By Sarah Kent
LONDON-- J.P. Morgan Chase & Co. has become the latest bank
to scale back its commodities business, striking a deal to sell its
physical assets and trading arm to Swiss trader Mercuria Energy
Group Ltd. for $3.5 billion in cash.
The deal, expected to be completed in the third quarter, marks
the largest ever acquisition completed by Mercuria, a closely-held
company founded in 2004 by Swiss traders Marco Dunand and Daniel
Jaeggi that is relatively unknown outside the physical commodities
trading industry.
Mercuria had been in exclusive talks to buy the unit since
earlier last month when it beat off rival bidders Australian bank
Macquarie Group Ltd. and New York private-equity giant Blackstone
Group LP, people familiar with the situation said at the time. J.P.
Morgan initially marketed the assets to about 50 parties and
received about 20 first-round bids for all or parts of the package,
people familiar with the process said.
"Our goal from the outset was to find a buyer that was
interested in preserving the value of J.P. Morgan's physical
business," said Blythe Masters, head of the bank's global
commodities business, in a statement.
It is unclear whether Ms. Masters--former chief financial
officer of J.P. Morgan's investment bank and one of the highest
profile women on Wall Street--will transfer to Mercuria as part of
the deal.
Her fate, and that of other senior executives, may not be
resolved until the deal closes, according to people familiar with
the matter, amid concerns that any talks involving her position at
Mercuria would conflict with the bank's negotiating position.
The sale comes amid a realignment in the global
commodities-trading business as tighter regulation and capital
constraints have made it more difficult for big Wall Street banks
to participate in the high-cost, low-margin business. The Federal
Reserve is considering whether new rules are needed to limit banks'
exposure to the commodities trading amid concerns that these
activities could pose a risk to financial stability and conflicts
of interest. Such pressures have triggered a series of high-profile
exits from the industry.
Morgan Stanley agreed to sell its oil storage and trading
business to state-backed Russian oil giant OAO Rosneft at the end
of last year. Deutsche Bank, one of the banking industry's biggest
players in the commodities sector, said in December it would exit
almost all its commodity businesses around the world. Goldman Sachs
Group Inc. has entertained offers for certain units, such as its
Metro International Trade Services group of metals warehouses.
Royal Bank of Scotland Group and UBS have also wound down physical
commodities trading desks in recent years.
Meanwhile, the mostly privately-held commodities houses have
been snapping up assets to support their core trading businesses,
lock in access to supply and provide a steady income stream.
Trading houses aren't subject to regulatory capital requirements
like banks are.
Buying J.P. Morgan's commodities assets, which include units
that trade oil, natural gas and base metals, as well as hard assets
such as gas fields, storage caverns and the Henry Bath & Son
Ltd. chain of metals warehouses, would boost Mercuria's presence in
North American gas and power and buttress its position in the
global metals market.
Christian Berthelsen in New York contributed to this
article.
Write to Sarah Kent at sarah.kent@wsj.com
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