JPMorgan Chase & Co.
) has moved a step closer towards selling its physical
commodities business. Geneva-based trading house Mercuria Energy
Group is being favored as the possible buyer over Sydney-based
Macquarie Group and New York-based private equity firm
The Blackstone Group L.P.
). However, the final decision on the deal is expected to be
taken by the end of this month.
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It was in 2005 that JPMorgan received the Federal Reserve's
consent to trade physical commodities. Further, with the
acquisition of Bear Stearns Cos. in 2008, which included an
energy trading platform, the company began its physical commodity
business. Additionally, in 2010, the company purchased
Royal Bank of Scotland Group plc
) non-U.S. commodities joint venture with
) - RBS-Sempra Commodities LLP.
JPMorgan's physical commodities business comprises global crude,
North American power, North American natural gas, European power
and gas, base metals, coal and the Henry Bath metals warehousing
However, over the last few years, the physical commodity business
as a whole has witnessed a fall in revenues. Further, in Jul
2013, the Fed stated that it was reviewing its 2003 decision of
allowing banks to pursue trading in the physical commodity
Therefore, subsequently, JPMorgan announced its plan to exit the
physical commodity business, including the sale of stakes in
commodities assets and physical trading operations. This step
came amid heightened regulatory and political scrutiny of banks'
ownerships in such assets.
For Mercuria, the deal will accord to its strategy of expansion
in diverse markets. Founded in 2004, the company has emerged as
one of the world's major oil traders in less than a decade.
The deal with JPMorgan, if completed, will make Mercuria one of
the top global commodities traders, like
Glencore Xstrata plc
), Vitol and Trafigura. Further, Mercuria's expansion in the U.S.
is expected to be beneficial as the shale oil boom is opening up
new avenues for profits.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).