Just over three decades ago, Goldman Sachs bought a niche coffee-and-gold trading firm called J. Aron & Company, becoming one of the first banks to enter the commodity markets.
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A year from now, the Wall Street giant may be one of the last ones standing as the former J. Aron traders who now run Goldman mount a lonely defence of their right - and customers' need - to buy and sell copper, crude or corn. Few others are sticking around as a rocky, on-and-off romance between financial firms and raw material markets turns sour again.
Rising regulations, political pressure, falling profit margins and fierce competition from newcomers - including overseas banks - is forcing Goldman's rivals to retreat, or scale back, particularly in the costlier trade of physical commodities, a critical core for many banks.
On Thursday, Deutsche Bank, one of the five biggest players of the past decade, said it would quit commodities trading under regulatory pressure, cutting 200 jobs. That follows similar moves by smaller players like UBS and Credit Agricole in recent years.
Top rivals JP Morgan and Morgan Stanley are in the process of selling out from commodities trading while Barclays has cut its division by a fifth.
Several other big banks that have yet to signal their longer-term plans have generally remained silent on the matter of commodities - except Goldman, whose top executives have given unequivocal support to the roughly 250 J. Aron traders who helped deliver a blockbuster $5 billion in revenues in 2009. By last year that had dropped to less than $1 billion.
Chief Executive Lloyd Blankfein, who started his carrier at J. Aron in precious metal sales in the early 1980s, said in September it was a "core, strategic business".
Gary Cohn, who ran J. Aron in the late 1990s, said the bank's clients "really need us to be in that business". A spokesman said on Thursday those statements still stand.
The difference in tone has been apparent.
"Morgan Stanley and JP Morgan have put their businesses up for sale. Goldman Sachs is not doing anything (like this)," Alex Beard, the head of oil division at trading giant Glencore , told a conference earlier this year.
TOO MUCH DOWNSIDE
Banks have come under unprecedented pressure this year, including debate in the U.S. Congress over accusations their physical commodity desks have contributed to market froth.
"For many banks there is too much downside to be in commodities," chief executive of trading giant Gunvor, Torbjorn Tonrqvist, said earlier this year.
The shrinking ranks of top five players is opening opportunities for the likes of Glencore and Gunvor, as well as for more lightly regulated banks like South African Standard Bank, emerging market-focused Standard Chartered, Australia's Macquarie Group or Brazil's Grupo BTG Pactual SA.
To be sure, Goldman still faces some competition at home. Bank of America's Merrill Lynch and Citigroup have in the past two years unexpectedly beefed up their desks and employ around 200-250 people each. For both it is their second or even third attempt to build a top tier desk.
"It all comes down to what regulations will allow big U.S. banks to do... U.S. banks will diminish activity," Ian Taylor, the head of top global oil trader Vitol, said earlier this year, predicting that new entrants would include Asian institutions.
It is not certain that Goldman will be able to successfully defend the franchise once the Federal Reserve completes a wide-ranging review of banks' commodity trading activities. Alongside Morgan Stanley, Goldman has argued that a clause in a 1999 banking law should allow it to keep the business.
But it has recently signalled plans to sell its metal warehousing unit at the heart of a controversy over aluminium prices, and has put its uranium trading desk on the block. It has tried, in vain, to get permission to trade iron ore.
Most banks have almost fully closed proprietary trading desks, as the so-called Volcker rule prohibits banks from trading with their own money. They now focus mainly on financing commodities trading for clients as well as hedging.
A further retreat threatens to diminish liquidity in key markets, reduce choice for corporate hedgers and drive more trading toward less-regulated players, some analysts say.
"For those refineries that need to hedge their specific types of oil, there may be no financial services firms to do it with. For airlines that needs to hedge Jet-A1 at their hubs, Atlanta or Chicago or Denver, who's going to do that for them?" says Brad Hintz, a Wall Street analyst at Sanford Bernstein & Co and a former treasurer of Morgan Stanley.
"The only the one that may be left is Goldman."
IN THE VEINS
Goldman bought J. Aron, then a small trading house focused on coffee and gold, in 1981, the same year that commodity merchant Philipp Brothers (Phibro) bought Salomon Brothers banks. Morgan Stanley jumped into the market shortly thereafter, building up the business internally.
It marked the beginning of a three-decade affair between financial institutions and raw material markets, one that waxed and waned once in the 1990s and again in recent years.
"The revenue opportunity for banks has both shrunk and morphed over the past couple of years, so any remaining player of scale will need to be nimble in adapting to changing market opportunities and regulations," said Seb Walker, a partner at industry consultant Tricumen.
Although JP Morgan is selling its large physical commodity trading franchise, the remaining derivatives business will still benefit from its massive lending franchise, trade finance operations and principal investing activity.
Citi, too, is "something of a wild card", said Walker. "Although currently a smaller player, the bank is notable for investing in the area while others have been pulling out."
A source familiar with Citi operations said the bank was committed to continue narrowing the gap with top players in commodities trading with focus on serving clients.
Goldman has suffered alongside some of its peers as some of its most senior executives have departed in recent months.
But none of them have commodities in the veins in the same way that Goldman does. Many of the banks' partners grew up in the J. Aron business, and remain fiercely loyal to it, giving them a strong voice among shareholders, says Hintz.
"The management grew up in commodities, they're looking through the cycle," he said. "In the meantime this isn't going to be profitable, but (they know) this is cyclical."