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Dmitry Zhdannikov and Katya Golubkova
Sunday, December 22, 2013
From Print Edition
 
 

 

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 percent of Rosneft.

 

The deal includes more than 100 traders and shipping schedulers in London, New York and Singapore, over $1 billion worth of oil, and the bank´s 49 percent 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 Inc., which may help avoid significant scrutiny of the deal in Washington.

 

The United States has often been hostile to state-owned companies from countries such as Russia and China buying up US energy and infrastructure assets.

 

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 United States 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.

 

The sale is also subject to regulatory approvals in the United States, the European Union and certain other jurisdictions, the bank said in a statement.

 

The deal comes as US relations with Russia have been strained in recent months over Moscow´s decision to grant temporary asylum to US spy agency contractor Edward Snowden and the conflict in Syria.

 

A spokeswoman at the US Treasury declined to comment on the sale. Morgan Stanley has been trying to sell or spin off its physical commodity business for over a year as it faces increased regulatory pressure and higher capital requirements.

 

The bank 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.

 

Deutsche Bank announced two weeks ago that it was largely exiting commodities trading, while JPMorgan is selling its physical trading operations.

 

Goldman Sachs, which pioneered Wall Street´s entry into commodity markets alongside Morgan Stanley almost three decades ago, has also looked at selling parts of its business, but has repeatedly said it remains committed to commodity trading.

 

“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 and an expert on commodity markets.

 

“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 United States and expand its modest trading business.

 

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.