Grupo BTG Pactual, the Brazilian investment bank founded by billionaire Andre Esteves, is working on a bid for JPMorgan Chase & Co.’s physical commodities business, said a person with direct knowledge of the matter.
BTG is in the early stages of reviewing the financial information, said the person, who requested anonymity because the process is private and didn’t specify how big the offer will be. Brian Marchiony, a JPMorgan spokesman, declined to comment on potential bids, as did an official for Sao Paulo-based BTG, in keeping with company policy.
JPMorgan has sought $3.3 billion for the division and the first round of bids is due before the end of the month, a person with direct knowledge of the sale process said last week. The New York-based bank probably would prefer to divest the entire unit, making it harder for other firms seeking to expand existing commodities businesses by bidding on the pieces, said Gerard Cassidy, an RBC Capital Markets analyst.
“Selling the division in total would generate the best price as different parts of the business can leverage off one another, creating incremental value that would be lost by selling it in pieces,” Cassidy said yesterday in an e-mail.
Documents circulated by JPMorgan say the unit produces $750 million in annual income before compensation costs, according to the person with knowledge of the sale process. Possible bidders were granted access to some information about the business, the person said.
The 10 biggest Wall Street banks generated about $6 billion in revenue from commodities last year, including dealings in physical materials and related financial products, according to a Feb. 15 report from analytics firm Coalition. JPMorgan ranked No. 2, after New York-based Goldman Sachs Group Inc.
The Federal Reserve said in July that it’s reviewing a decade-old ruling to let deposit-taking banks trade physical commodities. A reversal would be the Fed’s biggest exclusion of banks from a market since Congress lifted the Depression-era law against them joining with securities firms in 1999.
A disaster at a bank-owned commodities asset would be “catastrophic” to the reputation of the company and the Fed, Joshua Rosner, managing director at Graham Fisher & Co., said at a July 23 hearing of the Senate Banking subcommittee. An incident such as a major oil spill would trigger calls for more collateral, cut liquidity and require the government to step in and stabilize systemic risk to the financial system, he said.