Senate hearing that the
wait times to obtain their metal ballooned to as much as two years,
and resulted in an additional $3.5 billion in costs to consumers of
everything from beer cans to cars.
A factor in the increased wait times was a series of agreements
between Metro and clients including Deutsche Bank AG, Glencore PLC
and London metals hedge fund Red Kite Group, in which Metro gave
the clients incentives to withdraw metals in unusually large
volumes and shuffle them between its other warehouses, according to
the Senate findings presented in a two-day hearing last month.
The withdrawal requests had the effect of jamming the queue to
withdraw metal from the warehouses for other clients, resulting in
longer wait times and increased storage costs. The first such deal
was executed in September 2010, when Deutsche requested withdrawal
of 100,000 tons of aluminum from the warehouses in a single day--80
times the usual volume of daily withdrawals--immediately driving
the wait time from about two weeks to four months.
Goldman stood to profit from the arrangement in multiple ways,
the investigation concluded, including benefiting from trading
positions in markets and increased storage rental income. Goldman
executives denied wrongdoing.
Goldman had tried to sell Metro intermittently during 2013 and
2014.
It isn't immediately clear what Reuben Brothers plans to do with
the business.
The firm will likely be able to retain Metro's warehouse
customers, keeping metal from hitting the markets and driving
prices lower, said Edward Meir, a strategist at INTL FCStone.
The brothers "have deep pockets," Mr. Meir said. "If they want
to give customers an incentive to stay, they can do it."
Aluminum for delivery in three months closed down 1.4%, at
$1,880 a metric ton, on the London Metal Exchange.
Write to Christian Berthelsen at christian.berthelsen@wsj.com
and Ira Iosebashvili at ira.iosebashvili@wsj.com
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