JPMorgan Chase & Co
) is set to divest its private equity arm, One Equity Partners
('OEP'). This divestiture will aid One Equity Partners raise its
own investment funds. Following the completion of the sale, the
private equity unit will become an independent firm.
JPMorgan took this decision following One Equity Partners'
first-quarter 2013 reported loss of $182 million, compared with a
profit of $134 million reported in the year-ago quarter. This
marked One Equity Partners' fourth quarterly loss over the last
Additionally, the private equity unit has been bogged down by
inconsistent returns and uncertainty regarding its role in the
bank. Moreover, the divesture reflects JPMorgan's efforts to
concentrate more on its core businesses of consumer and
investment banking and asset management.
Of late, the private equity business has become less lucrative
for banks due to the awaited regulations that are apprehended to
restrict proprietary trading and investment activities of the
banks. As per the Volcker Rule (a provision of the 2010
Dodd-Frank law), a company is prohibited from investing more than
3% of the private equity funds raised or 3% of the lender's Tier
1 capital. This provision is expected to adversely affect the
future of the bank-owned private-equity units, making them less
Though the Volcker Rule is yet to be implemented, it would not be
applicable to One Equity Partners as it is funded wholly by
JPMorgan. Therefore, the private equity unit of JPMorgan will
continue to be regulated by merchant banking laws.
One Equity Partners, founded in 2001, has been a part of
JPMorgan's private equity investment entity, though it is not a
core unit. Additionally, its investment ranges from $50
million-$500 million per transaction. One Equity Partners'
investment business is concentrated mainly in North America,
Europe, Asia and South America. Its total investments equals to
about $4.5 billion.
However, during the transition period, JPMorgan's private equity
unit will continue to make direct equity investments for the
company. Moreover, the private equity arm of JPMorgan will
continue to manage the existing group of portfolio companies.
Further, One Equity Partners will raise its subsequent investment
funds from external sources instead of raising it from JPMorgan.
This will be akin to independent private equity firms that pool
funds from various investors.
Over the past few years, several banks have been spinning off
their private equity operations to abide by the requirements of
the Volcker Rule. Recently,
Credit Suisse Group AG
) agreed to sell its private equity business to The
Blackstone Group L.P
). The deal is expected to be closed at the end of the third
quarter of 2013.
Bank of America Corporation
) announced the divesture of BAML Capital Partners, clearly
reflecting the anticipated impact of the Volcker Rule.
JPMorgan currently carries a Zacks Rank #2 (Buy).
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