JPMorgan To Exit Physical Commodities Trading

by
JP Morgan Chase & Co is exiting physical commodities trading, the bank said in a surprise statement on Friday, as Wall Street's role in the trading of oil tankers, coffee beans and metals comes under intense political and regulatory pressure.

The entrance to JPMorgan Chase's international headquarters on Park Avenue is seen in New York

JP Morgan Chase & Co is exiting physical commodities trading, the bank said in a surprise statement on Friday, as Wall Street's role in the trading of oil tankers, coffee beans and metals comes under intense political and regulatory pressure.

Wall Street's biggest bank said an "internal review" had concluded it should pursue "strategic alternatives" for its physical commodities operations, which includes assets like its Henry Bath metals warehousing subsidiary and a team of physical power and oil traders in Houston and New York.

The firm will explore "a sale, spinoff or strategic partnership" for its physical arm, the statement said, adding the bank remained "fully committed" to its traditional financial commodity business, including trading derivatives and its activities in precious metals.

The bank's announcement follows a week of unprecedented scrutiny of Wall Street's commodity operations, after the U.S. Federal Reserve said last Friday it was reviewing a landmark 2003 decision that allowed commercial banks to trade in physical markets to "complement" their financial activity.

JPMorgan has also faced additional pressure from a power market manipulation scandal in California and the Midwest, with reports suggesting the bank will soon pay a near record $410 million settlement with the U.S. Federal Energy Regulatory Commission (FERC).

The Department of Justice and the U.S. Commodity Futures Trading Commission have also both launched probes into the metal warehousing businesses owned by Wall Street banks and other large physical traders, which have been accused of driving up metals prices.

The abrupt move marks a sharp reversal for the bank that had pushed aggressively into the sector since 2008, when it first acquired a host of physical trading assets and expertise through its acquisition of Bear Stearns during the financial crisis.

That was followed by the acquisition of RBS Sempra Commodities in 2010, allowing the bank to quickly challenge Goldman Sachs and Morgan Stanley for the title of largest commodity business on Wall Street.

A spokesman for JPMorgan did not immediately return a call seeking comment.

The decision will also bring questions about the next move for Blythe Masters, the architect of JPMorgan's growth in commodities and one of the most famous women on Wall Street.

JPMorgan shares were down 1 percent at $55.97 in late afternoon trading on Friday.

View Comments

Recommended For You