Glencore: Goldman's worst nightmare?

Interesting article on business insider about how Goldman is freaked out about the Volcker rule. Specifically, they're scared of Glencore and the threat it poses to their commodities business. Goldman is one of the 3 big BB commodities players, along with Morgan Stanley and Barclays. Because Glencore is not regulated, it can do whatever it wants with regards to leverage, prop, and compensation.

This seems to confirm Midas' post yesterday on the big commodity players.

The Real Reason Goldman Should Be Freaking

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Comments (27)

May 5, 2011 - 12:19pm

Was reading the article before. There is a fundamental difference between the two though. While Glencore is maybe the largest commodities trader int he world, they deal with physical commodity trading and logistics, also production as well now. Although Goldman does deal with both physical trading and logistics (sometimes) it's in less risky environments, and a major portion of Goldman's activities come from commodity linked securities, where they provide risk management for clients. I think this ipo scares Goldman because glencore is going to use its position to be a player across the commodities supply chain, more so now starting with production and be aggressive in Goldman's specialty, which is securities. Before there was glencore dealing with the risky stuff and the end customers were bb's and their clients and the major oil companies. with the ipo and if acquisitions go accroding to plan, glencore will dig it out of the ground and be able to get it to the end customer without anyone else in the middle

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May 5, 2011 - 2:27pm
porkbellies:
Still think it is a terrible idea for Glencore to go public. They make a ton of money doing shady shit, and now that's going to be out there for everyone to see. Raping Africa's natural resources and various other shady activities are going to get a lot more attention from regulators and the public.

As they say: If it ain't broke, don't fix it.

i tend to agree

May 6, 2011 - 11:23am
porkbellies:
Still think it is a terrible idea for Glencore to go public. They make a ton of money doing shady shit, and now that's going to be out there for everyone to see. Raping Africa's natural resources and various other shady activities are going to get a lot more attention from regulators and the public.

As they say: If it ain't broke, don't fix it.

So basically you are a shady character that is ok with shady business. Do you work at goldman sachs?

"The higher up the mountain, the more treacherous the path" -Frank Underwood
May 5, 2011 - 5:02pm

On the flip side glencore hone reason for the ipo is to buy up more assets. Would be strange to buy more exposure if they thought it was all about to collapse. Or is my logic flawed?

Monty what makes you so sure beyond 10 yrs say?

May 5, 2011 - 8:02pm

trafigura, vitol.....with regards to commodity peak, whether it stays here or goes up or down everyone needs the products these guys are selling. it seems they think its going up given their plan to acquire assets across the world. natural resources are the most fundamental input in economics, and its non renewable. one of the dynamics which drives prices are one emerging markets and inflation, also there are no new large deposits being found across the world, whether it be oil or copper, even gold.

May 5, 2011 - 10:58pm

Nice to see the world wake up overnight to the Glencore story. That said I have heard no version of Dodd-Frank to date that says put "us based banks" at a disadvantage. Goldman also has physical assets in some markets and for sure will be fighting for "end-user" and "non-bank swaps dealer" vs the uber tough "bank swaps dealer" designation.

Glencore did not just show-up overnight either. For instance in global physical oil/products trading, Glencore competes with the banks, oil majors, nationalized oil companies, independents (see above) everyday.

May 5, 2011 - 11:35pm

It's important to note that Glasenberg and the other BSDs at Glencore have a 5 year sell restriction on their new shares. Goldman, MS, Barclays, DB or anyone with a decent size book could be in a lot of pain. Glencore is definitely in the financial game too, mostly OTC. Who knows how deep the rabbit hole goes? I was dumbfounded when I heard about the IPO. That walk-in closet has skeletons piled up to the ceiling. All I know is, I'd love to go to sleep knowing that when I woke up you could tag $10B onto my net-worth.

May 6, 2011 - 9:02am
Walkio:
Having met a few Traders from Glencore, it's no wonder why they're at the top.

.....care to elaborate on this?
Get busy living
May 6, 2011 - 9:34am

On a whim I decided to submit my resume for the direct entry deals desk role at the Stamford office of Trafigura. I submitted the resume at 1:20 AM central time and got a rejection at 1:53 AM! Talk about efficiency!

My guess is I had too much experience for this role since it is an entry level position geared towards recent grads.

May 6, 2011 - 1:39pm
Brady4MVP:
On a whim I decided to submit my resume for the direct entry deals desk role at the Stamford office of Trafigura. I submitted the resume at 1:20 AM central time and got a rejection at 1:53 AM! Talk about efficiency!

Holy shit
barboon:
porkbellies:

As they say: If it ain't broke, don't fix it.

So basically you are a shady character that is ok with shady business. Do you work at goldman sachs?

This company is in the same category of shady as XE or the CIA, possibly worse, as the justification is money as opposed to national security....it puts GS to shame, hands down.

I too am curious to know how they are going to get around all of the changes to the regulatory systems over there. I guess if you sit at the historical nexus of shady financial transactions, it's probably the best place to take such a company public....they know where all of the bodies are buried and who to bribe to keep their mouth shut.

Get busy living
May 6, 2011 - 4:44pm
Brady4MVP:
On a whim I decided to submit my resume for the direct entry deals desk role at the Stamford office of Trafigura. I submitted the resume at 1:20 AM central time and got a rejection at 1:53 AM! Talk about efficiency!

My guess is I had too much experience for this role since it is an entry level position geared towards recent grads.

BP does the same. Most european firms have a script screener if you don't hit 80% of the keywords or criteria. No human see's your resume.

May 6, 2011 - 12:19pm

I don't think it signals a peak in commodities. Players like this love volatility in the markets. Prices going up can be good. Prices going down can be good (except for the producer end). But all in all, the physical marketers are less dependent on absolute price, more so on differentials (product differentials such as light vs heavy oil, ngls vs spec, location differentials, etc.)

May 6, 2011 - 5:31pm

I recently read an article that mentioned one of the reasons they're going public (other than partners cashing out) is to add more transparency to the company that will hopefully attract customers who are withholding business because they do "shady shit".

The % factor is negligible when comparing to GS, MS, Barcap etc. because those firms are participating in a rather efficient futures/forward exchange so the profits are pretty tight.

Actually delivery of commodities in connection with a futures/forward market (not to mention currency arbitrage) is wildly more inefficient so the profits will be way higher if you're good at it (which evidently Glencore is).

"The power of accurate observation is commonly called cynicism by those who have not got it." - George Bernard Shaw
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