LONDON -- JPMorgan Chase & Co. understands the corrosive
effect that political and regulatory scrutiny can have on
perceptions of value better than most participants in the
When the bank first bid for a large chunk of RBS Sempra
Commodities LLP at the start of 2010, it valued the metals,
oil, gas and power assets at $4 billion. But by April of
that year, Barack Obamas support for a plan to put
a halt to proprietary trading within deposit-taking banks had
prompted JPMorgan to slash its bid to $1.7 billion.
Rival bidders Deutsche Bank AG and Macquarie Bank Ltd.
apparently felt even that was too steep a price for a
business that was about to have its wings clipped by former
Federal Reserve chairman Paul Volcker.
Fast forward three years, and a Senate investigation into the
activities of banks in physical commodities, as well as a
Federal Reserve review of the same subject, has prompted
JPMorgan to look critically at the future value of the assets
it acquired in the RBS Sempra deal.
Pre-empting the possibility that politicians will vote through
legislation barring its activities in physical commodity
markets, JPMorgan announced on Friday July 26 that it is
seeking a buyer for its various power, oil, gas and metals
assets, which include the Henry Bath warehouse business.
But with Goldman Sachs Group Inc. also putting its Metro
International Trade Services LLC warehouses up for sale, and
ahead of measures to reduce queues in the London Metal Exchange
warehouse network set to come into force next April, industry
sources anticipate that the bank will find itself low-balled by
potential buyers of Henry Bath.
This could become a bit of a fire sale, one
warehousing source said, adding that even prior to the
LMEs action to tackle queues, Goldman Sachs was finding
its efforts to sell Metro a chastening experience.
The story is that they were looking for $800 million, and
everybody started under-bidding one another. One said he
wouldnt even pay $300 million, and the next said he
wouldnt pay $200 million, he said.
Valuing a warehousing business is not an easy task, but the
process hinges on the calculation of rental income that can be
derived from the stocks stored by the business at the time of
sale, while other factors such as auxiliary logistics services
and the tenure of lease-holdings also need to be considered.
Although that income will dwindle if the LME imposes its new
rules, the queues that exist at Metros stronghold in
Detroit at least provide a guaranteed forward rental income for
But accounting for the rental yield from Henry Baths
warehouses, where there are no significant queues, is a more
The fact that a large proportion of the stock stored in Henry
Bath sheds is financed by JPMorgan makes that calculation more
problematic still, as potential buyers will have to weigh
the possibility that stock will be poached by its rivals if and
when JPMorgan winds down its physical trading activities,
market sources claimed.
For example, at its base of operations in Rotterdam, where 41
of its 69 LME-approved warehouses are located, Henry Bath is
understood to be holding a large aluminium inventory for
JPMorgan, after the bank ordered upwards of 500,000 tonnes of
material for withdrawal from Pacorini Metals BVs
warehouses in Vlissingen, the Netherlands, in early 2012.
One of the questions for any buyers of the Henry Bath business
will be what are the company's future plans are for
Theres no time limit to find a buyer, so its
not as though theyre going to be selling off all their
stock cheaply. It could be years before a buyer is found, and
then one day theyll wake up and find theyre owned
by someone else. In the meantime it will be very much business
as usual, an observer of the bank told AMM
sister publication Metal Bulletin
Nevertheless, potential buyers of Henry Bath will recognize
that, given the uncertainty over JPMorgans future
activities in the market and the LMEs impending action to
reduce queues, they have an opportunity to talk the assets down
and pick them up for a song.
JPMorgan declined to comment.
A version of this
article was first published in AMM sister publication Metal