JP Morgan sells commodity arm to Mercuria for $800 mln - sources

By Dmitry Zhdannikov and Silvia Antonioli

LONDON (Reuters) - JPMorgan Chase & Co raised $800 million from the sale of its physical commodities unit to trader Mercuria, about a quarter of the initial valuation as the transaction excluded some oil and metal stockpiles and other assets, sources close to the deal said.

Announced last March, the deal was originally valued at $3.5 billion, but the price turned out to be lower because Mercuria bought less of the metals and oil in JPMorgan's inventories, the sources said.

JP Morgan also excluded its oil supply agreement with a major Philadelphia refinery, which it is likely to transfer to Bank of America Corp , sources said.

JPMorgan also decided against selling to Mercuria its metals trading business, sources said, without giving the reason why such a decision was taken.

The divestment of all assets in various transactions together should allow JPM to raise the initially targeted $3.5 billion, one of the sources said.

JPMorgan decided to sell its multibillion-dollar physical commodities division last year because of rising regulatory and political pressure and to concentrate on its core business of lending.

The deal will allow Mercuria to expand into metals and North American markets as it seeks to enter the top league of commodities traders.

"When we founded Mercuria 10 years ago, it was our goal to develop a global energy-focused commodities group," said Marco Dunand, chief executive of Mercuria.

"This acquisition helps to bring that vision to reality by building upon our physical power, gas and oil operations in North America and by adding to our client base," he added.

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

Mercuria had a 2013 turnover of $112 billion and is primarily focused on energy, with over 1,000 people operating from offices around the world.

JPMorgan employees transferring to Mercuria will primarily join Mercuria's trading hubs of Houston, London, Calgary, Singapore and Greenwich, Connecticut.

As part of the deal, Mercuria will acquire Henry Bath, an historic metals warehousing, storage and handling business. Mercuria will operate Henry Bath as a stand-alone subsidiary independent from its trading operations, it said.

JPMorgan paid nearly $2 billion to buy the largest part of the commodities business from RBS in 2010.

(Reporting by Dmitry Zhdannikov; Editing by Vincent Baby and Jane Baird)