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Fed Urges U.S. Ban on Wall Street Buying Stakes in Companies

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Wall Street New York Stock Exchange

Goldman Sachs Group Inc. and other banks that invest in companies are officially on notice: The Federal Reserve wants that ability taken away.

Among several recommendations issued by U.S. banking regulators, one from the Fed urged Congress to prohibit merchant banking, in which firms buy stakes in companies rather than lend them money. In a report released Thursday, the agency also pushed for limits on Wall Street’s ownership of physical commodities after lawmakers accused Goldman Sachs and other banks of seizing unfair advantages in metal and energy markets in recent years.

The report — based on a multi-agency study of banks’ investment activities required by the Dodd-Frank Act — highlighted ways to fix potential risks that regulators didn’t think were handled by the law’s Volcker Rule ban on certain trading and investments. The need for Congress to pass legislation presents the greatest hurdle to the Fed’s recommendations on merchant-banking and the ability of Goldman Sachs and Morgan Stanley to operate mines, warehouse aluminum and ship oil.

“Congress has an obligation to give their recommendations serious attention,” U.S. Senator Sherrod Brown, the most senior Democrat on the Banking Committee, said in a statement.

A 2014 Senate investigation into banks’ commodities businesses revealed Goldman Sachs had almost $15 billion in merchant banking investments. The firm’s most recent filings show it booked $1.2 billion in revenue through the first six months of this year in its division that houses merchant banking, with equity investments contributing $626 million of that.

Copper Investments

Another agency that participated in issuing the report, the Office of the Comptroller of the Currency, said it plans to restrict lenders’ holdings of the hard-to-value securities. The OCC also proposed a rule Thursday that would curtail banks’ investments in certain industrial metals including copper and aluminum.

The Fed called for the repeal of exemptions for industrial loan companies, which are lenders generally owned by non-financial firms, that allow them to operate outside of rules that affect banks. The Fed’s section of the report said its aim was to level the playing field among financial firms and “help ensure the separation of banking and commerce.”

Spokesmen for Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. — another bank that could be affected by the recommendations — declined to comment on the regulators’ report.

A coalition of financial industry associations called the recommendations “unfortunate and ill-considered” in a statement. The groups — including the Clearing House Association, American Bankers Association and Securities Industry and Financial Markets Association — said merchant banking has financed startups and fueled job growth. The groups also argued that it hasn’t been shown to pose a risk to the financial system.

Congressional Gridlock

The Fed and the U.S. Treasury Department adopted a merchant-banking rule in 2001 after the 1999 Gramm-Leach-Bliley Act gave banks the right to make such investments. But making statutory changes to merchant banking and other industry laws would require intervention from lawmakers — a tall order in a politically-divided Congress that has passed only a few significant bills affecting the financial system in recent years. That leaves any immediate impact of the report in doubt.

The Fed, OCC and the Federal Deposit Insurance Corp. were required by Dodd-Frank to dig into further risks from bank investments, and they were supposed to issue the report almost five years ago.

The document was called for by a provision tucked more than 200 pages into Dodd-Frank under section 620. Lenders’ government watchdogs had to review the industry’s investment activities to determine whether they “could have a negative effect on the safety and soundness” of the financial system. But the mandate was easy to lose track of next to the passage that preceded it: section 619, which is better known as the Volcker Rule.

Goldman Sachs, Morgan Stanley and JPMorgan were the targets of criticism that led to the 2014 Senate review of their commodities businesses. It found lenders used their ownership of metals and other physical commodities to dominate markets and gain unfair trading advantages. The physical commodities businesses at Goldman Sachs and Morgan Stanley were protected by grandfathering that allowed them wider abilities than most banks — an advantage the Fed is seeking to end.

Morgan Stanley sold off its oil business last year and backed away from industrial metals trading, while JPMorgan shed a big part of its physical commodities business in 2014. While Goldman Sachs dumped a coal-mining operation in 2015, Chief Executive Officer Lloyd Blankfein has maintained that commodities trading is a “core” part of his firm’s business.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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