JPMorgan Chase & Co. cut dozens base metals customers and slashed bonuses for bankers, as business continues to be under intense internal scrutiny following last year’s Nickel Crisis.
JPMorgan is the biggest metals player on Wall Street. It has been reviewing the commodity exposure it holds for more than a year. This comes after JPMorgan played a major role as the largest counterparty to the Chinese company that was at the heart of the nickel shortage crisis on the London Metal Exchange. JPMorgan was also the financier for the top Chinese copper traders whose business ceased last year after a liquidity crises.
According to sources familiar with the situation, JPMorgan’s base metals division has been significantly reduced. The impact is being felt throughout the industry.
People said that the bank had cut many clients who dealt with base metals in Asia. Privately owned Chinese companies were particularly hard hit. They said that the bank is only continuing to work with a small number of large and long-standing customers in the region. It was reported last year that JPMorgan had halted new stock financing in China.
The people said that JPMorgan’s base metals department is being closely scrutinized internally and many bonuses have been reduced. After the financial crisis of last March, top management at the bank, including Chief Executive Officer Daniel Pinto was in charge of nickel. The bank’s appetite for metals risk has also been curbed.
JPMorgan declined comment. One person with knowledge of the bank’s operations said that its base metals division was still strong both in Asia and globally.
The long-standing leader of the market has withdrawn as the metals industry struggles with wild price fluctuations, high interest rates and a number of scandals which have sapped the market’s liquidity. Other mainstay banks also reduced their exposure, especially in Asia. It was reported that ICBC Standard Bank also stopped new inventory financing deals in China.
In recent months, several American and European bank have expanded into metals to take advantage of JPMorgan’s withdrawal.
JPMorgan played an important role in the nickel crises that brought the LME crashing down in March. It was the biggest counterparty of Tsingshan Group Co. – the company that was at the heart of the crisis. In its first quarter results from a year before, it reported a loss of $120 million related to nickel.
It was involved in this saga on other levels as well, since it is the largest bank within the base metals sector. In court filings, it has been revealed that the bank was a broker both for Elliott Investment Management and Jane Street who are suing over the LME’s decision to cancel trades.
JPMorgan had financed 30,000 tons copper for the Shanghai trading company, but when Maike Metals International Ltd. went into financial trouble in late last year, it was left with a large amount of copper. The bank was eventually able to sell it without any major losses. However, this episode showed the risks associated with trading in China’s metal industry. Maike filed a Request to have a court-led reorganization.
was revealed to be the owner of $1.3 Million in LME nickel contracts. These contracts were invalidated when it turned out that they were backed with bags of stones.
JPMorgan began to monitor its commodities exposure even before the nickel shortage in March last year, due to increased market volatility. Since then it has conducted a more thorough review.
The bank has not only cut its credit lines for base metals but also reviewed all of its commodities. According to sources familiar with the situation, several gold refineries had their credit limits with the lender reduced since the nickel crises.
One of the sources said that there were a number recent departures in JPMorgan’s commodities department, but they weren’t related to the review. People familiar with the matter said that Jack Luo was a London-based banking professional who played a major role in managing the company’s relationships with Tsingshan & Maike as well as Amar Singh the head of commodities for Asia Pacific.