JPMorgan To Explore Strategic Alternatives For Physical Commodities Business

(RTTNews) - Financial services giant JPMorgan Chase & Co. (JPM) said Friday that it is exploring strategic alternatives for its physical commodities business, amid increased political and regulatory scrutiny of these businesses.

JPMorgan said it has concluded an internal review and will explore options, including a sale, spin off or strategic partnership of the business. During the process, the company will continue to run its physical commodities business as a going concern and fully support on-going client activities.

Following the internal review, JPMorgan reaffirmed that it will remain fully committed to its traditional banking activities in the commodity markets, including financial derivatives and the vaulting as well as trading of precious metals. The company will continue to make markets, provide liquidity and offer advice to companies and institutions that for years have relied on the company's risk management expertise.

JPMorgan's physical commodities business includes the Henry Bath metals warehousing subsidiary, stakes in power plants, and traders in commodities such as gas, power, precious metals and coal. The bank forayed into the business in 2008 through its acquisition of Bear Stearns during the financial crisis. The company further expanded into the business by acquiring RBS Sempra Commodities in 2010.

The Federal Reserve reportedly said on July 19 that it will review a landmark decade-old decision that allowed banks to trade in physical commodities to complement their financial activity, which enabled banks including JPMorgan and Citigroup Inc. to expand into the business.

Earlier in the week, the Senate held a hearing on bank ownership of physical commodities amid allegations that metals warehouses owned by the banks and other commodities traders have distorted markets and driven up prices of commodities.

JPMorgan's decision to explore strategic alternatives for its physical commodities business comes amid reports that the bank is in talks with the U.S. Federal Energy Regulatory Commission or FERC about paying a record fine to settle allegations that it manipulated electricity markets in California and the Midwest.

The fine to be paid by JPMorgan will reportedly be larger than the $435 million fine levied by FERC against British lender Barclays plc (BCS, BARC.L). Earlier in July, the FERC ordered Barclays and four of its traders to pay $453 million in civil penalties for allegedly manipulating electric energy prices in California and other western markets between November 2006 and December 2008.

The FERC regulates the interstate transmission of electricity, natural gas, and oil in the U.S. The regulator is broadly scrutinizing potential manipulation of energy markets, employing the new authority granted by the Congress to it following the collapse of Enron Corp.

In January 2013, the FERC said that German lender Deutsche Bank AG (DB) agreed to pay a civil penalty of $1.5 million and disgorge unjust profits of $0.17 million plus interest, for manipulation of California power markets.

JPM closed Friday's regular trading session at $56.05, down $0.45 or 0.80 percent on a volume of 16.77 million shares.