As per a report from Reuters, JPMorgan Chase & Co. (JPM) has stalled the sale of its private equity division, One Equity Partners (:OEP). Though the actual reason is not known, there are market speculations that it could be because the company raised the unit’s sale price.
The potential buyers of OEP were bidding for total investment worth over $4 billion. Additionally, the buyers were likely to contribute to the new fund that OEP would be raising as an independent firm.
JPMorgan had announced its plan to divest OEP in Jul 2013, following the division’s continuous losses. Additionally, OEP was suffering due to inconsistent returns and uncertainty regarding its role in the bank.
OEP, founded in 2001, has been a part of JPMorgan's private equity investment entity, though it is not a core unit. Since then, the division has managed $14 billion of total investments and committed capital for JPMorgan.
Notably, the company was not under any pressure from the Volcker Rule to spin off OEP as it was funded wholly by JPMorgan. Therefore, going forward, OEP will continue to be regulated by merchant banking laws.
Moreover, OEP is the last of the private equity units that JPMorgan had planned to spin off. From 2005 to 2006, the company spun off JPMorgan Partners into independent firm CCMP Capital Partners and divested Corsair Capital as well.
Over the last few years, banks have spun off their private equity operations to abide by the requirements of the Volcker Rule. In 2013, Credit Suisse Group AG (CS) sold its private equity business to The Blackstone Group L.P. (BX). Further, in 2011, Bank of America Corporation (BAC) announced the divesture of BAML Capital Partners.
We believe that the impasse over the bidding price of OEP will be soon resolved and JPMorgan will likely resume the sale of the unit. The company has been striving to focus on core operations and improve efficiency.
JPMorgan currently carries a Zacks Rank #3 (Hold).
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