JPMorgan named top commodities bank, day after selling physical business

LONDON Thu Mar 20, 2014 3:32pm GMT

The offices of JP Morgan in the Canary Wharf district of London, January 28, 2014. REUTERS/Simon Newman

The offices of JP Morgan in the Canary Wharf district of London, January 28, 2014.

Credit: Reuters/Simon Newman

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LONDON (Reuters) - JPMorgan (JPM.N) commodity chief Blythe Masters laid out an ambitious plan four years ago to become the top Wall Street bank in energy and metals trading.

Last year Masters achieved that goal, a closely watched report said on Thursday, the day after the bank announced the sale of the giant physical commodities operation she had assembled.

UK analytics firm Coalition's annual sector league table showed JPMorgan had the largest revenues of any investment bank in commodities last year, leapfrogging last year's winner Goldman Sachs (GS.N), which was second ahead of Morgan Stanley(MS.N).

For Masters it is something of a Pyrrhic victory, with the rump of the business she built now going to Swiss commodities trader Mercuria in a $3.5 billion deal.

The bank announced it was selling its physical commodities business last summer in the face of unprecedented political and regulatory pressure after a $410 million settlement with U.S. regulators over allegations of power market manipulation.

Other pressures also contributed to the decision.

Total commodity trading revenues on Wall Street have fallen by about two-thirds in the last five years, with the top 10 banks notching just $4.5 billion last year, according to an earlier report by Coalition.

That is down from more than $14 billion at its peak in 2008, when the bumper returns earned by sector stalwarts Goldman and Morgan Stanley encouraged many other banks to expand into energy and metals trading.

While JPMorgan was a relative late comer to large-scale commodities dealing, Masters was the architect of a multi-billion dollar expansion plan that saw the bank buy or absorb oil, electricity and metals desks from firms such as Bear Stearns, UBS, and RBS Sempra.

By August 2010, Masters was telling employees that Goldman and Morgan Stanley should be "scared" of JPMorgan's newly-expanded commodity operation, Bloomberg reported.

"They'd better be, because this is a platform that's going to win," Masters said.

JPMorgan's own internal review of the business last year concluded the returns from commodities weren't worth the capital or regulatory risks.

A source close to the bank said on Thursday it was too early to say what the future held for Masters, adding that she and her management team had been primarily focused on achieving the sale.

"Our goal from the outset was to find a buyer that was interested in preserving the value of JPMorgan's physical business," Masters said of the sale to Mercuria on Wednesday.

The Coalition league tables ranked BNP Paribas (BNPP.PA), Barclays (BARC.L) and Deutsche Bank (DBKGn.DE) as the second tier of commodity banks, followed by a third tier filled by Citi (C.N), Bank of America Merrill Lynch (BAC.N), UBS UBSN.VX and Credit Suisse (CSGN.VX).

Coalition does not rank the banks individually outside of the top three.

(Reporting by David Sheppard; Editing by Anthony Barker)

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