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Monday, December 22, 2014  

Morgan Stanley sells oil trading unit to Rosneft
LONDON/MOSCOW Morgan Stanley has sold the majority of its global physical oil trading operations to Russian state-run oil major Rosneft, becoming the latest Wall Street firm to dispose of a major part of its commodity business.

The deal represents a bold move into the US market by Russia’s top oil producer, which is headed by Igor Sechin, a powerful ally of Russian President Vladimir Putin. The Russian state owns almost 70 per cent of Rosneft.

The deal includes more than 100 traders and shipping schedulers in London, New York and Singapore, more than $1 billion worth of oil, and the bank’s 49 per cent stake in tanker company Heidmar.

The terms of the deal were not disclosed. Morgan Stanley said it was not expected to have a significant impact on its financial results.

The purchase will not include Morgan Stanley’s oil storage, pipeline and terminalling firm, TransMontaigne, which may help avoid significant scrutiny of the deal in Washington.

News of the deal raised alarms in Washington. Senator Edward Markey, a Democrat who is a member of the Senate Committee on Foreign Relations, called on the US government to “closely review” the deal to ensure that a Russian state-owned oil company “cannot manipulate our markets and harm the US and its citizens.”

Morgan Stanley plans to submit the sale for review by the US Committee on Foreign Investment (CFIUS), an inter-agency executive branch panel that examines foreign investment for potential threats to national security, a source familiar with the matter said.

Morgan Stanley said it would continue to look at “strategic options” for TransMontaigne.

Restrictions on proprietary trading introduced to prevent a repeat of the 2008 financial crisis have made commodity markets less attractive for many banks, with total revenues in the sector down sharply on Wall Street in the last five years.

“I think it’s a confirmation of a trend that Wall Street is exiting the business,” said Craig Pirrong, a finance professor at the University of Houston.

“Rosneft has indicated it was going to try to become more like an international player. This is a way for them to build out and become more like other oil companies.”

In buying the operations, the Russian oil producer will get its first foothold in the US.

About 100 front-office Morgan Stanley personnel will transfer to Rosneft under the deal, including oil traders and shipping schedulers comprising about a third of the bank’s total commodity team.

The bank will remain in other commodity markets including gas and power trading, agriculture and metals. The bank will also retain a client oil trading business that will be able to execute both physical and financial deals.

The majority of oil traders transferring to Rosneft are based in London, New York and Singapore but are expected to remain in their current cities.

Reuters
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