|
 In a long-awaited deal that appears to mark the end of the Wall
Street bank's more than three-decade history as a major player in
physical oil markets, Castleton will gain several dozen oil tank
storage leases, physical oil supply and purchase contracts, and a
team of about a hundred traders.
Neither Morgan Stanley nor Castleton released terms of the
transaction, but analysts estimated the deal to be valued at
slightly more than $1 billion. This principally represents the value
of oil inventories in storage or transit. The deal will not be
material for Morgan Stanley, the bank said.
Castleton, a Connecticut-based trading group now owned by a private
equity group of hedge fund and trading veterans, will have more
scale and scope to compete in the massive global oil market.
The deal "aligns well with our goal of becoming a top-tier, global
multi-commodity merchant," said CCI's Chief Executive and President
William C. Reed II, a former Enron and hedge fund trader who has
been running the firm since 2008.
Morgan's Global Oil Merchanting unit has traded around 2 million
barrels per day (bpd) of crude and oil products over the past five
years, and has 45 oil storage leases for some 30 million barrels,
mainly in the United States and Europe, CCI said.
About a hundred front-office staff, including traders and shippers,
are expected to move to CCI with the transaction, according to a
person familiar with the deal. In total, as many as 200 employees
may transfer to CCI, a second person said. The bank's Tom Simpson
and Fabrizio Zichichi will lead CCI's global oil trading business,
the firm said.
While Morgan Stanley will maintain its client-facing oil trading
business, including both physical and paper transactions, the sale
concludes the bank's years-long effort to divest a physical trading
division that had come under intense regulatory scrutiny and
suffered waning profitability.
The bank still plans to sell its stake in oil tanker group Heidmar,
which was not part of the deal, a source said.
GOING BIG ON OIL
For Castleton oil has been a weaker spot relative to the group's
large books in power, natural gas and gas liquids markets. Its
predecessor firm sold a portfolio of midstream gas liquid assets for
$2 billion.
Castleton, which was originally founded nearly two decades ago as
the energy trading division of French commodities merchant Louis
Dreyfus, has already doubled in size to more than 650 staff since it
was bought in 2012 by a private equity group including famed hedge
fund managers Glenn Dubin and Paul Tudor Jones, as well as Paul
Fribourg, the head of Continental Grain.
[to top of second column] |
With the Morgan Stanley team, the group's global headcount is
expected to top 900, according to a person familiar with the
company. While still small compared to rivals like Vitol and
Trafigura, which employ thousands of people to run large
infrastructure subsidiaries or projects, it is a sizeable sum for a
relatively asset-light company, rivals say.
END OF AN ERA
Assuming the deal clears regulatory approval, which is expected in
the second half of the year, it will be the third time lucky for
Morgan Stanley, which has been trying to sell the division for years
as the Federal Reserve stepped up pressure on Wall Street to get out
of the physical commodities business.
Early talks with Qatar failed to clinch a deal, while a preliminary
agreement in late 2013 to sell to Russian oil giant Rosneft fell
apart as Washington stepped up sanctions on Moscow.
Wall Street's largest and most enduring oil trading desk rose to
fame in the early 1990s as a trader named Olav Refvik secured a host
of leases on storage tanks at a key import hub, earning him the
moniker "King of New York Harbor." Refvik and several other senior
founding executives left several years ago.
A Senate investigations report published last year revealed that
while Morgan Stanley used to charter about 100 oil tankers a month,
by 2014 the number had declined to 10-15 a month. Net revenues from
its oil desk had declined from a peak of around $1.3 billion in 2008
to $676 million in 2012, it showed.
Still, the bank has not completely turned its back on commodities.
It said commodities revenues rose 2 percent in the first quarter
even after its "strong performance" a year earlier, when cold
weather spurred massive volatility.
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
