JPMorgan has fired dozens of base metals clients and slashed bankers’ bonuses, as the business "remains under harsh internal scrutiny in the wake of last year’s nickel crisis", Bloomberg reported.
JPMorgan, Wall Street's largest metals trader, has been reviewing its commodity exposure for over a year after it played a prominent role as the biggest counterparty of the Chinese company at the center of the nickel short squeeze on the London Metal Exchange which prompted a widespread backlash against what many viewed as market manipulation meant to bail out a prominent Chinese player. It was also a financier of the top Chinese copper trader whose business ground to a halt after a liquidity crisis last year.
While the review is ongoing, JPMorgan has already scaled back its base metals business substantially, according to Bloomberg sources, with the moves being felt across the industry: as part of the overhaul, the bank has cut numerous base metals clients in Asia, with particularly deep cuts among privately owned Chinese companies. It is continuing to work only with a few large, long-standing clients in the region, they said. Bloomberg last year reported that JPMorgan had stopped new inventory financing in China.
JPMorgan’s base metals team is under heightened internal scrutiny and bonuses for many have been cut, the people added. In the wake of the crisis last March, the bank’s nickel position was overseen by top management, including Chief Operating Officer Daniel Pinto, and its appetite for risk-taking in metals has been reined in.
The retreat by the longstanding market leader comes as the metals world has been grappling with wild price swings, high interest rates, and a series of scandals that have sapped market liquidity. Some other mainstay banks have also pared back their exposure, particularly in Asia, where ICBC Standard Bank had also halted new inventory financing deals for copper in China.
Meanwhile, others have sought to capitalize as JPMorgan pulls back, with several American and European banks seeking to expand in metals in recent months.
As a reminder, JPMorgan played a central role in the nickel crisis that brought the LME to its knees last March. It was the largest counterparty for Tsingshan Holding Group, the company whose huge short position was at the center of the squeeze. It reported a $120 million loss related to nickel in its first quarter results a year ago.
As the largest bank in the base metals industry, it was also involved in the saga in other ways. Court filings have shown that it was a broker for both Elliott Investment Management and Jane Street, which are suing the LME over the decision to cancel trades.
And when Maike Metals International ran into trouble later last year, JPMorgan was left with around 30,000 tons of copper it had been financing for the trading company in Shanghai. In the end, the bank was able to sell the metal without major losses, the people said, but the episode highlighted the risks of trading in China’s base metals industry. Maike has since filed a request for a court-led restructuring.
More recently, JPM was revealed as the owner of $1.3 million of LME nickel contracts that were invalidated after they turned out to be backed by bags of stones.
JPMorgan began monitoring its commodities exposure amid heightened market volatility even before the nickel short squeeze last March, but since then has been conducting a deeper review.
While the bank’s cuts have been focused on base metals, it has also been reviewing its activities across commodities. Several gold refineries have had their credit lines with the lender cut since the nickel crisis, according to people familiar with the matter.
And there have been a number of recent departures from JPMorgan’s commodities team, although they aren’t connected to the review, one of the people said. They include Jack Luo, a London-based banker who played a key role in handling the company’s relationship with Tsingshan and Maike, as well as Amar Singh, the head of commodities sales for Asia Pacific, according to people familiar with the matter.