Bank of America Corp. will take over financing for a top U.S. oil refinery controlled by Philadelphia Energy Solutions from J.P. Morgan. The oil-services contract was among the commodity assets divested this year by Chase.
Last year, Chase announced it's intention to sell its physical commodity franchise and exit the business due to regulatory pressure. According to The Wall Street Journal, regulators in the last year have taken an increased interest in steering banks away from the market for physical raw materials.
This week's deal with BoA follows JP Morgan's closing on a transaction to sell some of it material asset holdings to Swiss trading house Mercuria Energy Group. Mercuria was also initially slated to purchase the oil service agreement with Philadelphia Energy, but the refinery balked at the proposition, at which point BoA stepped in as an alternate buyer.
The Charlotte, N.C., lender’s agreement with Philadelphia Energy Solutions is the most high-profile bank oil deal since regulators increased interest in banks in the physical commodities market, and the Bank of America's offering will be far less than the full scope of the JP Morgan Contract it replaces. The revamped arrangement that excludes physical supplies and provides services is primarily concerned with providing inventory and working capital financing.
The refinery processes 330,000 barrels of crude a day and accounts for 25 percent of the refining capacity on the East Coast. It is owned and operated by a joint venture between Washington, D.C., private-equity firm Carlyle Group CG and Sunoco Inc. It's co-parents had reportedly been "seeking greater logistical flexibility that would allow it to take more control over its crude supply and product sales with a financier that would not compete in the trading space," according to Seeking Alpha
"These refiners are seeing a lot of profit for the middle man, and they are saying to themselves 'Why shouldn't we capture that profit?'" said Houston University professor Edward Hirs, an expert in energy finance. ""So, they are hiring bright people, with MBAs and experience, to do it."
The move follows efforts to cut out the middle man. PBF Energy ended the last part of a deal with Morgan Stanley and Delta Air Lines' Monroe Energy division, which runs a refinery in Trainer, Pennsylvania. It ended a supply deal with BP and charterted its own U.S.-flagged tanker.
BoA's new revenue stream in the deal comes from financing fees. This arrangement has lower margins than the supply and trading structure it had under J.P. Morgan, it will entail fewer personnel and overhead costs and direct risks, reports The Journal. Bank of America hasn't done any physical oil trading in several years, according to sources, but has recently inherited a larger commodity business after buying Merrill Lynch in 2008.
The agreement closed Tuesday. Financial terms weren't disclosed.