) took another step in distancing itself from commodities
operations by announcing the sale of its Global Oil Merchanting
unit. The company has signed a deal with Russia-based Rosneft Oil
Company's wholly owned subsidiary to vend the unit.
The transaction includes Morgan Stanley's international network
of oil terminal storage deals, physical oil purchase, sale and
supply agreements, inventory, equity investments and freight
shipping contracts. Moreover, the company's 49% stake in Heidmar
Holdings LLC, which manages nearly 100 oil and chemical tankers,
is part of the deal.
Notably, roughly 100 front-office employees including oil traders
and shipping schedulers of Morgan Stanley's Commodities division
in the U.S., U.K. and Singapore will move to Rosneft, upon
completion of the deal.
However, Morgan Stanley's client-facilitation oil trading
operation, its stake in TransMontaigne Partners LP and other
commodities operations including gas and power trading,
agriculture and metals are not part of the agreement. At present,
the company is exploring strategic options for the sale of its
stake in TransMontaigne.
Though the financial terms were not disclosed, the deal will
expectedly close by the second half of next year. Additionally,
it will not have any impact on Morgan Stanley's financial
performance. The agreement now awaits approval from the U.S., the
E.U. and certain other jurisdictions.
With the Russian government owing nearly 70% of Rosneft, the deal
could face regulatory hurdles. The U.S. has been often reluctant
in allowing government-owned firms from countries such as Russia
and China to purchase U.S. energy and infrastructure assets.
Morgan Stanley will likely submit the sale for review by the U.S.
Committee on Foreign Investment, an inter-agency executive panel
which examines foreign investment for potential threats to
Other than Morgan Stanley, many global banks including
JPMorgan Chase & Co.
Deutsche Bank AG
The Goldman Sachs Group, Inc.
) are reducing their commodities operations. Once a lucrative
sector, the commodity business is fast losing its shine.
Intensification of regulatory and political scrutiny, higher
capital costs and decline in profitability are the primary
reasons making the business unfavorable for banks.
For Morgan Stanley, the sale will help in lowering its
risk-weighted assets (RWAs) in the fixed-income and commodities
division to less than $180 billion by 2016. As of Sep 30, 2013,
RWAs in this division were $213 billion. The sale will likely
further reduce RWAs by nearly $4 billion.
Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).
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