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RBS Sempra Trading Eyes Growth, Integration

Seemingly unfazed by depressed energy commodity prices and volatility, Sempra Energy senior executives hauled out the superlatives last Tuesday for the company's joint venture in energy and metals commodity trading, RBS Sempra Commodities, announcing a nearly 100% quarter-over-quarter increase in profits, a new CEO and an integration of its Connecticut-based trading floor into one of North America's largest operations. Sempra's leaders made the comments during a first quarter conference call with financial analysts.

While announcing that a former Lehman Brothers trading head, Kaushik Amin, is the new CEO of the joint trading venture, Sempra CEO Donald Felsinger said RBS Sempra is "only beginning to capitalize" on the other parts of the Royal Bank of Scotland (RBS) with which it is affiliated, but given the global bank's "larger platform, we anticipate substantial growth." Felsinger said the combination of Sempra's physical trading strength with RBS's derivatives and financial strength "should yield significant synergies that we expect to capture over the next two years."

While netting $114 million in earnings for Sempra in the first quarter, compared with $59 million in the same period in 2008, RBS Sempra is now in the midst of finishing a year-long integration program that will include the move into new quarters in Stamford, CT, in a newly constructed RBS building, being co-located with the bank's North American headquarters.

The new building will combine the other bank trading floor operations, Felsinger said, to create an operation boasting 700 traders -- one of the largest trading floors in North America.

"Even in this very challenging economic time, we have [so far] been able to grow our business and our dividend at a double-digit pace," Felsinger said. "[For Sempra overall], the results last year and what you will see this year are directly related to the $10 billion we have invested in the past four years." He predicted that double-digit near-term earnings growth will continue for the energy company with an emphasis on its various natural gas infrastructure and utility businesses.

An analyst questioned why the joint venture had gone outside for a new CEO and asked about whether some of the senior traders were resigning as a result. Felsinger said the new CEO had both energy and financial products trading experience in the context of a large global investment bank, so he has proven experience and results. In terms of attrition in the trading ranks as a result, Felsinger said the first quarter profits should be proof that the joint venture is continuing to "hit the ball out of the ballpark" in terms of its performance.

In response to another question about the joint trading ventures success in the oil/gas sector, CFO Mark Snell said the trading partners have seen a lot of opportunities of late in the oil business. "We're in a steep complex market that has contributed to a sort of cash-and-carry business, so we have been able to buy oil, put it in inventory and be able to benefit from forward sales. It is a pretty straightforward physical trade."

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