back to top
Business

Morgan Stanley Prepares For Collapse Of Deal With Russian Oil Giant Rosneft

"The terms of the contract are such that if the deal doesn’t close by year end, the contract expires," the bank's chief financial officer said Friday morning.

Posted on

A week after the investment bank Morgan Stanley said that there was "no assurance" that its deal to sell its physical oil trading business to Russian oil giant Rosneft would be completed, the bank's chief financial officer Ruth Porat said the bank was "considering alternatives" if it doesn't close by the end of the year.

"The terms of the contract are such that if the deal doesn't close by year end, the contract expires," Porat said on a call with analysts to discuss the investment bank's earnings. "We're considering alternatives if it doesn't close."

Morgan Stanley, as part of its effort to divest of businesses that trade physical commodities like oil, reached a deal with the state-controlled Rosneft in December of last year to sell its physical oil merchanting business. The bank said in December that the deal would close in the "second half" of this year and needed regulatory approvals. The deal was submitted in July to the Committee on Foreign Investment in the U.S., or CFIUS, an interagency group run by the Treasury Department which reviews mergers that could have national security implications, the Wall Street Journal reported at the time.

The deal has been complicated in the wake of Russia's annexation of Crimea and links to pro-Moscow militants waging a separatist campaign in regions of Eastern Ukraine. The country's aggression and anti-Western posture has led to a cooling in diplomatic relations as well as a package of sanctions against some of its biggest companies and most prominent business and political figures.

The Morgan Stanley oil business the bank is trying to sell has 100 executives in the US, UK, and Singapore, as well as oil supplies and contracts to buy, sell, store, and ship oil. It also holds a 49% stake in a fleet of oil tankers. In January, Porat said that the business only broke even, but took up $4 billion in risk-weighted assets. Morgan Stanley agreed to sell the business as part of its effort to shed businesses that are asset-intensive, risky, and not always especially profitable.

The deal was not expected to materially affect the bank's earnings after it completed. Porat also said that "commodity revenues were meaningfully lower reflecting lower client activity and a difficult market environment."

Both Rosneft and its chief executive Igor Sechin have faced sanctions from the U.S.. The sanctions against Rosneft have not affected or banned the deal directly, but have restricted Rosneft's ability to have long-term debt issued in dollars and put a halt to US oil giant Exxon's drilling with Rosneft in the Arctic. Sechin, a longtime close allly of Russian president Vladimir Putin, was also put on the individual sanctions list in April.

Porat also told Reuters Friday morning that Morgan Stanley was still committed to selling the business even if the Rosneft deal didn't close.

Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.

Contact Matthew Zeitlin at matt.zeitlin@buzzfeed.com.

Got a confidential tip? Submit it here.