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JPMorgan Chase (JPM) mulls physical commodities exit after Senate review

0 Comments| July 26, 2013

By Rick Green

JPMorgan Chase & Co. (NYSE: JPM) said it may sell or spin off its physical commodities business, three days after a congressional hearing examined whether banks are using their ownership of raw materials to manipulate markets.

A transaction could include holdings of commodities assets and physical trading operations, the New York-based company said today in a statement. The firm plans to continue running the commodities unit “as a going concern and fully support ongoing client activities” while it considers its options, JPMorgan said. One possibility is a strategic partnership, the bank said.

Regulators including the Federal Reserve are under pressure to explain why they allow banks to run trading operations while also owning mines, oil fields, railroads and warehouses. A reversal of those regulatory policies could put commodity units of JPMorgan as well as Goldman Sachs Group Inc. and Morgan Stanley in jeopardy.

U.S. Senator Sherrod Brown, the Ohio Democrat whose subcommittee of the Senate Banking Committee held hearings on the industry this week, has called on the Fed to give clear guidance on what non-bank activities should be allowed “and consider placing limitations on those that expose banks and taxpayers to undue risk.”

Commodities Holdings

JPMorgan, the biggest U.S. bank by assets, had $14.3 billion of physical commodities as of March 31, according to a company filing. The company “will remain fully committed to its traditional banking activities in the commodity markets, including financial derivatives and the vaulting and trading of precious metals,” according to the statement.

The physical commodities business contributes 5 percent to 10 percent of the company’s revenue from fixed-income, currencies and commodities trading, estimated Deutsche Bank AG analysts in a research note yesterday after a meeting with JPMorgan Chief Executive Officer Jamie Dimon.

“The impact from potential physical commodities regulation is unlikely to be meaningful,” the analysts led by Matt O’Connor wrote in the research note. “From an earnings point of view, we believe any related give-up would be modest.”


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