By Dmitry Zhdannikov and Katya Golubkova
LONDON/MOSCOW Dec 20 Morgan Stanley has
sold the majority of its global physical oil trading operations
to Russian state-run oil major Rosneft, becoming the
latest Wall Street firm to dispose of a major part of its
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
The terms of the deal were not disclosed. Morgan Stanley
said it was not expected to have a significant impact on its
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
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"
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
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
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.