To complement its existing businesses, Mercuria is expected to purchase nearly all of JPMorgan's physical assets, which include a metal storage business and oil and natural gas supply arrangements—leaving aside only a handful of power plants in the U.S. that were already on track for separate sales before the Mercuria talks gained steam, one of the people familiar with the matter said.
JPMorgan announced plans to sell its physical commodities business last July, not long before reaching a $410 million regulatory settlement with the Federal Energy Regulatory Commission over allegations of power-price manipulation.
In addition to the reputation risk that probe brought, the bank was already being bedeviled by a combination of declines in commodities activity and higher capital requirements and other restrictions being imposed on banks.
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"You look at the revenues and returns for commodity trading in general for the banks in the last couple of years, (and) it's been down," says Craig Pirrong, a finance professor at the University of Houston. "You've got lower revenue, higher costs, you put those things together, it's not conducive to staying in the business."
In addition to JPMorgan, Morgan Stanley has been exiting some of its commodities activities. A planned sale of crude oil assets to the Russian oil company Rosneft is expected to close during the second half of the year, and some of Morgan Stanley's liquefied natural gas traders recently decamped for Glencore Xstrata, another Swiss trading conglomerate.
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How many of JPMorgan's hundreds of physical commodities employees would be hired by Mercuria, and whether that group would include the division's head, Blythe Masters, is as yet unclear.
Some JPMorgan commodity traders had been expecting to receive requests to stay on board by this point in the dealmaking process, said one of the people familiar with the matter, and were unnerved at not having seen those documents yet.
—By CNBC's Kate Kelly.