JP Morgan Announces Purchase of Commodity Trading Business from Royal Bank of Scotland and Sempra Energy (JPM, RBS, SRE)

The nation’s second largest bank, JP Morgan Chase (NYSE: JPM), will grow in size after purchasing part of a commodity trading business that is currently owned by San Diego-based Sempra Energy (NYSE:SRE) and the Royal Bank of Scotland (LON: RBS).

JP Morgan Chase announced the purchase on Tuesday, totaling $1.7 billion, which would put part of a commodity trading business jointly owned by San Diego-based Sempra Energy and Royal Bank of Scotland in the hands of JP Morgan Chase.

This acquisition comes as President Obama and former Federal Reserve chair Paul Volcker have been developing a proposal to shrink the size of large banks such as JP Morgan Chase.

Some analysts, including Richard Bove of Rochdale Securities, believe that the move is an effort to “thumb its nose” at Obama and Volcker’s plan. “I believe that Mr. Dimon is demonstrating a courage sorely lacking elsewhere among other leaders of American banks,” said Bove in a note to his clients. Bove has been highly critical of the Obama administration’s efforts to rein in banks.

Bove said the acquisition runs contrary to the White House’s agenda because it would increase the bank in size and it would add to the bank’s capacity to conduct proprietary trading, which is a form of securities trading that banks perform with their own money. The Obama administration is proposing to stop commercial banks from doing any proprietary trading, saying that it is too risky for institutions that benefit from FDIC insurance and other safeguards.

Bove said in his note, “Is it possible that JPMorgan Chase does not see these proposed rules and laws going into effect for any sustained period or perhaps not at all?”

Indicating some level of restraint, JP Morgan Chase declined to purchase all of the joint venture, RBS Sempra Commodities, instead opting to acquire only its global operations. The unit’s United States business will be sold separately.