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Is Volcker a Red Herring on JPM-Sempra?

JPMorgan's purchase of several commodities businesses from Royal Bank of Scotland seems to have been influenced by the proposed Volcker rule, but parsing out the message being sent by the deal is difficult.
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) --

JPMorgan Chase

(JPM) - Get Free Report

's purchase of several RBS Sempra Commodities businesses from

The Royal Bank of Scotland Group

(RBS) - Get Free Report

seems to have been greatly influenced by the proposed Volcker rule, but parsing out the message being sent by the deal is difficult.

On the surface it seems clear enough. JPMorgan was initially interested in all of RBS Sempra, but then it revised that bid to leave out the North American business, according energy industry news provider


. In its coverage,

The Financial Times

said the bid was revised due to "revelations about a likely crackdown on bank trading" in the United States -- a.k.a. the Volcker rule.

Fine. Except that the Volcker rule only works if other countries agree to go along with it. If JPMorgan and other banks like

Goldman Sachs

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(C) - Get Free Report


Morgan Stanley

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can just take their trading activities across the Atlantic, the Volcker rule will never pass, because the United States will lose too much in jobs and tax revenues to Europe.

So either the Volcker rule passes and proprietary trading by banks is banned in the United States and Europe, or it doesn't and the practice is permitted everywhere. If JPMorgan thinks the rule won't take effect, as Rochdale Securities analyst Dick Bove suggested in a report Tuesday, it should have bought the U.S. operations as well. If it thinks the rule is for real, it shouldn't have bought any of the trading businesses.

There may be another reason altogether that the deal for the U.S. businesses fell through, which could be connected to the fact that the head of the business, Kaushik Amin, resigned last month,


reported. It may also be the case that there would have been significant overlap between Sempra's U.S. business and those of JPMorgan, which already has a strong U.S. commodities presence.

Also worth remembering is that JPMorgan and other banks may be able to convince regulators that their energy trading activities really are about serving clients rather than taking big trading bets. If they can pull that off -- and there's a chance they can -- the Volcker rule won't have as big an effect as many envision.


Written by Dan Freed in New York