Morgan Stanley has had talks with private-equity firms including Blackstone Group LP as the bank considers options for its commodities trading unit if the Volcker rule outlaws some activities, according to people familiar with the discussions.
The firm currently has no plans to sell the business or a minority stake in it, said one of the people, who asked to remain anonymous because the talks were private. Mary Claire Delaney, a Morgan Stanley spokeswoman, declined to comment. CNBC reported earlier today that the New York-based bank is considering a partial sale of its commodities unit.
Morgan Stanley’s commodities unit, which is run by Colin Bryce and Simon Greenshields, generated about $1.5 billion in annual revenue over the past two years, Kian Abouhossein, a JPMorgan Chase & Co. analyst, estimated in a March note. Morgan Stanley’s business includes trading in futures contracts and buying and selling physical commodities.
Morgan Stanley rose 5.8 percent to $13.61 at 12:45 p.m. in New York, its biggest intraday gain since February. The bank’s shares declined 15 percent this year through yesterday.
The Volcker rule, which seeks to ban proprietary trading at deposit-taking banks, would impair firms’ ability to provide commodity-related hedging and financing services as currently written, Greenshields wrote in a comment letter to regulators in February.
The 10 largest global investment banks generated about $7 billion from commodities trading each of the last two years, down from more than $12 billion in 2009 and 2008, according to data from industry analytics firm Coalition Ltd. Morgan Stanley has about a 15 percent to 20 percent market share among banks, Glenn Schorr, a Nomura Holdings Inc. analyst, estimated last year.
Trading in physical commodities, which includes product transportation and storage, has become a bigger piece of Morgan Stanley’s operations as competition in futures trading has increased, Schorr wrote, citing a meeting with Bryce. Trading in oil makes up about 45 percent of the business, with gas and power accounting for 40 percent and metals and agriculture about 15 percent, he wrote.
Morgan Stanley bought TransMontaigne Inc., a Denver-based fuel distributor, in 2006 and owns a minority stake in Heidmar Holdings LLC, a U.S. oil-tanker business. The bank also owns electricity facilities in the U.S. and Europe, it said in a regulatory filing.
Morgan Stanley doesn’t break out revenue from its commodities business, which reports within the fixed income and commodities unit. That business posted $2.6 billion in revenue in the first quarter, excluding accounting charges, up 34 percent from a year earlier. Colm Kelleher, co-president of the firm’s institutional securities group, oversees all trading, including the commodities unit.
Gary Cohn, president and chief operating officer of Goldman Sachs Group Inc., was asked at an investor conference last week whether the bank might spin off its commodities business. Cohn said that while it’s possible, the business benefits from being part of the global firm.
“If you look at our commodities business, many of our most important clients are our big corporate clients,” Cohn said, adding that there are “enormous synergies” in Goldman Sachs’s ability to advise them on investment banking, financing and risk management.
David Wells, a Goldman Sachs spokesman, declined to comment.