JPMorgan reviewing commodity publicity

NEW YORK: JPMorgan Chase & Co is reviewing its enterprise with some commodity shoppers after final month’s nickel quick squeeze, a transfer that threatens to empty extra liquidity out of the sector.

Senior administration at JPMorgan has requested groups world wide to conduct recent due diligence on some current shoppers, together with metals merchants and oil refiners, in response to individuals aware of the state of affairs.

Danger assessments are additionally being carried out on sure financing capabilities, stated the individuals, who requested to not be recognized as the data is personal.

America financial institution is without doubt one of the largest gamers in international commodity markets and the largest in metals by far.

It was additionally a central participant within the nickel value spike that rocked the London Metallic Alternate (LME) final month, as the largest counterparty of Tsingshan Holding Group Co, the world’s largest producer of the steel that is on the middle of the squeeze.

JPMorgan was already monitoring and adjusting its commodities publicity amid heightened market volatility earlier than the nickel quick squeeze, in response to one other particular person aware of the financial institution’s place.

Because the nickel value spike in early March, the financial institution has been conducting a deeper assessment, the particular person stated.

“In step with prudent danger administration, we have now been reviewing dangers in mild of the numerous market occasions this yr and we’ll proceed to take action throughout all markets, however we stay dedicated to our commodities franchise,” JPMorgan stated in an announcement.

Any pullback by the financial institution would come at a very tough time for commodity markets, already struggling a dramatic decline in liquidity as excessive costs and wild swings pressure merchants to the sidelines.

Whereas the assessment is encompassing shoppers throughout JPMorgan’s commodities enterprise, it’s targeted on base metals and companies associated to buying and selling on the LME, the individuals stated.

One difficulty the financial institution is contemplating is learn how to stress check its enterprise for unprecedented shocks just like the one which occurred in nickel, one particular person stated.

It is not clear what the end result of the assessment might be, the individuals stated, however it’s attainable that it may lead to JPMorgan scaling again exercise in commodities.

The lender has already been lowering its publicity within the nickel market, the individuals stated. It has additionally been requiring further administration approval for brand new financing offers in metals.

The nickel quick squeeze rocked the commodity sector, with the LME saying it had created a “systemic danger” to the market.

In response, some banks quickly paused commodity financing in Asia early final month, in response to bodily merchants based mostly in Singapore and China who would sometimes borrow from the affected banks.

A few of the merchants nonetheless cannot entry funding from these banks, which embody JPMorgan, and have been advised it’s as a result of the lenders are reviewing their commodity enterprise, they stated.

Offers which were affected embody repurchase agreements with banks, through which merchants use their inventories to lift financing.

About 50,000 tonnes of Tsingshan’s whole nickel quick place of over 150,000 tonnes was held by means of an over-the-counter place with JPMorgan, Bloomberg reported final month.

The Chinese language firm struggled to pay its margin calls after nickel spiked as a lot as 250% in a bit over 24 hours, however it obtained a reprieve after buying and selling was suspended for per week, the transactions on the highest costs have been canceled, and its banks – led by JPMorgan – agreed to not make additional margin calls.

Based mostly on the 50,000 tonne determine, Tsingshan would have owed JPMorgan about US$1bil (RM4.22bil) in margin on the day earlier than the nickel market was halted.

If the nickel value had been allowed to proceed rising, the financial institution’s publicity to Tsingshan may have risen by billions of {dollars} extra.

And whereas the nickel market has stabilized considerably, Tsingshan’s quick place has not but been resolved.

The corporate lined a few of its quick place by shopping for nickel contracts however it nonetheless has a big guess on falling costs, Bloomberg reported earlier. — Bloomberg


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