JPMorgan Chase & Co. said Friday it is planning to exit the physical commodities business, including its remaining holdings of commodities assets and its physical trading operations.
“To maximize value, the firm will explore a full range of options over time including, but not limited to a sale, spin-off or strategic partnership of its physical commodities business.” the bank said. “During the process, the firm will continue to run its physical commodities business as a going concern and fully support ongoing client activities.”
JPMorgan ranked ninth on NGI‘s most recent ranking of natural gas marketers. The move by the bank comes amid heightened scrutiny by regulators of commodities trading.
Goldman Sachs, Morgan Stanley and JPMorgan Chase “have emerged as major merchants of physical commodities and energy, notwithstanding the legal wall designed to keep them out of any non-financial business,” said Saule Omarova, associate professor of law at the University of North Carolina, in recent testimony before Senate Banking, Housing and Urban Affairs subcommittee.
The three financial holding companies “currently own and operate what appear to be significant businesses trading in crude oil, gas, refined petroleum products, electric power, metals and other physical commodities. In conducting these activities, they function as traditional commodity merchants rather than purely financial intermediaries,” Omarova said (see related story).
The Federal Reserve recently appeared to question whether banks should be allowed to trade in physical commodity markets, saying it is 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.
JPMorgan has built a leading commodities franchise in recent years, achieving a top-ranked revenue position, it said. “The business has been consistently named as a top client business in Greenwich Associates’ annual client surveys and was recently named Derivatives House of the Year by Energy Risk magazine.
The bank said it will remain committed to its traditional banking activities in the commodity markets, including financial derivatives and the vaulting and trading of precious metals. “The firm will continue to make markets, provide liquidity and offer advice to global companies and institutions…”
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