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 The all-cash transaction for one of the most powerful oil and metals
desks on Wall Street is expected to close in the third quarter,
JPMorgan said in a statement.
In documents circulated to potential buyers last year, JPMorgan had
valued its physical commodity business at $3.3 billion, with an
annual income of $750 million. JPMorgan paid nearly $2 billion to
buy the largest part of the business from RBS in 2010.
JPMorgan decided to sell its multibillion-dollar physical
commodities division last year because of rising regulatory and
political pressure, and so it could concentrate on the bank's core
business of lending.
"Our goal from the outset was to find a buyer that was interested in
preserving the value of JPMorgan's physical business," said Blythe
Masters, head of JPMorgan's global commodities business.
JPMorgan said it would still provide traditional banking activities
in commodities markets, including financial products and the
vaulting and trading of precious metals.
It gave no further details of what exactly would be included in the
transaction, but a source close to the matter said the bank's metal
brokerage business including its London Metal Exchange (LME) ring
dealing team would remain with JPMorgan.
However its Henry Bath metals warehousing unit was included in the
deal, the source added.
JPMorgan also has sizeable power, natural gas and carbon trading
desks, largely operating from London, as well as owning power
plants.
FATE OF JPMORGAN EMPLOYEES
The fate of JPMorgan's Masters was too early to tell, the source
said, adding that she and her management team had been primarily
focused on achieving the sale.
Others in the commodities units were waiting to hear about their
future.
"It will be interesting to see whether Mercuria will want to keep us
on or not, and whether they will attempt to move our desks to
Geneva," one trader with the bank said.
"Most of us want to stay here (in London), so I suspect a drive to
move us to Geneva would equate to a reduction of our power and gas
trading desks," the trader added.
Many other banks, including Deutsche Bank <DBKGn.DE>, Bank of
America Merrill Lynch <BAC.N> and Barclays <BARC.L>, have recently
scaled back or shut down their power, gas and carbon trading desks,
citing unfavorable banking regulation as the main reason.
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In February, Reuters reported that Mercuria, led by two former
Goldman Sachs <GS.N> executives Marco Dunand and Daniel Jaeggi,
became the front-runner to buy the physical commodities unit, one of
the most powerful oil and metals desks on Wall Street.
EXCLUSIVE TALKS
The bank went into exclusive talks with Mercuria in February. In the
weeks before that, the trade house had been competing with
Australian bank Macquarie Group <MQG.AX> and private equity manager
Blackstone Group LP <BX.N> to buy JPMorgan's unit, sources had said.
Private and lightly regulated trading houses have benefited most
from a major retreat by banks from commodities trading over the past
two years.
Companies such as Glencore <GLEN.L> and Russian oil major Rosneft
hired whole teams of traders from banks such as Morgan Stanley <MS.N>
but Mercuria will become the first trading house to absorb an entire
physical division from a bank.
Following the news on Wednesday, Democratic U.S. Senator Sherrod
Brown, who has been a staunch critic of Wall Street's physical
commodity activities, renewed his call for U.S. regulators to clamp
down on banks' ownership of metals warehouses, oil pipelines and
other commodity assets.
"Today's news is a welcome development, but this does not let
regulators off the hook," Brown said in a statement.
"The Fed, CFTC, and others must enact robust reforms to Wall
Street's physical commodities activities and do more to protect end
users and consumers of aluminum and other materials."
(Reporting by Chris Peters, Dmitry Zhdannikov and Ron Bousso;
Additional reporting by Susan Thomas, Veronica Brown and Henning
Gloystein in London and Josephine Mason in New York; editing by Anna
Willard and Lisa Shumaker)
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