JPMorgan Chase & Co. (JPM) could announce a deal today to buy commodities trading firm RBS-Sempra Commodities for $1.7 billion, reports the Wall Street Journal.
In order to comply with European Union rules, the Royal Bank of Scotland (RBS) is selling its 51% stake in RBS-Sempra, which it jointly owns with Sempra Energy (SRE). This step is a part of RBS’s restructuring efforts, which includes selling its non-core businesses in selected markets to shore up its financial standing.
The current deal excludes RBS-Sempra’s most valuable North American operations, which accounts for 64% of RBS-Sempra’s trading revenue. However, JPMorgan is in discussion with RBS and Sempra Energy to acquire the North American operations of the commodities and energy trader. Macquarie has been named along with JPMorgan and Deutsche Bank (DB) as bidders for RBS-Sempra’s North American operations.
Incorporated in 2008, RBS-Sempra trades commodities ranging from oil and natural gas to metals and agricultural products. Royal Bank of Scotland, one of the largest victims of the global financial crisis, is at present 83% owned by British taxpayers. The bank’s woes stem from a massive number of risky investments in areas such as commercial-property loans, leveraged finance and derivatives. The bad assets it inherited with its 2007 acquisition of a part of the Dutch bank ABN Amro Holding NV has also added to its problems.
JPMorgan’s fourth quarter earnings came in at 74 cents per share, substantially ahead of the Zacks Consensus Estimate of 61 cents. This also compares favorably with earnings of 6 cents in the prior-year quarter.
We view the prospective RBS-Sempra deal as positive for JPMorgan as its strong capital position should enable it to easily manage the business. We anticipate continued synergies from JPMorgan’s diversification and strong capital position, but increasing provisions and rising consumer credit costs will be a drag on upcoming results. However, we are impressed to see some improvement in credit quality during the fourth quarter of 2009.
Read the full analyst report on “JPM”
Read the full analyst report on “RBS”
Read the full analyst report on “SRE”
Read the full analyst report on “DB”
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