MARKETSAugust 19, 2013, 12:52 p.m. ET
J.P. Morgan Set to Launch Sale of Commodities Business
Bank Plans to Kick Off Process in September
By CHRISTIAN BERTHELSEN CONNECT
J.P. Morgan Chase & Co. has told potential buyers of its commodities assets that it expects to kick off sale efforts in early September.
The bank plans at that time to circulate a memo that details the balance sheets and profitability of its physical-commodity assets, according to people familiar with the sale process.
J.P. Morgan said in July it was pursuing strategic alternatives for these assets, which range from metal warehouses to pipeline leases and power plants, including a possible sale. The bank hopes to sell the assets as one package, but depending on the interest of buyers it may have to sell them piecemeal.
Tightening regulations in the wake of the financial crisis have made it more difficult for banks to reap big profits from their commodities operations, as have softening commodity markets. Recently, U.S. regulators have increased their scrutiny of metal warehousing amid complaints from industrial consumers that long waits for metals such as aluminum and copper are driving up prices.
Dozens of firms have approached the bank to express tentative interest in J.P. Morgan’s assets, these people said. Their ranks include big international commodity traders, private-equity firms and foreign banks.
J.P. Morgan, the largest U.S. bank by assets, is among a handful of giant banks that expanded into physical commodities to complement their trading in financial derivatives in those markets.
Among the assets on the auction block are Henry Bath & Son Ltd., a global network of metals warehouses; agreements to control the output from a handful of power plants in the Southeast, as well as ownership stakes in power plants elsewhere; leases on oil fields, terminals and pipeline capacity in Canada; and leases for petroleum-storage tanks in the Gulf Coast, these people said.
One asset attracting heightened interest from some buyers is a contractual agreement J.P. Morgan has with Philadelphia Energy Solutions, a venture between Sunoco Inc. and the Carlyle Group that owns and operates a refinery. The bank provides cash and crude to the refinery, and then purchases the refined product to trade and resell into the market. The arrangement is regarded as an attractive asset because there are multiple ways to make money from it. Any transfer of J.P. Morgan’s interest in the agreement would have to be approved by other parties to the agreement.
Other assets may be more difficult to unload at a profit. J.P. Morgan is currently paying more to rent storage facilities for oil products than such leases would fetch on the open market. The value of these leases has declined in the last two years due to shifts in futures prices that no longer make storage profitable. “Some have value, and some have negative value,” one person said.
The people familiar with the sale process said they didn’t expect the bank to set opening prices on the assets. Rather, interested parties are expected to make offers based on the financial information provided, and the bank will evaluate bids on a case-by-case basis.