Morgan Stanley Sells TransMontaigne Stake - Analyst Blog

After a long wait, Morgan Stanley MS has finally found a buyer for its stake in TransMontaigne Inc. – an oil storage, marketing and transportation company, and wing of Transmontaigne Partners L.P. TLP. The company is vending off the stake to Tulsa, OK-based NGL Energy Partners LP NGL for a cash consideration of $200 million.

Under the transaction terms, Morgan Stanley would sale its 100% stake in TransMontaigne as well as both of its general and limited partner interests, comprising approximately 19.7%. Further, the company will also transfer related assets including inventory and pipeline and other contract rights to NGL Energy Partners.

Morgan Stanley has been curtailing its physical commodity business with an aim to focus on its core operations. However, the company will continue trade in power and gas, oil and metals.

Though the deal will not have any financial impact on the earnings, Morgan Stanley would record an undisclosed amount as gain. Further, the sale is expected to result in a significant decline of risk-weighted assets (RWAs). The company has been trying to shed RWAs since 2009 and expects these to be less than $180 billion by the end of 2015.

The deal, expected to be closed by the end of Sep 2014, still requires regulatory approvals.

Morgan Stanley had acquired TransMontaigne Inc. for $778 million in 2006 driven by the uptrend in oil business witnessed during that time. However, over the last few years, the physical commodity business has lost its shine with a fall in revenues across the industry.

Further, in Jul 2013, the Federal Reserve stated that it was reviewing its 2003 decision of allowing banks to pursue trading in the physical commodity market. Following this increased scrutiny and decrease in profitability, the company's Global Oil Merchanting Unit ceased to be a strategic fit anymore. Hence, in Dec 2013, Morgan Stanley announced its sale to Russia-based Rosneft Oil Company.

Apart from Morgan Stanley, many other major global banks including JPMorgan Chase & Co. JPM, Bank of America Corporation, Barclays PLC and Deutsche Bank AG are all moving away from physical commodities business. Higher capital requirements and lower profitability are the reasons for the growing disinterest.

Currently, Morgan Stanley carries a Zacks Rank #3 (Hold).