Michael Nowak, who ran precious metals trading at JPMorgan for more than a decade, is on trial in Chicago with colleagues Gregg Smith and Jeffrey Ruffo for conspiring to manipulate the gold and silver markets . The focus is now on the jury, which began its deliberations on Friday evening, but the proceedings have already shed new light on the inner workings of the company, from its profitability and market share to its biggest customers.
The court saw internal figures detailing the bank’s annual precious metals profits, the first time such detailed information has been made public. JPMorgan’s earnings reports do not detail the results of the precious metals desk, or even its broader commodities unit. A spokesperson declined to comment on the trial revelations.
In summary: The business is a consistent source of revenue for JPMorgan, making annual profits between $109 million and $234 million a year between 2008 and 2018. The lion’s share comes from capital markets transactions, but the bank does a lot of physical business as well. Trading and transporting physical precious metals earns the bank about $30 million per year on average.
Yet the profits disclosed in the lawsuit have been overshadowed more recently: In 2020, JPMorgan made $1 billion in precious metals as the pandemic created unprecedented arbitrage opportunities, according to people familiar with the matter.
JPMorgan holds tens of billions of dollars in gold in vaults in London, New York and Singapore. It is one of four clearing members of the London market, where world gold prices are set by buying and selling metal held in a few London vaults, including those of JPMorgan and the Bank of England. .
JPMorgan is the biggest player among a small group of “bullion banks” that dominate precious metals markets, and internal documents presented by prosecutors gave some insight into the bank’s dominant role.
In 2020, JPMorgan earned $1 billion in precious metals as the pandemic created unprecedented arbitrage opportunities, according to people familiar with the matter.
In 2010, for example, 40% of all trades in the gold market were cleared by JPMorgan.
JPMorgan’s top precious metals employees on the desk were paid handsomely, and some jurors gasped when the court heard how much the defendants had earned.
Ruffo, the bank’s hedge fund salesman, was paid $10.5 million from 2008 to 2016. Smith, the top gold trader, received $9.9 million. Nowak, their boss, did the maximum: 23.7 million dollars over the same period.
Their salary was tied to the profits they made for the bank. FBI agent Marc Troiano, citing internal JPMorgan data, told the court that the total profit allocated to Ruffo from 2008 to 2016 was $70.3 million. Smith generated around $117 million over the same period, while Nowak banked $186 million, including $44 million in 2016.
Hedge funds like Moore Capital,
Investment Corp and the eponymous company of George Soros were among the most important clients on the desk. Access to those clients was the main reason for retaining Ruffo after the bank acquired Bear Stearns, according to former trader Christian Trunz, who testified against his former bosses and called Ruffo the best salesman on Wall Street. Being one of JPMorgan’s top clients had its perks: Employees of the funds could receive free tickets to the US Open, according to messages implicating Nowak released during the trial.
Another important customer group was central banks, which trade gold for their reserves and are among the major players in the bullion market. At least ten central banks held their metal in vaults managed by JPMorgan in 2010, according to documents disclosed to the court.