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TheStreet Open House

JPMorgan Scores Big With Commodities Unit Sale

Stocks in this article: JPM

NEW YORK (TheStreet) -- JPMorgan Chase (JPM) on Wednesday announced the sale of its physical commodities trading business to Mercuria Energy Group of Geneva for $3.5 billion in cash.

JPMorgan said the transaction -- expected to be completed during the third quarter -- was "not expected to have a material impact" on its earnings.  But the deal is likely to be applauded by investors, since it helps the bank comply with the Volcker Rule's prohibition of "proprietary trading" and the commodities unit has had its share of regulatory trouble. 

JPMorgan on July 26, 2013 said it was exploring the sale of the physical commodities unit, just a few days after the Federal Energy Regulatory Commission (FERC) announced that JP Morgan Ventures Energy Corp. (JPMVEC), had agreed to pay $410 million "in penalties and disgorgement to ratepayers for allegations of market manipulation stemming from the company's bidding activities in electricity markets in California and the Midwest from September 2010 through November 2012."

The bank's timing in announcing the deal was notable, coming just one day ahead of the Federal Reserve's announcement of its 2014 bank stress test results, expected Thursday afternoon.  That announcement will be followed on March 26 by the regulator's announcement of the results of its annual Comprehensive Capital Analysis and Review (CCAR), which is a second set of stress tests incorporating large U.S. banks' plans to deploy excess capital through dividend increases, share buybacks, and/or acquisitions. 

An extra $3.5 billion in cash will certainly come in handy for JPMorgan, since the bank did not repurchases shares in amounts anywhere near the approved amounts, over the past two years, because of the "London Whale" hedge trading debacle in 2012 and the series of painful residential mortgage-backed securities settlements in 2013.

Jefferies analyst Ken Usdin on Monday estimated JPMorgan would be approved by the Fed to raise its quarterly dividend to 42 cents from 38 cents, and for the bank to be approved form common-stock repurchases of up to $5 billion from the second quarter of 2014 through the first quarter of 2015.

JPMorgan's shares were up slightly in afternoon trading to $58.20. This chart shows the performance of JPMorgan Chase's stock against the KBW Bank Index (I:BKX) and the S&P 500 since the end of 2011:

JPM Chart data by YCharts

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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