JPMorgan Chase & Co will buy the non-U.S. assets of commodities joint venture RBS Sempra from Royal Bank of Scotland and Sempra Energy for $1.7 billion cash, roughly doubling its commodities client base.

The deal could clear the way for Sempra to buy out its partner and take total control of RBS Sempra's U.S. trading operation, which provides Sempra with a key profit stream.

JPMorgan, which has been growing its commodities arm aggressively in recent years, said on Tuesday it would take the RBS Sempra global oil and metals and European power and gas assets in a deal set to close in the second quarter.

The bank initially was in talks to buy the whole of the joint venture. But a proposal by the Obama administration to prohibit proprietary trading by banks prompted JPMorgan leave behind RBS Sempra's North American power and gas assets.

RBS Sempra will retain those businesses. RBS and Sempra Energy remain in talks over strategic options on the future of the assets. Sempra Energy has appointed JPMorgan as its adviser as it reviews alternatives.

I have a high probability chance that Sempra will buy it back, said Lasan Johong, analyst at RBC Capital Markets. Using the proceeds from the JPMorgan deal and based on likely unit values, Sempra could likely buy the U.S. operation for about $88 million, he said.

Given the net economics of the business, this is pretty much a no-brainer, he added.

Sempra generated $274 million in profits from its commodities trading operations in the first nine months of 2009, or about a third of its earnings.


Sempra Energy said its share of the sale proceeds was expected to be around $940 million, with RBS taking the rest.

Traders at RBS Sempra -- 49 percent owned by Sempra Energy and 51 percent by RBS -- welcomed the news of the deal after months of uncertainty that prompted a string of staff departures.

It's lovely to have some news after four months of knowing nothing. It all looks promising, said a trader at RBS Sempra. I wouldn't expect any job losses ... This will be a complement and (it) takes us into a different league.

JPMorgan is keen to expand its commodities arm, run by Blythe Masters, who has said she wants the bank to become a top-tier franchise globally.

JPMorgan strengthened its North American power and gas assets with the 2008 acquisition of Bear Stearns. Snapping up a large part of RBS Sempra will boost the bank's aim of taking on the top three commodities firms: Goldman Sachs , Morgan Stanley and Barclays .

Part-nationalized RBS has been forced to slim down and sell off a string of assets, including its stake in RBS Sempra, to appease European Union antitrust concerns after it received billions in state aid during the financial crisis.

The sale of a major part of the RBS Sempra venture marks a key step forward for RBS, which has signaled it wants to move quickly to put the past, and uncertainties related to the sales, behind it.

JPMorgan shares were up 1 cents to $38.96 in morning trade, while Sempra shares rose 84 cents, or 1.7 percent, to $50.32, both on the New York Stock Exchange. RBS was up 5 percent in London.

(Reporting by Clara Ferreira-Marques in London and Matt Daily in New York; Additional reporting by Emma Farge in London and Elinor Comlay in New York; Editing by Dan Lalor and John Wallace)