Volcker Rule Aside, JPMorgan Makes Move on Commodities

JPMorgan ChaseThis nation’s second-largest bank and top credit card issuer made a bold move into commodities today with the announced acquisition of RBS Sempra Commodities’ global oil and metals division, and it’s European power and gas assets.
The investment arm of JPMorgan Chase is expected to pay $1.7 billion pending regulatory approval in a deal that will virtually double JPMorgan’s corporate clients served in the commodities business to about 3,000.
“This…enables us to offer them more products in more regions of the world,” said Jes Staley, CEO of the Investment Bank unit of JPMorgan. “This will allow us to be more useful to clients in ways that are important to them.”
The acquisition of the joint commodity trading business of San Diego-based Sempra Energy and Royal Bank of Scotland was not unexpected, with JPMorgan’s well-established plans to expand global equity and commodity products for its clientele and compete there with Goldman Sachs, Morgan Stanley and Barclays.
And RBS Sempra is seen as a key missing piece that is now almost in place.
“In terms of capability, we are now as good as anyone,” Blythe Masters, head of global commodities at JPMorgan in New York, told the Financial Times. “That was not true before the deal (with RBS Sempra), but it is now.”
But the move is also perceived as bold because it comes as the Obama Administration touts its “Volcker Rule,” named after trusted Obama advisor and former Federal Reserve Chairman Paul Volcker. The proposed rule would ban commercial banks from proprietary trading in financial securities, and is part of Obama’s financial system overhaul designed to prevent the kind of risk-based markets trading that fed the financial crisis.  
However, RBS Sempra Commodities will retain its North American natural gas and power and Solutions businesses, JPMorgan also announced.  Sempra Energy and RBS will explore “strategic options for the remaining businesses.”  Sempra Energy has retained JPMorgan as its financial advisor in that exploratory venture. 
JPMorgan has said in media reports that it was always its intention to pick up the global RBS Sempra piece – and bypassing its U.S. businesses was not a calculated hedge against the Volcker Rule.
JPMorgan attained a U.S. commodities trading infrastructure in its acquisition of Bear Stearns Cos. in 2008.
JPMorgan’s investment bank earned $1.9 billion during the fourth quarter 2009, while its asset management division generated $424 million in net income. It contributed large part to the financial giant’s fourth quarter overall earnings of $3.3 billion.

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