In less than a decade, Marco Dunand and Daniel Jaeggi have built Mercuria from a 10-person company supplying oil to a pair of Polish refineries into the world’s fourth-largest commodity trader, with revenue topping $100 billion last year. They’re not stopping there. Dunand and Jaeggi are on the verge of striking a deal to buy JPMorgan Chase’s (JPM) $3.3 billion commodities unit, according to two people with knowledge of the situation. “This gives them a strong opportunity for growth and puts them close to the top players in the league,” says Roland Rechtsteiner, a partner at management consultant Oliver Wyman. “Scale is going to be more important than ever.”
The JPMorgan business includes energy trading and storage facilities in North America, where a boom in shale oil and natural gas has transformed the flow of commodities worldwide. The unit has generated $750 million in annual operating profit before compensation costs, according to people who have seen documents related to the sale. Benoit Lioud, a Mercuria spokesman, declined to comment on talks with JPMorgan.
While global commodity demand has climbed to record levels, JPMorgan, Morgan Stanley (MS), and other big banks are exiting or reducing their commodities businesses as regulators pressure them to take fewer risks. Revenue for the 10 largest investment-bank commodity businesses fell to $4.5 billion in 2013 from $14 billion in 2008, according to Coalition, an analytics firm in London.
Independent traders such as Mercuria are filling the void. It ranks behind only three other independents: Glencore Xstrata (GLEN:LN), Trafigura, and Vitol Group. From 2011 to 2013, Mercuria hired 570 people, including executives from investment banks, as it expanded beyond energy, taking the head count to 1,200. The JPMorgan commodities business employs about 600 people, led since 2006 by Blythe Masters, a longtime JPMorgan executive known for her role in creating credit default swaps. It hasn’t been determined whether Masters would join Mercuria, according to a senior executive at Mercuria.
Dunand and Jaeggi, who each own 15 percent of Mercuria, met while studying economics at the University of Geneva in the late 1970s. Their friendship deepened a few years later when they worked for grain trader Cargill and shared an apartment while attending a training course in Minneapolis. After working together at other commodities companies, they founded Mercuria, named for the Roman god of trade, in 2004.
Without a commanding position in any single region or commodity, the company has sought opportunities in niche markets. In its early days it profited by opening a trade route shipping Russian crude to China from Gdańsk, Poland. At Mercuria’s headquarters on Geneva’s poshest shopping street, Dunand often serves as the company’s public face, dealing with customers and developing corporate strategy. Jaeggi, the head of trading, is more in the background, conceiving trading positions.
Their challenge will be to maintain their trading success as a much larger operation. Some competitors have expressed skepticism about Mercuria’s ambitions and the value of the JPMorgan commodities unit. When asked by reporters in London about Dunand and Jaeggi’s pursuit of the JPMorgan business, Vitol Chief Executive Officer Ian Taylor would say only that he wished them luck. “I didn’t bid,” he said.