Morgan Stanley (MS) is said to be discussing the sale of a large stake of its commodities business to Qatar Investment Authority, according to a report in the Financial Times.
Discussions have been going on for months for vending of a smaller stake in the commodities business of Morgan Stanley, which boasts of its specialization in trading of oil, gas and electricity. However, currently talks have proceeded to a majority stake.
According to the report, with the vending of the commodity unit, traders would be able to carry on trading for their own books but this would be banned for banks as per the impending Volcker rule under the U.S. regulations. Hence, this deal for which selling price has not yet been finalized, would help Morgan Stanley to abide by regulations.
As a matter of fact, Morgan Stanley is in the process of overhauling its business. It is augmenting its retail brokerage and wealth management business and increasing its stake in the Morgan Stanley Smith Barney joint venture with Citigroup Inc. (C). Morgan Stanley will eventually buy out the entire joint venture by June 2015. The expansion in retail brokerage and wealth management business is aimed at achieving revenue and earnings stability.
Notably, Morgan Stanley and Goldman Sachs Group Inc. (GS) were the top commodity trading firms in the pre-financial crisis period. However, revenues have been trending lower in the past few years with investors shying from the business owing to the concerns over the financial crisis, worldwide.
However, we believe that the restructuring initiatives as well as organic and inorganic growth strategies will continue to be significant growth drivers going forward for Morgan Stanley. Yet, concerns related to the possibility of the company’s financials being adversely impacted by new capital requirements, elevated costs and intense pricing competition remain headwinds.
Morgan Stanley currently retains its Zacks #3 Rank, which translates into a short-term Hold rating.
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