Center Valley, Pennsylvania 29/07/2016 - Warehouse company Metro International on Friday agreed to pay a $10 million settlement to the London Metal Exchange for alleged breaches of the exchange's warehouse agreement.
The alleged breaches were in relation to so called merry-go-round trades made over September 2010-2013 during which time the warehouse company was owned by Goldman Sachs.
In these deals, Metro allegedly provided financial incentives to the owner of the aluminium stored in its warehouses to: (1) wait in the queue; (2) upon reaching the head of the queue, load out its metal from a Metro warehouse; (3) deliver the metal to another nearby Metro warehouse; and (4) warrant the metal while in the second Metro warehouse.
The net impact was that Metro's warehouses lost virtually no metal while the Detroit queue grew to nearly two years. Consumers complained that this artificially inflated the US Midwest aluminium premium.
The following timeline details Goldman Sach's ownership of Metro and the controversy over the company's warehousing strategy:
FEBRUARY 2010 - Goldman acquires Metro for about $550 million. During the first summer under its new owners, Metro's board of directors, composed exclusively of Goldman employees, becomes concerned that owners of aluminium in its warehouses were removing the metal from its warehouses and storing it elsewhere, leading to a loss of revenue.
APRIL 2013 - Two Metro executives - Mark Askew and Robert Burgess-Allen - leave the company.
JUNE 2013 - Michael Whelan resigns from Metro, becoming the third senior executive to leave the warehousing firm in less than three months.
JULY 2013 - New York Times publishes an article alleging that Goldman Sachs was running a scheme to inflate metal prices artificially through warehouse ownership. The news was even fodder for late-night talk shows.
JULY 2013 - Bank holding companies via their ownership of metal warehouses have taken effective control of the LME, leading to a supply bottleneck and massive unwarranted expenses for consumers, Tim Weiner, global risk manager with MillerCoors, said in testimony before a US Senate banking committee.
JULY 2013 - Goldman Sachs says it will make aluminium immediately available to Metro customers that are caught up in long queues to take delivery of the lightweight metal through a swap deal.
JULY 2013 - The LME says that proposals to boost load-out rates from registered warehouses will alleviate concerns emanating from US Senate hearings.
JULY 2013 - Novelis executive Nick Madden says the Senate Banking Committee hearing on July 22 marks the "beginning of the end for the warehousing issue and may have far more painful implications for the banks in the future".
May 2014 - Goldman Sachs formally puts Metro for sale - the bank says the unit is no longer "strategic to our client activities".
SEPTEMBER 2014 - Three US Senators strongly urge the Commodity Futures Trading Commission (CFTC) to scrutinise the London Metal Exchange's application to become a foreign board of trade (FBOT).
NOVEMBER 2014 - The influential US Senate Permanent Subcommittee on Investigations issues a report claiming that Goldman Sachs, via Metro, paid incentives to Deutsche Bank, Glencore and UK hedge fund Red Kite to move metal on and off warrant in what are now being called a merry-go-round trades
NOVEMBER 2014 - Record Midwest aluminium premiums, which are directly correlated with long warehouse queues, have hurt end-users financially over the prior four years, Jorge Vazquez, Harbor Aluminum Intelligence Unit founder and managing director, claims
NOVEMBER 2014 - The LME says it intends to amend its warehousing rules so that operators will no longer be able to inflate queues artificially by shuffling metal between its sheds.
NOVEMBER 2014 - Goldman Sachs and Metro executives claim that the build-up of global aluminium inventories was the result of legal and explainable market dynamics and not purposeful market manipulation.
NOVEMBER 2014- FastMarkets explores the economics of a warehouse merry-go-round deal.
DECEMBER 2014 - Goldman Sachs completes the sale of Metro to a subsidiary of Reuben Brothers, a Swiss private equity firm.
JULY 2016 - Metro agrees to pay a $10 million settlement to the LME for alleged breaches of the exchange's warehouse agreement.
(Editing by Mark Shaw)