Mercuria Energy Group Ltd., the Swiss firm buying JPMorgan Chase & Co. (JPM:US)’s physical commodity business, posted lower 2013 profit as weaker margins on buying and selling oil eroded increased earnings in trading other products.
Net income fell to $273 million from $310 million a year earlier, Chief Financial Officer Guillaume Vermersch said in a phone interview. Revenue at the Geneva-based commodity trader, which has expanded beyond oil into metals, petrochemicals and concentrates, rose 14 percent to $112 billion.
Founded a decade ago, Mercuria is growing faster than competitors Vitol Group, Gunvor Ltd. and Trafigura Beheer BV, and agreed in March to the $3.5 billion JPMorgan deal. Its expansion hasn’t spared it from an industrywide squeeze on oil-trading profit margins caused by increased transparency, stiffer competition and a lack of price volatility.
“The market was more difficult to trade and some of our margins were under pressure,” Vermersch said today. “Trading diversification contributed to produce solid results.”
Earnings before interest, taxes, depreciation and amortization fell by 7 percent to $562 million. Mercuria spent $369 million on investment-related costs last year as it strengthened governance and compliance systems and hired about 100 new employees, including about 25 traders, said Vermersch.
Non-oil commodities accounted for 46 percent of 2013 revenue, while gross trading profit increased by 10 percent. Mercuria’s net asset value rose by about 10 percent to $2.7 billion.
The closely held firm, owned by its management and employees, didn’t pay a dividend, Vermersch said.
Mercuria traded 195 million metric tons of oil or oil equivalent in 2013, according to its website. The trading of carbon credits accounted for a “small component,” the CFO said.
Investment costs accelerated during the second half of the year as the company prepared for the acquisition of the JPMorgan unit, agreed to in March.
The transaction will give Mercuria gas and power trading operations on both sides of the Atlantic, physical assets spanning 40 locations in North America, an oil-trading book with a supply and offtake contract at the largest refinery on the U.S. East Coast, and 6 million barrels of storage leases in the Canadian oil sands.
Mercuria is offering jobs to about 200 people at the JPMorgan unit, or about half its staff, a person familiar with the matter said earlier this month.
JPMorgan, Barclays Plc and Morgan Stanley (MS:US) are among investment banks withdrawing from or scaling back physical commodity operations as revenue falls and regulators place increased scrutiny on lenders owning and storing raw materials. Trading houses such as Mercuria, which has in less than a decade grown to become the world’s fourth-largest independent commodity trader, are filling the void.
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