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JPMorgan Selling Physical Commodities Business to Mercuria for $3.5B

Following through on a promise it made last year, JPMorgan Chase & Co. said Wednesday it will sell its physical commodities business to Mercuria Energy Group Ltd. in a $3.5 billion all-cash transaction. The deal is expected to close in the third quarter, subject to regulatory approvals.

JPMorgan said in July it was planning to exit the physical commodities business, including its remaining holdings of commodities assets and its physical trading operations (see Daily GPI, July 29, 2013).

"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. "Mercuria is a global leader in the commodities markets and an excellent long-term home for these businesses." The transaction is not expected to have a material impact on JPMorgan Chase's earnings.

JPMorgan said it "will work closely with Mercuria to ensure a smooth transition of commodities assets, transactions, physical trading operations and employees to Mercuria at the close of the transaction." The financial institution also said it will continue to provide traditional banking activities in the commodities markets, "including financial products and the vaulting and trading of precious metals, and will continue to make markets, provide liquidity and risk management, and offer advice to global companies and institutions around the world."

Founded in 2004 and based in Larnaca, Cyprus, Mercuria claims to be one of the largest integrated energy and commodity trading companies in the world. It has offices in 28 countries, including one in Houston opened in 2009 to trade natural gas, power and petroleum products (see Daily GPI, June 4, 2009). The company launched a liquefied natural gas trading business in 2010 (see Daily GPI, Aug. 12, 2010). Trading activities are managed through Mercuria Energy Group Holding SA of Geneva. Mercuria Energy is privately owned by its founding shareholders and a group of senior employees, and employs more than 1,000 people worldwide.

Mercuria CEO Marco Dunand said the transaction represented a major step for the company's development.

"The market professionals at JPMorgan commodities are amongst the most highly regarded in the industry. The opportunity to integrate them in Mercuria's global existing business will reinforce our group's leading position in the energy and commodities markets," he said.

JPMorgan ranked eighth on NGI's Top North American Gas Marketers Survey for 4Q2013 -- released Friday -- transacting 5.16 Bcf/d during the quarter. The bank placed ninth for full-year 2013 doing 5.54 Bcf/d (seeDaily GPI, March 14). JPMorgan’s gas commodities business in 2012 ranked eighth based on FERC 552 data of top marketers by volume of natural gas bought and sold (see Daily GPI, June 4, 2013).

JPMorgan's exit follows heightened scrutiny by regulators of commodities trading. The Federal Reserve last year appeared to question whether banks should be allowed to trade in physical commodity markets, saying it was reviewing a landmark 2003 decision that allowed Citigroup's Phibro unit to trade oil. That decision had opened the door to the establishment of trading operations by other banks.

Just days after JPMorgan announced its plan to exist the physical commodities business, the Federal Energy Regulatory Commission (FERC) approved a stipulation and consent agreement ordering JP Morgan Ventures Energy Corp. to pay $410 million in penalties and disgorge profits for allegedly manipulating power markets in California and the Midwest (see Daily GPI, July 31, 2013). FERC investigators determined that the JPMorgan subsidiary engaged in 12 manipulative bidding strategies designed to make profits from power plants.

In exiting commodities trading, JPMorgan follows in the footsteps of Deutsche Bank, which in December significantly scaled back its commodities business and exited the dedicated trading desks for energy, agriculture, base metals and dry bulk (see Daily GPI, Dec. 5, 2013).

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