The market had been expecting JPMorgan Chase (JPM) to offload its commodity business for a while now–and JPMorgan finally delivered. While the deal has generated big headlines, it’s had little impact on JPMorgan’s share price.
Associated Press The Wall Street Journal has the details on JPMorgan’s sale:
J.P. Morgan Chase & Co. has become the latest bank to scale back its commodities business, striking a deal to sell its physical assets and trading arm to Swiss trader Mercuria Energy Group Ltd. for $3.5 billion in cash…
The sale comes amid a realignment in the global commodities-trading business as tighter regulation and capital constraints have made it more difficult for big Wall Street banks to participate in the high-cost, low-margin business…Morgan Stanley (MS) agreed to sell its oil storage and trading business to state-backed Russian oil giant OAO Rosneft at the end of last year. Deutsche Bank, one of the banking industry’s biggest players in the commodities sector, said in December it would exit almost all its commodity businesses around the world. Goldman Sachs Group Inc. (GS) has entertained offers for certain units, such as its Metro International Trade Services group of metals warehouses.
Wells Fargo’s Matthew Burnell explains why JPMorgan offloaded its commodities business–and why the market has shrugged:
[JPMorgan] initially announced it had begun to seek strategic alternatives for the physical commodities operations including physical oil, gas, power, warehousing, facilities and transportation operations in late July 2013. We believe the combination of modest financial returns, elevated risk-weightings related to such assets and growing regulatory scrutiny of the operations were the primary reasons for [JPMorgan] to divest the operations….
[JPMorgan] stated the transaction will have no material effect on its earnings and expects no meaningful regulatory capital benefit (suggesting no meaningful gain/loss from the sale).
Shares of JPMorgan Chase have gained 0.1% to $58.10, while Morgan Stanley has dropped 0.4% to $31.52 and Goldman Sachs has dipped 0.1% to $167.91.
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