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JPMorgan Fetches $3.5B for Commodities Business

Stocks in this article: JPM BX GS UBS

NEW YORK (The Deal) -- JPMorgan Chase (JPM) on Wednesday announced plans to sell its physical commodities business to Mercuria Energy Group Ltd. for $3.5 billion, following through on a pledge to sell the unit amid rising regulatory and political pressure on noncore bank businesses.

New York-based JPMorgan put the business on the block last year, and the auction reportedly attracted attention from Macquarie Group of Australia and Blackstone Group (BX). The deal would leave Mercuria, a Geneva, Switzerland-based trader led by one-time Goldman Sachs  (GS) executives, as one of the world's largest commodity firms.

JPMorgan, led by CEO Jamie Dimon, said that it expects the deal to close during the third quarter, and said it would work with Mercuria to transition assets, transactions and employees. Post-deal JPMorgan will continue to provide traditional banking activities for the commodity markets, including financial products and the vaulting and trading of precious metals.

"Our goal from the outset was to find a buyer that was interested in preserving the value of JPMorgan's physical business," Blythe Masters, head of the bank's global commodities business, said in a statement. "Mercuria is a global leader in the commodities markets and an excellent long-term home for these businesses."

JPMorgan's commodities trading operations surged as part of its midrecession purchase of Bear Stearns. JPMorgan further added to the business in 2009 when it purchased UBS's (UBS) Canadian and agriculture commodities unit and then other assets in 2010.

However, in recent years the unit has attracted unfavorable attention from politicians, with Congress last July holding hearings on whether banks like JPMorgan were using their commodities desks to inflate raw material prices. Even without further scrutiny, analysts have questioned whether banks would be able to compete against less regulated trading houses.

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