LONDON/MOSCOW (Reuters) — Morgan
Stanley <MS.N> has sold the majority of its global physical oil
trading operations to Russian state-run oil major Rosneft <ROSN.MM>,
becoming the latest Wall Street firm to dispose of a major part of
its commodity business.
The deal represents a bold move into the U.S. 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 U.S. 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 U.S. 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 U.S.
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 U.S. relations with Russia have been strained in
recent months over Moscow's decision to grant temporary asylum to
U.S. spy agency contractor Edward Snowden and the conflict in Syria.
A spokeswoman at the U.S. 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.
The bank will remain in other commodity markets including gas and
power trading, agriculture and metals, according to a person
familiar with the matter. 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.
The bank said in the statement it is targeting the second half of
next year to complete the deal. Shares of Morgan Stanley closed up
0.2 percent at $30.93 on the New York Stock Exchange.
Rosneft became the world's biggest listed oil producer in March
after the $55 billion acquisition of Anglo-Russian oil firm TNK-BP.
Its oil output accounts for over 40 percent of the total in Russia,
the global leader in crude production.
Rosneft has amassed assets abroad in the past few years, including
refineries in Germany and Italy, but has bought no significant
assets in the United States.
Rosneft has an oil trading division in Geneva, which helps supply
its refining assets in Europe.
Antitrust experts don't expect the deal to hit any regulatory
hurdles, but allowing a state-owned Russian firm access to oil
terminals and the U.S. home heating oil market is likely to get a
deep look from the U.S. government.
A Washington-based policy analyst said the government watchdog was
sure to take a hard look, especially after it blocked a privately
owned Chinese company, Ralls Corp, from building wind turbines in
Oregon last year.
"If CFIUS flags wind farms to China, it's hard to imagine that
commodity trading to Russia gets by without a blink," said Kevin
Book, at ClearView Energy Partners, LLC in Washington.
(Reporting by Dmitry Zhdannikov and
David Sheppard in London and Katya Golubkova in Moscow; additional
report by Jeanine Prezioso and Lauren Tara LaCapra in New York and
Valerie Volcovici and Timothy Gardner in Washington; writing by
David Sheppard in London and Josephine Mason in New York; editing by
Keiron Henderson, Rosalind Russell and Leslie Adler)
The deal represents a bold move into the U.S. 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.
