Royal Bank of Scotland and its American joint venture partner have gone into exclusive talks with the investment bank JPMorgan Chase to sell RBS Sempra, the commodities trading business, for about $4 billion.
RBS, which has been forced by European competition regulators to sell RBS Sempra as a condition of receiving state aid, had received three offers for the trading unit by an initial early January deadline, according to sources familiar with the sale.
However, Deutsche Bank of Germany and Australia’s Macquarie have both dropped out of the race to buy the business, sources said.
There was speculation last night that RBS, which is keen to offload RBS Sempra quickly, had given bidders only one week to carry out due diligence on the business. The bank is thought to want to agree a final deal before it reports its trading for the fourth quarter next month.
A small number of traders and senior managers in RBS Sempra are also entitled to receive guaranteed bonuses this year, making an acquisition potentially politically sensitive, sources said.
Advertisement
The Governments of both the UK and the US are trying to avoid a bumper round of bonuses this year in the light of the public outrage that multimillion-pound payouts have caused in both countries.
The Times reported in December that a number of senior traders in RBS Sempra, which was buoyed the boom in commodities prices last year, are in line to share a bonus pool of more than $40 million. Key management of the joint venture shared $46 million in 2008.
RBS would be expected to meet a portion of bonus payments in RBS Sempra, which would come in addition to the bonus pot estimated at £1.5 billion that it is preparing to negotiate with the Treasury.
RBS, which is 84 per cent owned by the taxpayer, was given four years to sell Sempra, along with a string of other assets, including 300 bank branches and its insurance arm, containing Direct Line and Churchill.
However, Stephen Hester, RBS’s chief executive, is thought to want to move quickly to sell Sempra to avoid any controversy over bonus payments. He has also begun to explore offers for other assets and is moving to streamline the as swiftly as possible.
Advertisement
Citigroup, which received bailout funds from the US Government, sold its energy trading arm, Phibro, late last year, in part to head off a potential row over a $100 million guaranteed pay deal for Andrew Hall, its star trader and chief executive.
RBS Sempra is a 50-50 joint venture between RBS and Sempra Energy, based in California. Established in 2008, for the nine months from April to December 31 2008, the most recently available figures, it made pre-tax profits of $691 million on revenues of $1.4 billion, according to filings at Companies House.
Deutsche Bank was initially thought to be the front-runner to buy RBS Sempra. The bank has been aggressively recruiting traders in Houston and Calgary. In December it said that it expected it commodities business to show a five-fold increase in revenues from 2006 to 2010.
Deutsche Bank is thought to have balked at the asking price and the short amount of time on offer to go through RBS Sempra’s books.
RBS, JP Morgan and Deutsche Bank all declined to comment last night. Banks such as JP Morgan, which has weathered the credit crisis better than some of its rivals, are keen to build up strength in areas such as energy and commodity trading to profit from the boom in prices. JP Morgan has already made acquisitions and last week reported fourth-quarter profits of $3.3 billion.