Millennium Post

JPMorgan to sell commodities unit to Swiss Mercuria for $3.5 billion

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 decided to sell its multi-billion dollar physical commodities division last year due to rising regulatory and political pressure and so it could concentrate on the bank’s core business of lending. JPMorgan paid nearly $2 billion to buy the largest part of the business from RBS in 2010.

JPMorgan said it would still provide traditional banking activities in commodities markets, including financial products and the vaulting and trading of precious metals, the news agency added. It was reported that he 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. JPMorgan also has sizeable power, natural gas and carbon trading desks, largely operating from London, as well as owning power plants.

Many other banks, including Deutsche Bank, Bank of America Merrill Lynch and Barclays, have recently scaled back or shut down their power, gas and carbon trading desks, citing unfavorable banking regulation as the main reason. It was in February, Mercuria, led by two former Goldman Sachs 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.

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 and private equity manager Blackstone Group LP to buy JPMorgan’s unit. 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 and Russian oil major Rosneft hired whole teams of traders from banks such as Morgan Stanley but Mercuria will become the first trading house to absorb an entire physical division from a bank.
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