JPMorgan Chase has agreed to sell its physical commodities trading unit to Swiss trading firm Mercuria Energy Group for $3.5 billion in cash. Buying the JPMorgan business will give the Swiss firm to physical oil and gas assets across North America, as well as Henry Bath & Sons, a 220-year-old British metal warehouse operator. Mercuria would not be subject to the same capital limits as a regulated bank because it is an independent trading house.
The announcement of the deal concludes a months-long effort by JPMorgan to sell the unit. JPMorgan announced its intent to sell the commodities unit last summer and entered into final talks with Mercuria last month. Mercuria has become one of the world’s four biggest independent commodities traders. Founded by former Goldman Sachs traders, it has offices in 28 countries and employs more than 1,000 people.
Blythe Masters, head of the JPMorgan commodities business said, “Our goal from the outset was to find a buyer that was interested in preserving the value of JPMorgan’s physical business. Mercuria is a global leader in the commodities markets and an excellent long-term home for these businesses.” The deal is expected to close in the third quarter.
The recently enacted Dodd-Frank legislation was a sweeping financial regulatory overhaul that has put a number of new restrictions on bank’s activities. In particular, the Volcker Rule portion of the legislation specifically restricts the ability of banks to trade for their own accounts, which puts limits on engaging in some commodities trading. The Federal Reserve is also considering actions restricting banks from some commodities activities in order to reduce their exposure to potential sources of instability.
Wall Street firms are deciding to voluntarily exit a business that traditionally has relatively low margins. Goldman has been weighing its options for its warehouses unit. In December, Morgan Stanley sold a physical oil business to Rosneft of Russia. That same month, Deutsche Bank announced plans to get out of most of its commodities businesses worldwide.