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Banks Are Finally Shedding Unnecessary Risks

By Taylor Muckerman and Joel South – Mar 12, 2014 at 10:05AM

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Not many investors likely understand the true risks banks are taking when operating in the commodities space.

Banks like JPMorgan (JPM 0.24%) take risks every day. While many understand the loan-making and investing activities that make the headlines, not everyone realizes that these same banks are also exposing themselves to the possibility of much greater financial distress. Since 2008, commodities businesses have become a major part daily operations.

Thankfully, the Federal Reserve is thinking about stepping in. Perhaps this is cause for JPMorgan to consider selling its commodities business to trading company Mercuria. The deal is supposedly for $3 billion for a unit that has made $750 million in operating profit a year. Terms aren't expected to be announced from the Fed for a few months, and many expect Goldman Sachs (GS 0.09%) and Morgan Stanley (MS 0.07%) to be largely immune. For more, tune in to the video below. 

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This segment is from Tuesday's edition of "Digging for Value," in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy & materials sectors @TMFEnergy.

Joel South has no position in any stocks mentioned. Taylor Muckerman has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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