* All-cash transaction to be completed by third quarter
* Metals brokerage business to stay with JPMorgan, source
* Mercuria is first trade house to absorb entire physical
division from a bank
(Updates with comments from U.S. Senator Sherrod Brown in
By Dmitry Zhdannikov and Chris Peters
NEW YORK, March 19 JPMorgan is selling
its physical commodities business to Mercuria for $3.5 billion,
the U.S. bank said on Wednesday, sweeping the fast-growing Swiss
trading house into the top league of commodities traders.
The all-cash transaction for one of the most powerful oil
and metals desks on Wall Street is expected to close in the
third quarter, JPMorgan said in a statement.
In documents circulated to potential buyers last year,
JPMorgan had valued its physical commodity business at $3.3
billion, with an annual income of $750 million. JPMorgan paid
nearly $2 billion to buy the largest part of the business from
RBS in 2010.
JPMorgan decided to sell its multibillion-dollar physical
commodities division last year because of rising regulatory and
political pressure, and so it could concentrate on the bank's
core business of lending.
"Our goal from the outset was to find a buyer that was
interested in preserving the value of JPMorgan's physical
business," said Blythe Masters, head of JPMorgan's global
JPMorgan said it would still provide traditional banking
activities in commodities markets, including financial products
and the vaulting and trading of precious metals.
It gave no further details of what exactly would be included
in the transaction, but a source close to the matter said the
bank's metal brokerage business including its London Metal
Exchange (LME) ring dealing team would remain with JPMorgan.
However its Henry Bath metals warehousing unit was included
in the deal, the source added.
JPMorgan also has sizeable power, natural gas and carbon
trading desks, largely operating from London, as well as owning
FATE OF JPMORGAN EMPLOYEES
The fate of JPMorgan's Masters was too early to tell, the
source said, adding that she and her management team had been
primarily focused on achieving the sale.
Others in the commodities units were waiting to hear about
"It will be interesting to see whether Mercuria will want to
keep us on or not, and whether they will attempt to move our
desks to Geneva," one trader with the bank said.
"Most of us want to stay here (in London), so I suspect a
drive to move us to Geneva would equate to a reduction of our
power and gas trading desks," the trader added.
Many other banks, including Deutsche Bank, Bank
of America Merrill Lynch and Barclays, have
recently scaled back or shut down their power, gas and carbon
trading desks, citing unfavourable banking regulation as the
In February, Reuters reported that Mercuria, led by two
former Goldman Sachs executives Marco Dunand and Daniel
Jaeggi, became the front-runner to buy the physical commodities
unit, one of the most powerful oil and metals desks on Wall
The bank went into exclusive talks with Mercuria in
February. In the weeks before that, the trade house had been
competing with Australian bank Macquarie Group and
private equity manager Blackstone Group LP to buy
JPMorgan's unit, sources had said.
Private and lightly regulated trading houses have benefited
most from a major retreat by banks from commodities trading over
the past two years.
Companies such as Glencore and Russian oil major
Rosneft hired whole teams of traders from banks such as Morgan
Stanley but Mercuria will become the first trading house
to absorb an entire physical division from a bank.
Following the news on Wednesday, Democratic U.S. Senator
Sherrod Brown, who has been a staunch critic of Wall Street's
physical commodity activities, renewed his call for U.S.
regulators to clamp down on banks' ownership of metals
warehouses, oil pipelines and other commodity assets.
"Today's news is a welcome development, but this does not
let regulators off the hook," Brown said in a statement.
"The Fed, CFTC, and others must enact robust reforms to Wall
Street's physical commodities activities and do more to protect
end users and consumers of aluminum and other materials."
(Reporting by Chris Peters, Dmitry Zhdannikov and Ron Bousso;
Additional reporting by Susan Thomas, Veronica Brown and Henning
Gloystein in London and Josephine Mason in New York; Editing by
Anna Willard and Lisa Shumaker)