Grupo BTG Pactual, the Brazilian investment bank founded by billionaire Andre Esteves, is working on a bid for JPMorgan Chase & Co.'s physical commodities business, said a person with direct knowledge of the matter.

BTG is in the early stages of reviewing the financial information, said the person, who requested anonymity because the process is private and didn't specify how big the offer will be. Brian Marchiony, a JPMorgan spokesman, declined to comment on potential bids, as did an official for Sao Paulo-based BTG, in keeping with company policy.

JPMorgan has sought $3.3 billion for the division and the first round of bids is due before the end of the month, a person with direct knowledge of the sale process said last week. The New York-based bank probably would prefer to divest the entire unit, making it harder for other firms seeking to expand existing commodities businesses by bidding on the pieces, said Gerard Cassidy, an RBC Capital Markets analyst.

"Selling the division in total would generate the best price as different parts of the business can leverage off one another, creating incremental value that would be lost by selling it in pieces," Cassidy said yesterday in an e-mail.

Goldman Sachs

Documents circulated by JPMorgan say the unit produces $750 million in annual income before compensation costs, according to the person with knowledge of the sale process. Possible bidders were granted access to some information about the business, the person said.

The 10 biggest Wall Street banks generated about $6 billion in revenue from commodities last year, including dealings in physical materials and related financial products, according to a Feb. 15 report from analytics firm Coalition. JPMorgan ranked No. 2, after Goldman Sachs Group Inc.

Gary Cohn, the president of New York-based Goldman Sachs, said his company isn't interested in bidding for JPMorgan's commodities business.

"Some of our clients are looking at their portfolio, and some of our clients could potentially ask us for help on looking at some of the long-dated derivatives," Cohn, 53, said today in a Bloomberg Television interview with Stephanie Ruhle. "We're more than happy to help facilitate our clients, but we're not going to buy the business directly from JPMorgan."

Reputational Risk

The Federal Reserve said in July that it's reviewing a decade-old ruling to let deposit-taking banks trade physical commodities. A reversal would be the Fed's biggest exclusion of banks from a market since Congress lifted the Depression-era law against them joining with securities firms in 1999.

A disaster at a bank-owned commodities asset would be "catastrophic" to the reputation of the company and the Fed, Joshua Rosner, managing director at Graham Fisher & Co., said at a July 23 hearing of the Senate Banking subcommittee. An incident such as a major oil spill would trigger calls for more collateral, cut liquidity and require the government to step in and stabilize systemic risk to the financial system, he said.

Senator Sherrod Brown, an Ohio Democrat and the panel's chairman, is among U.S. lawmakers to join regulators in expressing concerns that banks may be put at risk when volatile commodity markets move against them or calamity strikes one of their operations.

"What do we want our banks to do? Make small-business loans or refine and transport oil? Issue mortgages or corner the metals market?" Brown, chairman of the Senate Banking subcommittee, said at a July 23 hearing.

Blythe Masters

JPMorgan, the biggest U.S. bank, said three days later that it plans to get out of the business of owning and trading physical commodities. Last month, it said Paul Posoli, 44, was rejoining the unit to help manage the sale, reporting directly to Blythe Masters, 44, JPMorgan's commodities head. The firm could sell or spin off holdings that include warehouses, stakes in power plants and traders in materials such as gas and coal.

Masters has told people inside the bank that she's willing to leave JPMorgan to keep running the business if its new owner agrees, a person familiar with the matter said. She didn't reply to an e-mailed request for comment about her intentions.

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