We have updated our privacy policy and terms & conditions. Find out more here.

Why JPMorgan Is Selling Commodities Business

CommoditiesMar 19, 2014 03:00PM GMT Add a Comment
Share with a Friend
Thanks for sharing
Emails have been sent to:
To send more emails click here
2/2 2/2

By Nat Rudarakanchana - Banking powerhouse JPMorgan Chase & Co. (NYSE:JPM) has agreed to sell its commodities business to giant Swiss commodities house Mercuria Energy Group Ltd., reports the Wall Street Journal.

JPMorgan, the biggest U.S. bank by assets, initially valued its commodities unit at $3.3 billion back in October 2013, when it first warmed to a potential sale. Terms of the deal with Mercuria aren’t yet public, though the deal could be done by summer, according to sources cited by the Journal.

Swiss traders and Mercuria executives Marco Dunand and Daniel Jaeggi have rapidly built Mercuria into a closely held commodities empire, which saw over $100 billion in revenue last year, reported Bloomberg earlier. It has come to compete with the biggest independent commodity traders, like Glencore Xstrata PLC (LON:GLEN), as a result.

“This gives them a strong opportunity for growth and puts them close to the top players in the league,” Oliver Wyman partner Roland Rechtsteiner told Bloomberg earlier this month, of the potential acquisition.

JPMorgan’s commodities unit has made $750 million in yearly operating profits before compensation is factored in, according to Bloomberg.

Many Wall Street banks have sold or exited their commodities business as of late. Morgan Stanley (NYSE:MS) sold its oil storage and trading unit to Russia’s Rosneft’ NK OAO (MCX:ROSN) in late 2013. Deutsche Bank AG (FRA:DBK), a major bank player in commodities, announced in December that it’d quit almost all of its commodity businesses. Goldman Sachs Group, Inc. (NYSE:GS), Royal Bank of Scotland Group PLC (LON:RBS) and UBS AG (VTX:UBSN) have all  wound down their commodities work or signaled they plan to.

That trend comes as the Federal Reserve considers tighter regulation on commodities trading at banks.

“Physical commodities activities can pose unique risks to financial holding companies,” said the Fed’s director of banking supervision and regulation Michael Gibson before a U.S. Senate subcommittee in January.

Fed regulation could include caps on assets or revenue related to commodities, higher capital requirements, or simple bans on holdings of certain physical commodities. “Our review of the commodity-related activities of our supervised firms is ongoing,” said Gibson then.

Revenues for the ten largest investment bank commodity businesses fell to $4.5 billion in 2013 from $14 billion in 2008, according to London analytics company Coalition. 

Why JPMorgan Is Selling Commodities Business

Related Articles

Gold rallies above $1,190 after ADP miss
Gold rallies above $1,190 after ADP miss
By Investing.com - Apr 01, 2015

Investing.com - Gold prices rallied to the highest levels of the session on Wednesday, after data showed that U.S. non-farm private employment rose at the slowest pace in ten ...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

JP Morgan Chase
Are you sure you want to delete this chart?
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.