Morgan Stanley, Qatari Fund May Do Commodities Deal

Morgan Stanley officials are advanced talks with a Middle Eastern sovereign-wealth fund, the Qatar Investment Authority, about an investment the bank's commodities unit, say several people familiar the matter, and a deal could imminent.

Such a sake could the Qatari fund a toehold the robust global business of trading paper and physical stocks of commodities like oil, natural gas, and metals, while at the time providing an influx of capital for Morgan Stanley.

Talks the two entities have recent days centered the notion of the QIA purchasing a minority stake in Morgan’s commodities business, to one of the people familiar with the matter. One current concern, according to another person familiar with the matter: sure that the most talented traders the division are contractually obligated to stay board.

Owning part of Morgan’s commodities trading unit could cost Qatari fund a billion dollars or more. Even the second quarter generated relatively low revenue amid spiraling crude-oil prices, among factors, the bank's commodities division has historically between $2 billion and $3 billion per year, people knowledge of the business have said. The unit also includes significant physical assets, TransMontaigne Inc., a Denver-based commodities logistics company, could sweeten the price even during this turbulent trading .

Still, the exact terms of the potential deal could not immediately determined. And the people familiar with the matter cautioned the discussions could yet apart. A spokesman for Morgan Stanley declined to comment the possibility of a sale, and representatives the Qatari sovereign-wealth fund did not respond to requests comment.

During an interview CNBC on Wednesday to discuss her firm’s second-quarter earnings, Morgan Stanley chief financial officer Ruth Porat said that “we look at commodities as an ongoing” business, “never never” when it comes to handicapping an eventual sale or outside investment the unit.

A deal inked this summer would come a sensitive time for Morgan Stanley, which has recently been subjected a corporate-credit downgrade by one major ratings agency, a resultant hike its borrowing costs, and a tough financial quarter in revenue in key businesses, like fixed income and banking, plummeted. Net income the second quarter dropped 54 percent, to $563 million, and revenue fell 24 percent to $6.95 billion. the aftermath of those results, Morgan Stanley shares were hammered, dropping than 5 percent on Wednesday.

Longer-term, Morgan also faces a raft of new regulations that could hamper ability to make money in key businesses — including commodities. The Volcker rule, instance, a portion of the Dodd-Frank Act whose parameters are still shaped, could curb the firm’s ability to buy and sell commodities profitably. Against that backdrop, selling or most of its commodities business to an overseas investor not privy to regulations could prove an attractive option.

The Qatari fund was at point interested in the possibility of a larger stake Morgan’s commodities business, said someone familiar the matter, but Morgan officials are loathe to sell more than a minority interest, according to another one of the people knowledge of the talks.

Founded in 2005, the Qatar Investment Authority, is owned by the state, was set up to diversify the country’s investments across different asset classes and geographies, according to its site. Its assets under management are $85 billion, according to figures compiled Factset.

The QIA has a variety of investments Europe and the U.S., including stakes in Volkswagen, Siemens, Barclays, and Tiffany. The sovereign-wealth fund waves last month for demanding that the mining company Xstrata, of the QIA is the second-largest shareholder, hold for a higher bid from Glencore International, the Swiss trading company that is trying purchase it.


Adapted from: CNBC, July 20, 2012.