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Morgan considers exiting commodities business but will stick with gold
JPMorgan Eyes Sale of Commodity Unit
By Gregory Meyer
Financial Times, London
Friday, July 26, 2013
http://www.ft.com/intl/cms/s/0/4901bdaa-f627-11e2-a55d-00144feabdc0.html
NEW YORK -- JPMorgan Chase revealed on Friday that it was considering a sale of its physical commodities business, signalling the potential exit of one of Wall Street's biggest traders of cargoes of oil, coal and industrial metals.
The announcement capped a week of intensifying scrutiny of banks' role in the raw materials supply chain. The Federal Reserve said on July 19 it was reviewing a landmark decision to permit banks to own physical commodities, not only paper derivatives. On Tuesday witnesses at a Senate hearing raised questions about metal warehouses, power plants and tanker vessels owned by banks.
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JPMorgan said, "We considered many different factors, including the impact of potential new rules and regulations," in arriving at its decision to pursue strategic alternatives for the commodities business.
The announcement comes only three years after JPMorgan, led by commodities chief Blythe Masters, spent $1.6 billion to plunge into physical commodities with the purchase of the global oil, metals, and coal divisions of RBS Sempra Commodities, a trading house.
A year ago JPMorgan was instrumental in salvaging a troubled oil refinery in Philadelphia by agreeing to finance and supply it with crude.
Higher capital requirements, a looming ban on proprietary trading, and the Fed's review have put the viability of acting as a physical commodities merchant under question. Morgan Stanley, the bank with the largest commodities footprint, has said it will look at options that make sense for the business. Last year it engaged in inconclusive talks to sell a stake to Qatar's sovereign wealth fund.
JPMorgan's physical commodities business includes trading in energy markets such as oil, gas, coal and emissions, and base metals. Its longstanding precious metals vaulting and commodity derivatives businesses are not part of the strategic review.
The Financial Times reported this month that JPMorgan was seeking a buyer for Henry Bath, the metals warehousing unit acquired as part of the Sempra deal.
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