22 December – Wall St Journal
Reuben Brothers Buys Metro International Trade Services for Undisclosed Amount
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.