JP Morgan Chase emerged as the front-runner from a short list of three bidders, including Macquarie Bank and Deutsche Bank, to buy the profitable Sempra Energy for about $4 billion.
Sempra Energy was put up for sale late last year after the imminent pullout of Royal Bank of Scotland.
Early last year, RBS announced its intention to divest several of its assets, including its 51% stake in the RBS Sempra Commodities joint venture in order to qualify for state financial aid. Of all three bidders, JP Morgan Chase is seen as the bank with the most synergy with Sempra in terms of market share for various oil, gas and power products around the world.
Deutsche Bank might not have been a good fit with Sempra as both companies have large natural gas and power trading groups, which would overlap and bring up redundancy.
The aim to buy Sempra reflects the bank’s ambition to compete with other banks such as Goldman Sachs and Morgan Stanley in both the paper and physical oil and gas markets.
The proposed marriage would give JP Morgan an instant trading presence and market share in the power and liquefied natural gas arenas, which has been absent in the bank’s commodity portfolio. An organic growth within the company to build up a trading presence may take several years.
JP Morgan used to be in energy trading 10 to 12 years ago, but it shut down that operation. The energy trading operation was restarted a few years ago. The bank jumpstarted its energy trading operation late last year when it hired Andy Kelleher, a veteran products trader with 30 years’ experience in trading and supply roles, to build its global energy trading team from the ground up.
In the U.S., the bank had been active mostly on paper trading for oil prior to last year. However, in the past few months, JP Morgan has already started to increase its trading activity in the physical oil market. The bank has dabbled in pipeline barrels from the Gulf Coast to the Northeast, distillates and crude storage, and arbitrage plays.
JP Morgan is also in the market to hire at least two physical products traders to trade in the New York Harbor, Gulf Coast and Mid-Continent cash markets. With a solid footing already in the clean products and crude markets, JP Morgan would benefit from Sempra’s expertise in LNG, natural gas, crude oil,
fuel oil and electricity.
Sempra has only one gasoline trader, Greg Hebring, who trades the Colonial pipeline barrels in Houston. In terms of assets, both companies lease storage tanks around the world.
Sempra has crude oil tanks on the Gulf Coast.
Sempra Energy is a Fortune 500 company with revenues of more than $11 billion in 2007, and employs about 13,500 employees worldwide. Its wholly owned subsidiaries include San Diego Gas & Electric, Southern California Gas Co., Sempra Generation, Sempra LNG and Sempra Pipeline and Storage.

As JP Morgan continues to expand its trading operations, the bank is expected to hire more trading and operational staff in the future. There could be a possible challenge in attracting top-tiered trading personnel to JP Morgan due to a perception of the scrutiny and competitiveness of bank salaries.
Congress is scrutinizing bank salaries, following the bailout last year. Also, bank bonuses could be more conservative following the bank fallouts last year. Many banks now have claw-back clauses for bonuses if the employees fail to perform well the following year. However, some bank sources insisted that top-ranking banks are still competitive in terms of salaries and bonuses with the major commodity trading houses.
Besides pay, Sempra may have an issue with hiring suitable traders due to a stigma associated with the departure of several key and top traders last year. The head of Sempra Energy, David Messer, resigned last March. Messer held the title of chief executive of RBS Sempra, and was also the
head of oil trading. Sempra has been in the market looking to hire a suitable gasoline trader in the past several months, without much success, sources said.