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LORD COPPER: Banking is banking, trading is trading. So it should stay
May 09, 2011 - 12:24 GMT
I had an interesting discussion recently with some friends from a premier-league mining house, which over the years has demonstrated that they understand how to use the London Metal Exchange
They deliver to the LME on occasion, and, frankly, have also in
the past sold metal to LME brokers as part of warehouse finance
deals. Over the years, they have tended to use the traditional
LME broker community, largely through long-standing personal
Interestingly, though, they told me how they are currently
being bombarded with approaches from banks, all telling them
that these banks are now in the physical metals business, and
could they please have a long-term contract for the purchase of
Now, actually, I think that's stretching the meaning of words.
They may be in the physical business as far as buying metal and
storing it is concerned, but, as I pointed out in a recent
piece talking about Glencore, the true measure of the
physical trader is in reliable delivery to end-user
So do we really think that major banks, with their extremely
tight internal credit procedures, are genuinely set up to make
truckload deliveries of metal to consumers across Europe, the
US and the Far East? There are certain exceptions - clearly
there is one global bank which has a substantial physical metal
trading operation, but that one is a business which grew up
independently over years of understanding and exploiting the
fuzzy line where futures and physical metals overlap.
And there may be some smaller, nimbler operations who can cope
with the particular demands of the physical metal market. But
major investment banks as metal traders? Personally, I doubt
But what I do think is happening is yet another appearance of
the growing bubble.
Notwithstanding global economic woes, in fact looking at Q/E,
probably because of them, there are huge amounts of cash
floating around the world looking for a home.
Now, all of us in the metal business know how straightforward
it is to turn metal into cash - hard commodities and dollar
bills are two sides of the same coin. So why not do it the
other way round? Lots of spare cash - why not buy metal? The
price always goes up, doesn't it? It's a great hedge against
looming worldwide inflation.
So we get the proliferation of buy and hold strategies, ETFs
and all the rest; and in my view, banks in the physical
business - as they claim - is just another manifestation of the
Is it a good thing? Well let's not forget that it's being
brought to us by just the same institutions who brought us
sub-prime mortgage trading. All postulated on the same theory -
some things, like property prices and metals only go up in
I think that's a naïve assumption, and has been proven
definitely incorrect in the case of property.
In the case of metals, my feeling is that when the true levels
of global stocks become apparent, then we will find that same
holds true - prices can go down as well as up.
And while on the subject of banks, more generally, why is it
that remuneration has risen over recent years at so much higher
a rate than shareholder value, as represented by the share
price? I know that's a generalisation, and there are honourable
exceptions, but I think it's driven by something I've said
before: banking is banking, trading is trading, and confusing
the two is probably the wrong thing to be doing.
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