* Morgan Stanley in commodities talks with Qatar for a year
* Negotiations hit a snag over structure of the deal
* Fed may rule soon on banks' ownership of physical assets
By Dinesh Nair and Richard Mably
DUBAI/LONDON, Oct 4 Morgan Stanley's
talks with Qatar's sovereign wealth fund over the sale of its
commodities business have run into difficulty, and the deal may
need to be reworked if it is to go ahead, banking sources said.
One of the top banks in commodity trading over the past 30
years, Morgan Stanley has been in discussion for more than a
year with Qatar over the sale of at least a majority stake in
the energy-focused trading business, the bankers said.
"There have been some differences, and Qatar is a bit
lukewarm about it," one said. "It's not dead yet but definitely
He said the hitch was not about price but about the
structure of the deal, which would see the divested unit run by
the existing commodities team at Morgan.
Bankers said the parties had looked at two deals - the sale
of a majority stake, at least 75 percent, or the sale of the
whole unit, with commodities managers at Morgan Stanley taking a
20 percent stake funded by private equity.
A Morgan Stanley spokesman declined to comment.
Selling the capital-intensive commodities business would
raise much-needed funds for Morgan, and allow the divested unit
to maintain ownership of physical assets in the United States
and resume proprietary trading.
Qatar Holding, the investment arm of the Gulf state's
sovereign wealth fund Qatar Investment Authority, has led most
of Qatar's foreign acquisitions but has focused on minority
holdings including stakes in Barclays, Credit Suisse, Volkswagen
and Porsche. It has full ownership of retailer Harrods.
The fund is seen as a bull on commodities, with a senior
executive saying in a rare statement in April that "We like
commodities, we like to invest in commodities. Since 2002, the
commodity price trend keeps going up."
Qatar Holding also emerged as kingmaker in Glencore's
planned acquisition of Xstrata, amassing a 12-percent stake
through market purchases and forcing Glencore to raise its offer
at the eleventh-hour.
Along with arch-rival Goldman Sachs, Morgan Stanley was one
of the original "Wall Street refiners" that blazed a trail in
the energy derivatives markets in the 1980s by combining
physical assets with derivatives trading nous and access to
Morgan Stanley, Goldman and JP Morgan are awaiting a verdict
from the Federal Reserve on whether they can keep those physical
assets. The status of assets including Morgan Stanley's
Denver-based TransMontaigne refined products supplier has been
in question since investment banks became regulated by the Fed
as bank holding companies in the 2008 financial crisis.
While its rivals have shifted their commodities focus to
client hedging and index business, Morgan has maintained a
strong presence in storing and transporting fuels, making it
more vulnerable to the Fed ruling.
"The sweet spot for Morgan Stanley is in the space between
physical markets and derivatives, connecting the two," said a
He said the bank may have decided that unless the Federal
Reserve granted the right to both maintain existing physical
assets and acquire new ones it should exit the business.
If the bank wants to maintain a minority stake in
commodities and avoid Fed regulation it would need to sell at
least 75 percent, bankers said.
From an estimated peak of $3 billion in 2008, Morgan
Stanley's commodities trading revenues have dropped sharply,
partly because of the Volcker rule that bans banks from
proprietary trading and partly because of capital constraints.
Morgan Stanley's commodities unit is run by Colin Bryce in
London and Simon Greenshields in New York.