(Updates with JPMorgan denying metals brokerage sale)
* Announcement on overall commodities business seen this
* JPMorgan's brokerage feels financial impact of regulation
* Brokerage not under scrutiny by regulators
By Susan Thomas and Veronica Brown
LONDON, Jan 8, JPMorgan Chase & Co, the
world's biggest dealer in over-the-counter metals derivatives,
has added its metals futures brokerage to the sale of its
physical commodities business, sources familiar with the matter
A JPMorgan spokesman initially declined to comment, but
later said: "JP Morgan's metals futures brokerage is not up for
sale and we continue to be committed to that business."
The sources said the sale would include its London Metal
Exchange (LME) open outcry floor trading team, one of the
largest on the world's premier metals marketplace. A deal could
come later this month.
U.S. lawmakers and regulators have stepped up scrutiny of
Wall Street's giants over their physical commodity operations,
forcing banks including Deutsche Bank and JPMorgan
to pull out or shrink their commodities business.
"U.S. regulations are already having a serious effect on the
brokerage. It will get even worse when EU regulations come into
effect," one source said. "It's starting to impact on the
"They had to sell the concentrate business and might be
forced to lose the warehousing business and then logically
number three is the brokerage business."
JPMorgan launched the sale of its physical commodities
business in October, circulating offering documents to potential
buyers and valuing the assets at $3.3 billion, according to a
person familiar with the matter.
At the time the futures brokerage, one of the biggest
operators in world metals markets, was not part of the sale.
JPMorgan had been trying to sell its Henry Bath metals
warehousing unit since May but has yet to find a buyer.
It remains unclear whether the deal will result in an
outright sale or a joint venture.
Bankers and industry sources have said potential buyers
could come from one of several areas: foreign banks such as
Brazil's BTG Pactual or Macquarie that are not subject to Fed
Pressures on banks have mounted over the past few years as
regulators crack down on proprietary trading and new capital
measures limit trading books.
Sources said while the brokerage business was not under
scrutiny by financial regulators, the cost of complying with
regulations was mounting.
"Where they have an issue is that they provide a lot of
credit through their brokerage business which is kind of not
really kosher under the new regulatory system," an industry
As commodities prices surged over the last decade, JPMorgan
was a relatively late entrant to large-scale commodity trading
following its 2010 acquisition of metals and energy trading
desks from RBS Sempra.
Its global commodity chief Blythe Masters still largely
succeeded in her goal of surpassing Goldman Sachs and
Morgan Stanley as the largest bank in commodities.
Today, the bank's metals business includes its ring-dealing
seat on the LME, the global network of Henry Bath warehouses, a
large physical metals trading book and a strong proprietary
electronic commodities trading platform.
That empire has started to crumble, however. In 2012, it
sold its metals concentrates business due to U.S. regulatory
On Tuesday JPMorgan agreed to pay $2.6 billion to the U.S.
government and Bernard Madoff victims to settle allegations that
the bank failed to tell authorities about its suspicions of
fraud at Madoff's fund.
The settlement is only the latest of JPMorgan's legal
difficulties. In November, the bank agreed to a $13 billion
settlement with the U.S. government over the bank's mortgage
The bank still faces at least eight other government probes,
covering everything from its hiring practices in China to
whether it manipulated the Libor benchmark interest rate.
"After LIBOR they are worried about reputational risk in
anything to do with pricing," a third source said.
About 30 lawsuits allege that the LME and other defendants -
including investment banks Goldman Sachs Group Inc, JPMorgan and
merchants Glencore Xstrata and Trafigura AG - manipulated the
warehousing of aluminum in order to lift the price of the metal.
The U.S. Justice Department is also investigating the matter
(Additional reporting by Melanie Burton in Singapore; editing
by Keiron Henderson)