Royal Bank of Scotland (RBS) and Sempra Energy have completed formation of their commodities-marketing joint venture, RBS Sempra Commodities, they said last Tuesday.
The new unit bought Sempra Commodities, the San Diego-based energy company's trading unit that has accounted for up to half of the company's profits. David Messer, the former president of Sempra Commodities, will be CEO of the joint venture, and Frank Gallipoli, a senior vice president at Sempra Commodities, will be president.
RBS Sempra Commodities now is part of RBS's global banking and markets business unit. RBS is putting up $1.7 billion as an initial investment in the new entity and Sempra has chipped in $1.6 billion. Under the deal, RBS will provide additional funding required for operating expenses.
"RBS Sempra Commodities will trade on behalf of RBS, which will act as principal to the market, following a transition period," Sempra said. The closing was previewed last Thursday when the Federal Reserve Bank gave its approval to the deal.
With less risk and more upside potential in the energy and metals trading in which it has thrived for a number of years, Sempra can use the joint venture to remain relatively aloof from the global credit crunch now plaguing the financial sector, CEO Don Felsinger said at the company's analysts meeting March 27.
"Formal completion of this joint venture gives access to a major new asset class for our corporate and institutional client base," said Johnny Cameron, RBS director. "Market conditions over the past number of months [via the subprime mortgage disaster] illustrate the importance of diversified income streams with commodities providing additional resilience in today's challenging markets."
From Sempra's viewpoint, the joint venture with one of the world largest financial institutions provides it with more growth opportunities in commodities and a better chance to expand its position in global markets, Felsinger said.
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