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Pressurized by stringent regulations and forecasts of lackluster demand in certain markets, The Goldman Sachs Group, Inc. (GS - Analyst Report) has decided to divest its uranium trading operations.

The decision follows major Wall Street bank JPMorgan Chase & Co.’s (JPM - Analyst Report) proposed sale of its physical commodity business in October, this year. Further, Morgan Stanley’s (MS - Analyst Report) oil pipeline and terminals business – TransMontaigne – has attracted the interest of Russia’s largest oil company, OAO Rosneft.

Financial companies started foraying into the uranium business in the mid-2000s when uranium prices were rising on expectations that the demand for it would grow. In 2009, Goldman's uranium business was established after the U.S. banking major purchased the U.S. utility Constellation Energy's London-based trading operations.

Of late, the commodity trading businesses of large financial institutions are under scrutiny as the Federal Reserve is reviewing its decision made in 2003 to allow banks to trade in the physical commodity market. Banks have allegedly been misusing the trading platform, thereby manipulating prices of the commodities.

Therefore, lawmakers are concerned about the risks associated with the ownership of warehouses and plants by banks. They believe that these ownerships tend to manipulate bank profits, thereby affecting consumer interest.

However, we believe that finding a buyer for Goldman’s physical commodity business will be quite challenging. This is because regulatory scrutiny and declining revenues have dampened interest in commodity trading.

Goldman currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the financial sector includes KeyCorp. (KEY - Analyst Report), which carries a Zacks Rank #2 (Buy).

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