Morgan Stanley (MS) is in talks to sell its global oil business to OAO Rosneft (ROSN), Russia’s largest petroleum producer, a person briefed on the discussions said.
The talks are in early stages and a deal may not be reached, said the person, who asked not to be identified because the matter is private. The bank hasn’t discussed selling its entire commodities unit to Rosneft and may remain in some oil derivative businesses even with a sale, the person said.
Morgan Stanley Chief Executive Officer James Gorman has been exploring options for the commodities business for more than a year as the unit faces lower revenue and scrutiny from regulators who are reviewing banks’ activities in the sector. Gorman, 55, also has been trying to shrink the amount of capital dedicated to the fixed-income and commodity division in his quest to boost the bank’s return on equity.
Mary Claire Delaney, a spokeswoman for the New York-based bank, declined to comment, as did a spokeswoman for Moscow-based Rosneft, who couldn’t be identified due to company policy. SparkSpread, an online energy publication, reported the talks Nov. 19.
State-run Rosneft became the world’s largest publicly traded oil producer by volume after completing the $55 billion purchase of TNK-BP, Russia’s third-biggest producer, in March. Rosneft is also boosting its natural gas business by acquiring a stake in the SeverEnergia venture and assets from OAO Alrosa and Itera.
Any sale would probably include TransMontaigne Inc., a Denver-based petroleum and chemical transportation and storage company, and the bank’s 49 percent stake in Heidmar Inc., based in Norwalk, Connecticut, which manages about 100 oil and chemical tankers, the person said.
The oil unit represents a major part of the firm’s commodity business, which is run by Simon Greenshields and Colin Bryce, both 57, and also includes a large gas and power unit and a smaller metals business. In 2011, oil accounted for about 45 percent of the business, Glenn Schorr, then a Nomura Holdings Inc. analyst, said in a research note at the time.
Chief Financial Officer Ruth Porat, 55, said in July that the oil liquids market “over time, has been the most important driver of our commodities business.”
Morgan Stanley’s commodity business posted a return on equity of less than 5 percent in 2012, the lowest among its trading businesses. The firm cut 10 percent of its workforce in the division this year and held talks in 2012 with Qatar’s sovereign-wealth fund about selling a stake in the business.
The Federal Reserve is examining legal and regulatory exemptions that allow banks to participate in the commodities markets, a person briefed on the process said last month. Morgan Stanley is covered by a 1999 law that grandfathers any commodities operations it had before Sept. 30, 1997.
Commodity trading revenue at the 10 largest global investment banks fell 18 percent in the first nine months of the year to $4 billion, industry analytics firm Coalition Ltd. said in a report this month.