Morgan Stanley’s planned sale of a physical oil unit to Russia’s OAO Rosneft will bring the bank in line with regulators’ efforts to reduce risks posed by such businesses, Chief Financial Officer Ruth Porat said.
Morgan Stanley expects to say it’s also selling its stake in TransMontaigne Inc., the petroleum and chemical transportation and storage company, “sooner rather than later,” Porat, 56, said today in an interview. The sale to Rosneft of the oil-merchanting unit, which stores, trades and transports oil products, will probably be completed in the second half of this year, New York-based Morgan Stanley said last month.
The Federal Reserve is weighing more limits on banks’ trading and warehousing of physical commodities as Congress scrutinizes potential dangers to the financial system, conflicts of interest and manipulation in those markets. The central bank this week issued a white paper seeking comment on the risks of those units and said recent accidents and natural disasters have increased those concerns.
“Our focus on commodities is actually quite consistent with the tenor of the questions within the white paper,” Porat said.
Morgan Stanley’s return on equity will also benefit from the sale, she said, adding that the oil-merchanting business broke even last year with $4 billion of risk-weighted assets. The firm has set a goal of a 10 percent ROE in the fixed-income and commodities business, and said low returns in commodities and interest-rates-trading units kept it from achieving that in 2013.
“The commodities ROE is not near the level it should be,” Porat said. “It’s a drag on overall ROE, and we’re very much focused on that.”
The bank moved up its target of holding less than $180 billion of risk-weighted assets in its fixed-income and commodities unit by one year, to 2015. It had $210 billion in that division at the end of 2013, down from about $300 billion 18 months earlier.
Risk-weighted assets determine how much capital a bank must hold against certain activities under Basel III rules.