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UBS Energy Trading Goes to Barclays, JP Morgan

The reshuffling of the North American energy trading sector continued at the end of the year as J.P. Morgan announced that it will acquire UBS Commodities Canada Ltd., the Canadian energy operations of UBS AG, as well as the firm's global agricultural business. In another action Barclays Bank plc said it would acquire UBS' natural gas trading portfolio in the United States.

Regarding the Barclay's transaction, both sides asked the Federal Energy Regulatory Commission (FERC) to act quickly to approve a request for a temporary waiver of the agency's capacity-release rules to facilitate the acquisition so they could close the transaction by Dec. 31. The Commission approved the temporary waiver on Dec. 30, but the acquisition had not closed as of Friday, a UBS spokeswoman said. Barclays will acquire all of UBS' energy and natural gas agreements, including gas purchase and sale agreements, as well as natural gas transportation and storage agreements, according to the FERC order.

"Because of the expedited nature of the negotiations leading to [this] agreement, as well as the difficult environment facing U.S. and international credit and capital markets, [Barclays and UBS] request a temporary waiver of the Commission's capacity-release policies and regulations, including the shipper-must-have-title policy, the prohibition on buy-sell arrangements and the prohibition on tying arrangements," the FERC order said [RP09-157].

London-based Barclays and UBS, a subsidiary of Switzerland-based UBS AG, requested the waiver out of concern that they might commit "inadvertent violations of the Commission's policies or regulations" in their haste to close the transaction and transfer the trading assets.

In granting the request, FERC said the waiver would be in effect for a limited transition period until 90 days after the closing of the transaction between Barclays and UBS. And it noted that the waiver could only be used for the limited purpose of completing Barclay's purchase and integration of UBS' gas trading assets.

Financial details of the J.P. Morgan acquisition, which is expected to close during the first quarter of 2009, were not disclosed.

UBS had announced in October that it was exiting commodities trading -- with the exception of precious metals -- in its Fixed Income business as part of the bank's restructuring (see NGI, Oct. 6, 2008). UBS Energy, which marketed 3 Bcf/d of natural gas during 2Q2008, but did not participate in NGI's Top North American Gas Marketers ranking for 3Q2008 (see NGI, Dec. 22, 2008).

With operations and employees based in Calgary, UBS Commodities Canada will become an indirect wholly owned subsidiary of J.P. Morgan. J.P. Morgan said the deal will immediately expand its presence in the Canadian natural gas, power and crude oil physical and financial markets, while further expanding the investment bank's overall Canadian client franchise. J.P. Morgan's Calgary office will be run by Brian Cumming, a managing director with extensive experience in the commodity markets. Cumming was most recently based in J.P. Morgan's London office. UBS put significant focus on its energy trading business in early 2002 when it acquired Enron Corp.'s trading arm through a deal with the U.S. Bankruptcy Court in New York (see NGI, Feb. 11, 2002) Under the deal, which reportedly included nearly 650 former Enron employees, UBS did not pay anything up front or assume any of the trader's debt.

"We continue to take advantage of opportunities that will further enhance and diversify our global commodities business," said Blythe Masters, head of Global Commodities at J.P. Morgan. "The addition of these businesses and talented teams further expands our North American energy franchise and provides further depth to our growing agricultural and soft commodities platform."

J.P. Morgan said its Global Commodities division has grown significantly over the past two years, both organically and through acquisitions. During that time the company has hired more than 100 trading, sales and marketing professionals.

Last year J.P. Morgan acquired two key commodity franchises, ClimateCare and Bear Energy. ClimateCare is a carbon-offset company that originates and trades carbon emission reduction offsets in both the compliance and voluntary markets. Bear Energy was a large physical and financial U.S. power and gas franchise based in Houston that J.P. Morgan obtained as part of the larger Bear Stearns acquisition (see NGI, March 24, 2008).

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