(Corrects headline to reflect that Morgan Stanley will continue to trade physical oil on a case-by-case basis; corrects description of TransMontaigne in first paragraph to "oil storage and transport company" from "pipeline company")
June 9 Morgan Stanley is selling its controlling stake in oil storage and transport company TransMontaigne Inc to NGL Energy Partners LP for $200 million, essentially ending its long run as the biggest physical oil trader on Wall Street.
The long-awaited deal comes months after the bank announced its intent to sell most of its global physical oil trading operations to Russian state-run oil major Rosneft, including its 49 percent stake in shipping company Heidmar. .
It is the latest sign of how growing regulatory pressure is reshaping commodity markets.
NGL Energy Partners, an up-and-coming master limited partnership (MLP) that last year bought the oil trading division of privately held Gavilon, said an additional amount would be paid for inventory transferred at closing. The refined products held by TransMontaigne Inc could be valued at up to $550 million, a person familiar with the matter said.
The TransMontaigne MLP includes some 48 fuel terminals with nearly 24 million barrels of storage capacity on the U.S. Gulf Coast, in Florida, the Midwest and across the Southeast, including along the strategically important Colonial Pipeline, which ships gasoline and diesel from the Gulf to the East Coast.
The bank's power, gas and metals business is unaffected, and the bank will continue to trade physical oil for its clients, Morgan Stanley spokesman Mark Lake said.
One of the first banks to build up a major oil trading desk over two decades ago, Morgan Stanley has been trying to sell or spin off its physical commodity business for more than a year as it faces mounting regulatory scrutiny of the risks of owning and trading physical commodities, as well as higher capital requirements.
Building on major jet-fuel supply deals and strategic oil tank leases in the New York harbor, Morgan bought TransMontaigne in 2006, taking it deeper into the U.S. oil system years before the shale oil boom upended oil flows.
Even after they give up their independent investment bank status after the financial crisis, a 1999 law permitted Morgan Stanley and Goldman Sachs to remain in commodity activities engaged in before 1997.
Political pressure has intensified in recent years due to fears of banks' exposure to potentially catastrophic losses in the physical business, as well as concerns about the extent of their influence over the commodity supply chain.
Morgan Stanley launched a formal effort in December to sell its controlling stake in TransMontaigne.
Morgan Stanley said the sale includes its general partner and limited partner interests in TransMontaigne Partners LP .
The deal, expected to close in the third quarter, is not material to the firm's overall results, Morgan Stanley said. (Additional reporting by Neha Dimri in Bangalore; Editing by Kirti Pandey, Maju Samuel and Peter Galloway)