Thursday, March 20, 2014

"...Drexel to Mercuria via Enron: a history of JPMorgan's commodity arm" (JPM)

It all goes back to corn....
From Reuters via the Chicago Tribune:
 U.S. investment bank JPMorgan Chase & Co. has sold its physical commodities arm to Mercuria for $3.5 billion in cash, catapulting the Swiss trade house into the top tier of commodities traders.

While parts of JPMorgan's commodities business have passed through the hands of some of the most well-known names in the raw materials markets, its core is comprised of two enterprises considered among the most successful of their time: Sempra Commodities and Bear Stearns' power and gas desk.

But major parts of the JPMorgan business were extracted from the ashes of failure, including a base metals operation that endured through the near-collapse of Metallgesellschaft and the Enron meltdown, and a trading platform that dates back to the days of failed investment bank Drexel Burnham.

More recently, much of the business had already been bought and sold twice in the past five years, once when Royal Bank of Scotland bought a 51 percent stake in Sempra Commodities and then again when RBS was forced to sell it to JPMorgan.

A partial history of the business is below:

1980s - Drexel Burnham Lambert expands into physical energy trading, hiring a team that includes future Sempra chiefs David Messer and Frank Gallipoli.

1986 - UK-based warehousing group Henry Bath & Sons is taken over by Metallgesellschaft (MG), a huge German conglomerate and one of the world's largest physical and futures metal traders, according to a history on its website.

Early 1990 - AIG acquires the commodity trading business of Drexel Burnham, which had filed for bankruptcy.

1997 - Pacific Enterprises and Enova Corp acquire the energy unit of AIG Trading for $225 million. (The utilities merge one year later to form Sempra Energy)

2000 - Enron buys UK-listed MG Plc, including Henry Bath warehouses, for $448 million.

2002 - Sempra Energy Trading buys Enron Metals Ltd, the former-MG metals division of the failed U.S. Enron for $145 million.

...Corn mash that is.
Tubby Burnham started his house of brokerage with $4,000 equity and a $96,000 loan from grandpa, Bourbon distiller I.W. Harper.

More leveraged than current net cap requirements for BD's but more prudent than LTCM.

OR, taking a slightly different climb on the old family tree:
The Bath family history reaches back to Sir Walter de Bath, Knight who was Sheriff of Devon, England during the reign of Henry III in 1217. Henry Bath, a descendant of Sir Henry Bath, was a Cornishman born in Falmouth, England in 1776. Henry Bath's copper trading business was founded in 1794.