Saturday, March 10, 2012


The below is a synopsis of the History channels documentary. the following link allows you to buy it and watch the documentary. Very worthwhile. Aivars Lode

Little Ice Age: Big Chill
An Original Documentary
Spanning over 500 years and killing countless humans and animals, the Little Ice Age
took over the Earth and the livelihood of all those who inhabit it. Despite its duration and
magnitude, humans living through the Little Ice Age did not known much about it and
some did not know that it existed. Research has been undertaken by environmental
change specialists and different scientists around the world to study this natural
phenomenon. The need to understand the Little Ice Age is important in being able to
prepare and predict future weather patterns and their effect on society. From the frozen
New York Harbor, to icy waters in Scotland to widespread famine and disease, the Little
Ice Age played a mysterious, yet large role in significant changes in weather patterns
throughout many centuries. In this program, The History Channel® will decipher fact
from fiction and reveal all there is to know about the Little Ice Age.
Little Ice Age: Big Chill reveals all traits of the Little Ice Age – its scientific properties,
its natural causes, the people it affected and specific examples of areas it decimated.
However, not everything from the Little Ice Age was a total disaster. Did you know that
as a result of the Little Ice Age, better violins were invented and that Americans actually
drink 11 times more beer than they do wine? Utilizing specific scientific evidence,
extensive research, on- location explanatio ns, expert interviews, historical facts, and first
hand accounts of triumphs and tragedies, Little Ice Age: Big Chill explorers all facets of
one of the greatest scientific phenomenons in recent history.
Curriculum Links
Little Ice Age: Big Chill would be an excellent addition to any middle school or high
school class on American History, European History, World History, Environmental
Studies, the History of Agriculture and Science and Technology. It fulfills the following
standards as outlined by the National Council for History Education: (1) Civilization,
cultural diffusion, and innovation and (2) Human interaction with the environme nt.
Footnotes to History
WERE YOU AWARE that at one point during the Little Ice Age, Iceland’s population
reached a one thousand year low when it was at just half of its highest ever population?
Using the dictionary at, an internet resource such as, or an encyclopedia, students should define or explain the significance
of the following terms:
Antonio Stradivari
General George Washington
Napoleon Bonaparte
Wooly Mammoth
Comprehension Questions
1. What was the Little Ice Age? When did begin? For how many centuries did it
continue? When was it at its strongest (coldest)?
2. What was the average change in global temperature due to the Little Ice Age?
How can this global average be deceiving? **For Class Discussion ? Does this
example of minor temperature change make you more or less worried about the
possibility of global warming today?
3. How do scientists use the ocean in order to record data on specific temperature
ranges from the Little Ice Age?
4. What are some of the characteristics of the Medieval Warming Period? Was this
a good period or bad period for those who relied on farming and crop production?
5. What were the consequences of almost five years of straight rain starting in
Europe in 1315? Is grain vulnerable to heavy rains? If so, why?
6. What are the properties of the Oceanic Conveyor Belt and Thermohaline
Circulation? Would the world be better off without the conveyor belt? What
purpose does it serve?
7. How were the Vikings in Greenland affected by the Little Ice Age? How did they
cope with the colder climate? What could they have learned from the native tribe,
the Inuits, on Greenland?
8. What is the Maunder Minimum? Why is it relevant and imperative to
understanding the Little Ice Age?
9. What happened to Napoleon Bonaparte’s troops beginning in the fall of 1812?
Where were the troops? What were they doing?
10. What happened in the summer of 1816? What is that summer commonly
nicknamed by historians? What evidence, besides the freezing cold in the United
States, is there of the Little Ice Age?
11. What are some theories that explain the end of the Little Ice Age? Pick the theory
you think is correct and elaborate on your answer in a one-page response. Be sure
to answer why you picked this theory? What has led you to agree with the
scientific evidence supporting it?
12. Do you believe that the potential conflicts resulting from global climate change
(theorized in the end of the documentary) could actually happen? Explain.
Extended Activities
1. Understanding the Ocean Conveyer Belt
The Ocean Conveyor Belt is explained briefly in the program, but there is no way
to get a detailed understanding of the concept without obtaining further
information. On your own, using an online search engine, such as or an encyclopedia, look up how the Oceanic Conveyor Belt
functions. Write a well- written 3-page paper on your findings. Be sure to
research a unique aspect of the natural process in order to be specific in your
2. Art, Writing and Research
There are multiple cases when the Little Ice Age causes something very unusual
to happen like when Eskimos kayaked to Scotland or when the New York Harbor
froze over and people could walk from Staten Island to Manhattan over a century
ago. Pick a specific phenomenon either from Little Ice Age: Big Chill or one that
you have found on your own and sketch a detailed picture of the scene. Then,
attach a well- written one-page summary explaining the situation depicted in your
3. The Weather and the Military
This History Channel® documentary shows us the impact the weather has had
on military undertakings from Napoleon’s European conquest to the English
battle with the Spanish Armada to George Washington’s heroic crossing of the
Hudson on Christmas Eve. In groups of 3-5, pick a military battle or engagement
from the documentary or find one on your own using an internet search engine.
In a presentation to your class, summarize your selected battle and discuss how
the weather and other natural phenomenons affected the course of the battle and/
or the overall war.
Additional Resources
Resources from Ocean & Climate Change Institute:
Global Climate Change Information from the University of California at San Diego:
Report from Harvard University on the effect of the Little Ice Age on New England’s
Fagan, Brian M. The Little Ice Age: How Climate Made History, 1300-1850. Basic
Books, 2001. **Note that Dr. Fagan is consistently interview throughout Little
Ice Age: Big Chill.
Fagan, Brian M. The Long Summer: How Climate Changed Civilization. Basic Books,
Seaton, Maureen. Little Ice Age. Invisible Cities Press, 2001.

Monday, March 5, 2012

CA Technologies: Visibility into a Black Box

J.P. Morgan Logo
North America Equity Research

As I have discussed years ago companies will start paying dividends. Aivars Lode 
CA Technologies: Visibility into a Black Box
Click here for the full Note and disclaimers.

This report explains CA’s financial model, analyzes strengths and weaknesses, and identifies areas for improvement. We believe CA trades materially below its intrinsic value, which should increase through operational efficiency and effectiveness gains. We’re raising our price target to $34 from $32.
·         *  CA’s financial model is often considered a black box, which can act as a deterrent when considering CA as an investment. CA discloses more than most software companies, but its unfamiliar model, a lack of growth, and persistent operational inefficiencies likely hinder its stock performance.
·         *  Recent new capital allocation program has provided a step function up in share price, as CA has taken a more direct path in returning value to shareholders. Management intends to return 80% of free cash flow to shareholders through F14 through dividends and share repurchases.
·         *  Sustainability . . . The overwhelming majority of CA’s business represents renewals of highly recurring revenue, which provides a sustainable top line and cash flow, as observed throughout the company’s volatile history.
·         *  . . . Versus growth, or lack thereof. This stability presents a drag on growth, exacerbated by what we view as an ineffective sales structure. This has resulted in an unsuccessful pursuit of growth and operational inefficiencies, both offering opportunity for material improvement.
·         *  Other opportunities. We also believe that improvements in G&A efficiency and R&D effectiveness are attainable.
·         *  Model explained and forecasted. We have analyzed the components of CA’s model in order to gauge its historical performance and forecast the future. We offer our new model and the associated derivation methodology.
·         *  We believe CA represents compelling value. We remain Overweight and are raising our price target to $34 from $32 based on Scenario 3 of our DCF, which assumes modestly better F14 and F15 cash flow growth (5%) vs our previous estimate (3%). At a significant discount to its intrinsic value, we believe the shares could move to new heights if management grows cash flow through more efficient and effective operations as identified herein.

Sunday, March 4, 2012

Why it is great to be alive now!

many of you have heard me talk about why this decade will be amazing here is a video from a corroborator.
Aivars Lode 

An Admiral’s General Outlook

An Admirals outlook not so bad, thanks Ted for the article Aivars Lode
• A healthy global economic environment leads to a better geopolitical environment. Better domestic economic conditions make it harder for terrorists to recruit and opposition to garner widespread support
• The US debt to GDP is the single biggest security risk.
• The drug war in Latin America poses a real and underestimated concern.
• The military is making advances to improve energy efficiencies. Air force has developed some synthetic fuels marines making more efficient supply line systems.
• The “Arab awakening” is a generational process that is still just in its infancy and will not be like turning a switch.
• Military should be taken better care of when they come home and the disconnect between the public and those who serve in the military is growing.
• A conflict in Korea is the biggest concern to far eastern geopolitical stability.
• The first set of budget cuts to the DOD and Military had far less of an impact than the sequestered cuts will have.
• The Sequestered cuts will have a real and diminishing impact on the US’ military capabilities.
• Until December it is unclear whether cuts will go in place as currently established; however, comptrollers for the various branches of the armed forces and defense are making changes to their outlook on operational readiness and existing/future contracts as if the cuts will go in place.
• Cuts are across the board and there is no ability for leadership to pick and choose which budgets should be cut more and which should be cut less or not at all. Leading to more inefficiency and diminished capabilities.
• Additional austerity would likely impact manpower and defense contracts most of all.
• China has better relations with the US than some think and overt military conflict is very unlikely in the near to intermediate future.
• Relations between the US and China have improved over the past several years and both have a responsibility to further economic progress in the region.
• China and the US do have outstanding issues and there are some topics that are more tense than others.
• A concern is that China treats their 200 mile exclusive economic zone as if it were an extension of its territorial waters. There are also discrepancies between what the Chinese assert are their waters and what international maritime standards dictate. 1
1 Source:
• The Ayatollah is the supreme leader and matters more than Ahmadinejad internationally and domestically.
• Regime change could take longer than many think and there is a difference between removing Ahmadinejad and Khomeini from power.
• Iranians are Persian and see themselves a separate ethnic and political group from the Arab and Hindi countries in the Mideast.
• The Iranians can likely close the Strait of Hormuz; however, it would only last a few weeks before the US and its alleys could reopen the pass for oil tankers and military craft.
• If Iran creates/obtains weapons grade fissile material the risk for an arms race (especially with existing nuclear powers in the region) grows exponentially.
• Sanctions are having an effect but will take more time to cause real political impact.
• The US has a real ability to cause significant damage to the Iranian nuclear program.
• Unintended consequences of Iran getting a nuclear weapon and/or the US or Israel striking Iran are greater than the consensus believes.
• Israel has the capabilities to successfully strike Iran unilaterally.
• Israel will act as a rational actor and at the end of the day the country’s existence is the most important driver in their political actions.
• The US and Israel have a strong relationship; however both sides know that Israel’s existential concerns are superior to their relationship with the US.
• Advances have been made in fight against Al Qaeda but the region will remain unstable for a long time to come.
• NATO forces cannot just pack up and leave and see what happens from home.
• Troops there are fighting a very different war than we have in other places and at other times.
• Instability in Pakistan is growing and there is a real threat to the government from internal forces and domestic terror groups.
• Pakistan is a nuclear power with a history of tension with its neighbor India, another nuclear power. A loss of governing stability could lead to increased pressures and danger in the region.
• Economic problems in Pakistan will make social unrest and terrorism more rampant.
• People underestimate Assad’s tenacity and ability to stay in office longer then may predict.
• The Syrian regime has strong ties to terrorist networks that extent to Iran.
• Recent Turkish governments have been leaning more towards the East than they have in many decades.
• Military and political leaders are asserting themselves more as their economic and military prowess improve.
• There exists a delicate relationship between Turkey and Western powers as an important member of NATO but not at all a part of the EU.

Greece may need more help: Austrian chancellor

For those that think the Euro will fail I don't think so. There are numerous States in the USA that have instigated legal action to get out of the US currency, this is more likely. (Not Really) Aivars Lode

Austrian Chancellor Werner Faymann listens during a news conference after a cabinet meeting in Vienna, February 14, 2012. REUTERS/Heinz-Peter Bader
FRANKFURT/VIENNA | Sun Mar 4, 2012 3:20pm EST
(Reuters) - Greece's second bailout may prove insufficient and a topping up of the euro zone's permanent bailout fund cannot be ruled out, the Austrian Chancellor was quoted as saying in a newspaper on Sunday.
"I would not trust anyone who says that (the help) for Greece is enough," Werner Faymann said in an interview with Austrian paper Oesterreich. "For Greece it depends on whether they can stick to these measures over several elections."
He also did not rule out extending the European Stability Mechanism (ESM), saying it "may be necessary."
The euro zone will decide whether to increase its debt crisis firewall before the end of March, probably at an informal gathering in Copenhagen set for March 30/31.
The aim will be to combine the 250 billion euros ($330 billion) left in the temporary EFSF bailout fund with 500 billion euros in the permanent ESM facility, to create a "super-fund" better able to cope with potential problems in Spain or Italy, although Germany remains opposed to the idea for now.
Germany's Welt am Sonntag reported that Berlin may drop its opposition to boosting the permanent bailout fund, citing government sources.
While the government would ideally want to maintain the European Stability Mechanism in its currently proposed form, it would be difficult for Berlin to withstand pressure to increase it from European partners, the International Monetary Fund and the United States, the paper wrote.
The world's major economies, notably the United States and China, are pressing Europe to put up more money for its own defenses as a condition for raising the IMF's resources to combat fallout from the euro zone crisis.
The Austrian chancellor also said the European Union must continue to support not only Greece, but also Portugal, Italy and Spain.
"Let's not forget that our economy is strongly linked to that of Italy," he told the paper, although he added that Italy was in a better position than Greece.
($1 = 0.7573 euros)
(Reporting by Victoria Bryan in, Alexandra Hudson in Berlin and Mike Shields in Vienna, editing by Mike Peacock)

Insight: Wall Street, Fed face off over physical commodities

Why do you think these banks need to take physical delivery of commodities rather than just be the broker? So that they can manipulate the market as laid out in chapter 4 of my book. Thanks Bud, Aivars Lode

The U.S. Federal Reserve Building is pictured in Washington, January 26, 2010.   REUTERS/Jason Reed
NEW YORK | Fri Mar 2, 2012 1:27pm EST
(Reuters) - Wall Street's biggest banks are locked in an increasingly frantic struggle with the Federal Reserve over the right to retain the jewels of their commodity trading empires: warehouses, storage tanks and other hard assets worth billions of dollars.
While the battle over proprietary trading and new derivatives regulations has taken place largely in public view since the 2008 financial crisis, the fight by JPMorgan Chase, Morgan Stanley and Goldman Sachs to retain or expand their prized physical commodity operations - most acquired in only the past six years - has remained hidden.
The debate is nearing an inflection point: Within 18 months, the Fed will likely either allow banks more freedom to invest in the physical commodity world than ever; or force them to sell off the assets that many banks are counting on to buttress their trading books at a time when they are already vulnerable because of intensifying competition and new trading curbs.
The banks are now locked in deep debate with the Fed, multiple sources involved in the discussions told Reuters. Goldman and Morgan Stanley argue the right to own such assets is 'grandfathered' in from their lightly-regulated investment banking days, or that at least they should be allowed to retain them as "merchant banking" investments, kept segregated from the trading desks.
But regulators and lawmakers may not be in the mood to give way. Banks are under pressure to reduce risk on their balance sheet; as commodity prices rise again, they may face more allegations that they could use these assets to drive prices higher or lower, squeezing them for trading profits.
"The Fed's not going to be terribly accommodating," said Oliver Ireland, a former associate counsel to the U.S. Federal Reserve and a partner with law firm Morrison Foerster in Washington, D.C. "There doesn't seem to be a lot of sentiment in this town for people doing new things and taking new risk."
Should these banks lose the debate, the result may be the biggest shake-up in commodity markets since the early 1980s, when Wall Street first discovered the potential profits to be made by wading deep into the murky world of crude oil cargoes, copper stockpiles and power plants.
"Adding large-scale, complex commodity market activities to "too-big-to-fail" bank portfolios, with dangerous potential ramifications to the real economy - as demonstrated in California by Enron - is not comforting," says John Fullerton, who ran JPMorgan's commodity business in the 1990s, and is now a markets activist at the Capital Institute in Connecticut.
The loss of their coveted assets would be a blow for the banks at the worst possible moment, with their proprietary trading desks shut down, commodity merchants trying to poach their top traders and new Basel III capital regulations requiring them to further build capital reserves.
Morgan Stanley's commodity trading revenues have fallen by some 60 percent over the past three years. Goldman Sachs' commodities business revenues fell from $4.6 billion in 2009 to $1.6 billion in each of the past two years.
The Fed declined to discuss specific companies directly or the likely final outcome of the talks. Spokespeople for Morgan Stanley, Goldman Sachs and JPMorgan declined to comment on detailed questions put to them by Reuters.
To a degree, it is a story that has been hiding in plain sight. In last year's second-quarter Securities and Exchange Commission filing, Morgan Stanley added the following new text to its lengthy Supervision and Regulation disclaimer:
"The company is engaged in discussions with the Federal Reserve regarding its commodities activities. If the Federal Reserve were to determine that any of the company's commodities activities did not qualify for the BHC (Bank Holding Company) Act grandfather exemption, then the company would likely be required to divest any such activities."
That disclosure was made at about the same time the bank began to have second thoughts about a new $430 million storage tank investment undertaken by its publicly listed oil transport and logistics subsidiary TransMontaigne, according to two people familiar with the transaction. In October, TransMontaigne reduced its stake in the project to 50 percent; it sold the rest in January.
The bank's abrupt change of stance last year is the clearest sign yet that the Federal Reserve may be taking a harder line.
Yet it may be JPMorgan, which has eclipsed long-time market leaders Goldman and Morgan under commodities chief Blythe Masters, that will be first to feel its effects.
The bank has begun sounding out possible buyers for its small operation trading metal concentrates, according to one source who examined the business late last year. It acquired that business when it bought most of RBS Sempra in mid-2010, but because metal concentrates aren't traded on any exchange they were not covered by a 2008 Federal Reserve order that allowed RBS to begin trading physical commodities.
More importantly, the sale has also raised questions about JPMorgan's ownership of its global metals warehousing business Henry Bath, which had also been excluded from the RBS waiver. The Fed's rules give banks a two-year grace period in which to divest any non-compliant businesses they acquire; sources say it's not clear why JPMorgan would be exempt from this rule.
Goldman too faces scrutiny of its ownership of Detroit-based metal warehousing firm Metro International. Goldman has come under fierce criticism from companies such as Coca-Cola, which has accused it of inflating metal prices.
Since buying the privately held firm in early 2010, the bank has taken great pains to avoid any direct involvement in its business to minimize regulatory scrutiny, according to two industry sources. But questions remain.
The warehouses are lucrative on their own: As surplus metal stocks accumulated during the recession, profits at the UK-based Henry Bath surged to more than $110 million in 2009 and near $80 million in 2010, about $1 million per employee per year, according to annual reports filed to UK Companies House in November. These units could, in theory, be run as "merchant banking" investments, as with Metro, but that requires they be kept at arm's length and divested within 10 years.
But for trading firms, that's only half the benefit.
"The truth of it is that having access to the physical markets is about optimization and knowledge - it gives you the visibility of the market to make far more successful proprietary trading decisions in both physical and financial markets," said Jason Schenker, President and Chief Economist at Prestige Economics in Austin, Texas.
"That's why for many years the most successful traders had access to both markets, and why we've seen little sign they're moving quickly to divest these assets now. It's trading with material non-public information - the difference compared with equity markets is that it's perfectly legal."
Based on past precedent, financial holding companies would still be allowed to be involved in trading physical commodities like oil or metals, even if they are not allowed to outright own the physical infrastructure which supports their operations.
Between 2003 and 2008, the Federal Reserve granted permission for nearly a dozen banks to engage in such trading, which it deemed "complementary" to financial operations within certain limits. Citigroup was the first in, seeking approval on behalf of its aggressive trading unit Phibro.
But there are signs that the Fed may be reassessing. The permit to form RBS Sempra in March 2008 is one of the last it has granted, according to the Fed's quarterly bulletins. That took eight months to negotiate, and covered a range of activities including third-party refining that the Fed had not previously approved.
In 2009, Bank of America told the Fed of its plans to trade a broad range of commodities following its acquisition of Merrill Lynch, which had not been subject to Fed regulations, a source familiar with the discussion said. BoA secured its own approval from the Fed to engage in physical trading in 2007, but Merrill's operation was much larger -- although still within the scope of what the Fed had approved for other banks such as RBS.
That request is still pending, the source said, even though BoA has not sought permission to own or operate physical assets.
"Beginning in 2009, we have been working with regulators to ensure that we will continue to service our clients in the physical commodity market with products and services on which they have relied," a BoA spokeswoman told Reuters in response to questions.
On the other hand, if the Fed allows Goldman, Morgan Stanley and JPMorgan to retain all their assets, it may open up a Pandora's Box. Rivals are already up in arms about the potential for a competitive disadvantage.
"It's a space we'd love to be in, but have had to limit our investments to Europe and Asia due to the Financial Holding Company regulations," one lawyer with a rival European bank said.
Banks' commodity revenues:
Morgan Stanley's revenues:
Henry Bath profits:
It wasn't supposed to be like this.
After Goldman Sachs and Morgan Stanley converted to Bank Holding Companies at the peak of the financial crisis to gain emergency access to discounted Fed funds, many bankers confidently predicted that they would be able to carry on trading in much the same way as before.
Despite the Fed's longstanding stance that its regulated banks should not own commercial enterprises to avoid distorting the real economy or opening them up to untold environmental, operational or legal risks, Wall Street's giants felt sure they were protected by a key passage in the Gramm-Leach-Bliley Act of 1999.
That law - which effectively scrapped part of the 1933 Glass-Steagall law separating commercial and investment banks - says that any investment bank that converted to holding company status after 1999 could continue to trade or own physical assets if it had done so prior to September 30, 1997.
But the passage was extraordinarily vague. If they were trading physical commodities in 1997, as both Goldman and Morgan were, would they be allowed to buy hard assets later? If they traded gasoline, could they also buy shipping fuel?
The debate over how broadly or narrowly to interpret that clause has already consumed two-thirds of the five-year grace period that they were automatically granted when they became BHCs. Morgan Stanley says it has already secured two of three possible one-year extensions on the initial two-year waiver; the deadline looms in November 2013.
Banks may be hoping that this year's U.S. presidential election ushers in a more banking-friendly political environment, says Shannon Burchett, who was previously an energy trader with commodity firm Phibro when it was part of Salomon Brothers, and is now chief executive of Risk Ltd. in Dallas, Texas.
"It's a political wildcard right now," he says. "The leading Republican candidates have indicated that while they might not repeal Dodd-Frank, they might certainly reduce it."
Meanwhile, rivals are not standing still. On Friday, Russia-backed global oil trader Gunvor said it would buy insolvent Petroplus' refinery in Antwerp, Belgium.
In the early 1990s, Morgan Stanley oil trader Olav Refvik earned the moniker 'King of New York Harbor' by securing a host of leases on storage tanks at the key import hub, giving the company an enviable position in the market. Refvik left Morgan in 2008 and now works for commodity trader Noble.
Morgan Stanley bought terminal and logistics firm TransMontaigne and tanker operator Heidmar in 2006. Heidmar would grow to ship almost 750 million barrels of oil last year, the equivalent of roughly 8 days of global demand.
Last year, using TransMontaigne's own tanker truck fleet to haul oil, Morgan was one of the only traders able to take advantage of an unprecedented $25 a barrel gap between oil prices at the U.S. storage hub at Cushing, Oklahoma, and prices 500 miles south on the Gulf coast. Many other traders failed to find transport firms willing to lease them trucks.
In 2010, TransMontaigne joined a $430 million project to build a 6.6-million-barrel oil terminal on the Houston Shipping canal supplying black oil and residual fuel for ships, power plants and industrial operations.
But in mid-2011, the Morgan Stanley began to get cold feet over the venture, the Battlefield Oil Specialty Terminal (BOSTCO), concerned that it could be a red flag to regulators, according to a person familiar with the project.
"This issue really didn't rise to the fore until the middle of last year," said the person, who declined to be named.
In October, TransMontaigne sold half its stake in the project to Kinder Morgan Energy Partners because of "the uncertain regulatory environment relating to Morgan Stanley's status as a financial holding company". Chief executive Chuck Dunlap said Morgan Stanley would no longer approve any "significant" acquisition or investment by his firm.
In January, TransMontaigne sold the rest of its share to Kinder Morgan, but with an option for TransMontaigne to buy back a 50-percent share at any point before January 2013 - a twist that gave the firm a way back in if the regulatory pressure eased.
In 2008 Morgan Stanley sold 49 percent of Heidmar to Shipping Pool Investors Inc. and 2 percent to Heidmar's own management, reducing Morgan's share to a 49-percent minority.
Morgan Stanley says in its filings that it does not believe any possible forced divestment would have a "material adverse impact" on its overall earnings.
Tim Brennan, Chief Executive of Heidmar, told Reuters he had not discussed any possible divestment with Morgan Stanley: "Morgan Stanley have really left us to get on with running the business," he said. "I don't think there's any reason to be concerned."
JPMorgan was already regulated as a financial holding company in 2008, and therefore can't claim any grandfathering exemption. But two big acquisitions have brought it deep into the debate.
As a result of its hastily arranged takeover of investment bank Bear Stearns early in the financial crisis in March 2008, JPMorgan inherited a firm called Arroyo Energy, which owns several power plants in the Southeast. The Fed gave JPMorgan some latitude at the time, but it is not clear whether the bank will be able to keep the assets beyond five years.
In July 2010, Masters closed a $1.7 billion deal to buy the global metal and energy trading units of RBS Sempra, a crowning achievement that expanded the bank's physical footprint to 25 locations with more than 130 storage and warehousing facilities.
But there was a catch.
When UK-based Royal Bank of Scotland bought into Sempra Commodities in 2008, the Fed said the unit would have to sell off the U.S. assets of the Henry Bath warehousing company, according to three sources familiar with the deal.
That left open whether JPMorgan would be allowed to continue owning the same operations that RBS had been asked to divest. Fed regulations require a financial holding company to divest any disallowed activities within two years of a transaction, although the board can apply to extend that deadline if it chooses. The two-year anniversary is July 1.
Unlike Goldman Sachs, JPMorgan does not appear to be distancing itself from the warehousing unit.
Henry Bath named Michael Camacho, JPMorgan's newly appointed metals division head, as one of its two directors, according to a February 1 UK filing; he assumed a role that had been filled by Peter Sellars, who ran the unit for most of the past decade when he headed metals trading at Sempra, then JPMorgan.
Asked about the operations, a JPMorgan official said only: "JPMorgan is authorized to undertake all of the businesses it is engaged in."
Goldman has taken a more tactical approach to asset deals ever since its 1981 purchase of J. Aron, a major precious metals and coffee trader. The unit expanded into oil in the 1980s, becoming one of the "Wall Street refiners" that helped kick-start the oil derivatives market. It later began to accumulate assets, building a modest condensate refinery in Rotterdam and buying natural gas fields in Canada.
Goldman bought a fleet of power plants at bargain prices in the aftermath of the Enron meltdown; it sold many of them in 2007, though its Cogentrix unit still has 17 plants with 1,437 megawatts of capacity, according to IIR Energy. That's enough to power the city of San Diego. Its private equity unit bought into the Coffeyville oil refinery in Kansas in 2005 - a deal swiftly followed by an exclusive crude oil supply pact with J Aron. It has since sold that stake.
Its biggest gambit came quietly in early 2010, when commodities chief Isabelle Ealet outbid rival merchants to buy Metro from its two founders and private equity firm Monitor Clipper Partners. Trade sources say Goldman paid around $550 million for the firm.
The bank has stressed from the start that Metro would continue to run independently, though a Goldman source said the firm is owned by the bank's commodity trading arm.
The top three executives at Metro remain the same as prior to the takeover. The board of directors is comprised almost wholly of Goldman executives who are unrelated to the commodities division, a person familiar with the board said; one of them is Philip Holzer, who heads up its German business, according to the December 2010 edition of the bank's German-language shareholder magazine KnowHow. The bank's metals traders have almost no interaction with the unit, market sources say.
Even so, Nick Madden, vice president and chief procurement officer at Novelis, the world's largest manufacturers of rolled-aluminum for drink cans, has said Goldman has purposively made it difficult for firms to get their metal out when they most need it, as the bank benefits from high rental fees.
"The banks and metal producers are both benefiting from this, but the people who are paying the price are in the real economy who can't get their metal out in a timely fashion," Madden said in an interview in February.
In a sentiment that may resonate in Washington, he added: "The last thing we want is to see is manufacturing jobs threatened by artificial market shortages and price squeezes resulting from short-term trading plays by the investment banks."
(Additional reporting by Jonathan Spicer, Jeanine Prezioso, Janet McGurty and Scott DiSavino; Editing by Martin Howell and Alden Bentley)