Qatar, the Persian Gulf country seeking to reduce its dependence on gas reserves, is weighing a potential stake in Morgan Stanley’s commodities unit, Prime Minister Sheikh Hamad bin Jassim Al Thani said.
“We need a few weeks to look at the details, but we are looking at it seriously,” he told reporters today in Doha in response to a question about Qatar’s interest.
Morgan Stanley has been considering options for its commodities business, run by Colin Bryce and Simon Greenshields, both 56, amid new rules and a pledge by Chief Executive Officer James Gorman to shrink the fixed-income and commodity trading division to help improve returns. The Volcker rule would impair banks’ ability to provide commodity-related hedging and financing services as currently written, Greenshields wrote in a comment letter to regulators in February.
The commodities business, which includes trading in futures contracts and buying and selling physical commodities, generated about $1.5 billion in annual revenue the past two years, Kian Abouhossein, a JPMorgan Chase & Co. analyst, estimated in a March note.
Morgan Stanley and Qatar may also be seeking benefits from information sharing. Qatar is the world’s top exporter of liquefied natural gas and a member of the Organization of Petroleum Exporting Countries, which supplies 40 percent of the world’s oil. Morgan Stanley owns TransMontaigne Inc., a fuel distributor based in Denver, and a 49 percent stake in Darien, Connecticut-based ship operator Heidmar Inc.
“It is huge intelligence that both can benefit from,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The Qataris have visibility in the global oil market with demand trends and what they’re hearing from their direct purchasers. Similarly, Morgan Stanley’s unit has visibility downstream in the U.S. for refined products and other economic indicators.”
Morgan Stanley, the sixth-biggest U.S. bank by assets, held talks earlier this year with private-equity firms including Blackstone Group LP as it considered options for the unit, people familiar with the New York-based company’s deliberations told Bloomberg News in June.
Mary Claire Delaney, a Morgan Stanley spokeswoman, declined to comment.
Qatar Holding LLC, an investment arm of the Qatar’s sovereign-wealth fund, is interested in investing in commodities, board member Hussain Al Abdulla said in April. The fund owned 12 percent of Xstrata Plc as of Aug. 29 and Qatar’s prime minister said today his country looks favorably on Glencore International Plc’s sweetened bid for the Swiss miner.
“Because of the financial crises, people are not investing enough in commodities,” Sheikh Hamad said. “That might create a gap between 2016 and 2017 and might push the price even higher.”
While new rules will increase the capital needed for the commodities business, Morgan Stanley won’t seek to shrink the unit because it’s central to the bank’s trading strategy, Chief Financial Officer Ruth Porat said in July. Still, the company may succeed in structuring a partial sale so that it transfers some assets to the buyer and reduces capital needs, said Shannon Stemm, an analyst at Edward Jones & Co.
“They don’t want to lose that commodities-trading expertise, but it wouldn’t surprise us if they introduced a new investor there, because they’re trying to focus on the less asset-intensive businesses,” Stemm said.
A deal also would give Morgan Stanley a strategy to exit the business if the Volcker rule, a Dodd-Frank Act provision that limits banks from making bets with customer deposits, turns out to be stricter than the firm anticipates, Kilduff said.
Morgan Stanley and Goldman Sachs Group Inc., which previously dominated commodities trading among Wall Street banks, have lost ground to New York-based JPMorgan and London-based Barclays Plc, according to a survey of corporate treasury officials by Greenwich Associates that was published in March.
The study found that JPMorgan and Barclays tied Goldman Sachs and surpassed Morgan Stanley in the share of clients who use them for over-the-counter energy derivatives trades.