JPMorgan sells physical commodities unit to Mercuria for $3.5 billion

JPMorgan

A sign outside the headquarters of JP Morgan Chase & Co in New York

JPMorgan is selling its physical commodities business to Mercuria for $3.5 billion, the U.S. investment bank said on Wednesday, sweeping the fast-growing Swiss trading house into the top league of commodities traders.

The all-cash transaction for one of the most powerful oil and metals desks on Wall Street is expected to close in the third quarter, JPMorgan said in a statement.

In documents circulated to potential buyers last year, JPMorgan had valued its physical commodity business at $3.3 billion, with an annual income of $750 million. JPMorgan paid nearly $2 billion to buy the largest part of the business from RBS in 2010.

JPMorgan decided to sell its multi-billion dollar physical commodities division last year due to rising regulatory and political pressure and so it could concentrate on the bank’s core business of lending.

“Our goal from the outset was to find a buyer that was interested in preserving the value of J.P. Morgan’s physical business,” said Blythe Masters, head of JPMorgan’s global commodities business.

JPMorgan said it would still provide traditional banking activities in commodities markets, including financial products and the vaulting and trading of precious metals.

It gave no further details of what exactly would be included in the transaction, but a source close to the matter said the bank’s metal brokerage business including its London Metal Exchange (LME) ring dealing team would remain with JPMorgan.

However its Henry Bath metals warehousing unit was included in the deal, the source added.

JPMorgan also has sizeable power, natural gas and carbon trading desks, largely operating from London, as well as owning power plants.

MASTERS

The fate of JPM’s Masters was too early to tell, the source said, adding that she and her management team had been primarily focused on achieving the sale.

Others in the commodities units were waiting to hear about their future.

“It will be interesting to see whether Mercuria will want to keep us on or not, and whether they will attempt to move our desks to Geneva,” one trader with the bank said.

“Most of us want to stay here (in London), so I suspect a drive to move us to Geneva would equate to a reduction of our power and gas trading desks,” the trader added.

Many other banks, including Deutsche Bank, Bank of America Merrill Lynch and Barclays, have recently scaled back or shut down their power, gas and carbon trading desks, citing unfavorable banking regulation as the main reason.

In February, Reuters reported that Mercuria, led by two former Goldman Sachs executives Marco Dunand and Daniel Jaeggi, became the front-runner to buy the physical commodities unit, one of the most powerful oil and metals desks on Wall Street.

EXCLUSIVE TALKS

The bank went into exclusive talks with Mercuria in February. In the weeks before that, the trade house had been competing with Australian bank Macquarie Group and private equity manager Blackstone Group LP to buy JPMorgan’s unit, sources had said.

Private and lightly regulated trading houses have benefited most from a major retreat by banks from commodities trading over the past two years.

Companies such as Glencore and Russian oil major Rosneft hired whole teams of traders from banks such as Morgan Stanley but Mercuria will become the first trading house to absorb an entire physical division from a bank.

Quikr founder shows how to take an old idea and make it new

Pranay Chulet

Pranay Chulet

When Quikr.com, a Mumbai-based online and mobile classifieds firm, recently raised Rs 550 crore ($90 million) from foreign investors, the company drew attention like never before. No other online company in the listing or classified business had gone in for such a big round of funding ever. But, Pranay Chulet, the 40-year-old founder and chief executive of Quikr, is unperturbed by it all. “It was a revolution waiting to happen,” says Chulet in a matter-of-fact manner.

Armed with, what else, IIT-IIM degrees, this entrepreneur is like many others who have made it big in e-commerce and other online businesses. Only, he spent more years in regular jobs than most others did before chasing his dreams and the big bucks.

Chulet calls the current round of funding led by Swedish investor AB Kinnevik a “small step in the long journey ahead”. Since 2008, the company has raised a total of $140 million ( Rs 870 crore), and the new funds will go into marketing and expanding the talent base in the organisation.

Across the globe, there are examples of online classifieds successes like Craigslist in the US and Trademe in New Zealand, but someone needed to do it right in India. Chulet did it, and he refers to himself as “a made-in-India product”.

Quikr essentially enables people, many without Internet access, to sell things that they may not need. The pace at which such deals take place on the site reflects in the brand of the company – Quikr. The company has endeared itself to users by exploiting a very Indian thing – missed calls. The potential seller is required to give a missed call to the company, which will then contact the caller for the ad to be put on the site.

Quikr’s revenue model is somewhat different from those of others in the same business, such as OLX and Zomato. These companies list for free and make money through advertisements, but Quikr primarily gets its revenue from paid listing and lead generation for small businesses.

While he’s grounded about the present, the Quikr boss is busy planning for the future. Even as an IPO is not in the company’s ken right now, it is “flirting” with the idea of going overseas.

Unlike in the Indian e-commerce world, where the Bansals (of Flipkart and Myntra) rule, his surname does not carry any entrepreneurial baggage, so to say. His father was a government officer who worked as a general manager in mines and his mother a homemaker. Chulet, who is single, spent his childhood in the mining towns of Dariba, Zawar and Maton in Rajasthan. But becoming an entrepreneur was his dream since his college days. “I was the first student from Kendriya Vidyalaya Dariba to take an IIT exam and clear it,” he says with pride. He’s quick to add, however, that he was no geek in school.

After his education, Chulet worked as management consultant in the US for a decade. He has also advised leading newspapers on their classified business, something that may be of great help to him now.

Beyond business, he’s tried his hand at film-making too. A Hollywood movie buff, he made a short feature film called Latent Lava after a course in movie-making from New York Film Academy in 2007. The film was released globally the same year.