JP Morgan Finally Out of the Commodities Game

Jacob Harper  |

On Mar. 19 investment bank JPMorgan Chase and Co. (JPM) finally unloaded their physical commodities trading desk on Swiss trading group Mercuria Energy for $3.5 billion in cash. The sale of the desk, a task JPMorgan has been trying to complete for months, represents a final divestment from a business rife with corruption and stained with the excesses that caused the 2008 global financial meltdown.  

When the Glass-Steagall Act, which prohibited the comingling of commodities desks and the banks that bet on commodity prices, was rolled back during the Clinton Era, the majors hopped on the chance to make money on both ends. There was little to stop banks from manipulating commodity prices while profiting off of their advance knowledge of fluctuations, like when Goldman Sachs Group (GS) stockpiled aluminum to cause artificial shortages.

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As the Federal Reserve has cracked down on this obvious conflict of interest, the major US investment banks are exiting the physical commodities business en masse. In late 2013 Morgan Stanley (MS) sold its oil storage and trading business to Russian oil major OAO Rosneft.

After the well-publicized aluminum manipulation scheme was uncovered, Goldman is selling their metal storage and shipping interests. And JP Morgan, who despite record settlement payouts have reaped fantastic profits on commodities, have elected to exit the business as well. While JPMorgan cleans up its toxic image and distances itself from the excesses that caused the Great Recession, for the time being, they retain the face of that excess.

Blythe Masters, the financial genius who ran JPMorgan’s commodities desk was previously thought to be included in the sale, but he remains with JPMorgan for now. While Masters is prized for her acute business acumen, she is also widely credited with inventing the credit default swaps that originally caused the banking crisis, a stinking mess JP Morgan continues to try to distance themselves from.

As the unofficial poster child of investment banking amorality, JPMorgan is keenly interested in ridding themselves of Masters, as they have done with the commodities desk. But of course, only if the price is right.

JPMorgan's shares were flat in early action, down .08 percent to hit $58 a share, but rallied to over $58.50 a share after the announcement from the Fed. The stock has been mostly flat for the year, as the market shrugs at JPMorgan's wheelings and dealings.

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