(Repeats story first released late on April 20)
By Josephine Mason
SANTIAGO, April 20 (Reuters) – JPMorgan Chase & Co
is close to selling its U.S. metal concentrates trading arm and
could announce a deal as early as Monday, two sources who were
informed of the deal told Reuters this week.
The divestment, while likely small in dollar terms, would
come just months ahead of a deadline to sell off parts of the
bank’s enlarged commodity trading operation that do not meet
Federal Reserve regulations. JP Morgan had two years to comply
after it bought the bulk of RBS Sempra in 2010.
The size of the deal and identify of the buyer were not
clear, but sources said most large merchant traders had examined
the Stamford, Connecticut-based business, a mid-sized player in
the niche market for trading concentrate ore that has been
crushed and milled to remove waste and increase the metal.
Philip Bacon, who runs JPMorgan Metal & Concentrate LLC,
told customers and traders at this week’s CESCO copper industry
conference in Santiago, Chile, that they hoped to announce a
deal by Monday, two sources who met with the team told Reuters.
A JP Morgan spokeswoman declined to comment.
The concentrates team, which includes a handful of senior
traders, had to miss Wednesday night’s CESCO dinner, one of the
metal and mining industry’s biggest events of the year, to fly
back to the United States to finalize the last remaining details
of the deal, the sources said.
The announcement could yet slip a few days, but the team
expects to inform customers by the end of next week, they said.
The sale does not including the bank’s physical copper and
aluminum trading desks in Singapore and London and its
much-larger metal futures trading and brokerage operations,
which includes its London Metal Exchange ringdealing membership.
The unit trades copper, zinc and lead concentrates, as well
as physical base metals, mainly copper and aluminum. The base
metal book is run by Brian Ahern, they said.
“It makes sense. They’ll have a full offering that way,”
said one source who had spoken to the team about the sale.
Bacon and Ahern did not return calls for comment.
Speculation about the identity of the buyer was rife at the
conference, but Bacon and his team told customers they would not
disclose it until it was official.
Most large international trading houses have taken a look at
the business, but did not pursue the purchase, one trader said.
“I don’t know who’s going to buy them, everyone’s taken a
look,” said the trader, whose company – much larger than the JPM
unit – had opted not to make a bid.
The sale seems unlikely to mar commodities chief Blythe
Masters’ recent success. After a rocky integration in 2010,
Masters led the commodities division to record revenues topping
$2.8 billion last year, exceeding long-time industry leaders
Goldman Sachs Group Inc and Morgan Stanley for the
first time.
The sale of the unit, initially reported by Reuters in
March, has heightened speculation about the future of Wall
Street’s growing role in physical commodity markets.
While the Federal Reserve has over the past decade allowed a
dozen banks to freely trade physical commodities such as crude
oil, wheat and copper, it has drawn a line at allowing regulated
banks to own and operate hard assets, unless they do so at arm’s
length under merchant banking terms.
Morgan Stanley and Goldman Sachs were given five years to
comply with regulations after they converted to holding
companies during the 2008 financial crisis. But JP Morgan had a
tighter time frame after its $1.7 billion acquisition of RBS
Sempra’s global metals and oil business in July 2010.
Because concentrates are not traded on any derivative
exchange, the U.S. Federal Reserve had already required RBS to
divest or shut down the business within two years when it
granted approval to the UK bank’s acquisition of a stake in
Sempra Commodities in 2008, according to its published order.
Now additional questions are being asked about the future of
UK-based Henry Bath, the global metals warehousing firm, because
the Federal Reserve previously barred the Royal Bank of Scotland
Group Plc from owning such assets.
The bank has not received any explicit authorization from
the Fed to carry on operating the business, sources told Reuters
last month. Talks with the Fed are ongoing, sources say.
CONCENTRATED BUSINESS
The trading team is well respected, although it is thought
to be dwarfed by the bank’s London-based physical metal trading
business, sources said. The unit traces its history back to MG
Metals, the Metallgesellschaft operation that dominated the
metals market in the 1990s and was later bought by Enron.
It can be a hugely profitable business through spot or
long-term contracts. When mine output falls, so do charges that
miners pay smelters to treat and refine their material as
smelters scramble for raw material.
JPMorgan Metals & Concentrates has at least three agreements
to buy concentrate that produce the equivalent of about 43,000
tonnes of copper metal and 23,000 tonnes of zinc metal per year
from Australian copper and zinc mines run by companies,
including Hillgrove Resources Ltd and Straits Resources
Ltd.
(Editing by Andre Grenon)
