Morgan Stanley (NYSE:MS)’s Move To Sell Oil Trading Unit In Russia Suffers A Setback

Boston, MA 09/26/2014 (wallstreetpr) – Diversified financial services provider, Morgan Stanley (NYSE:MS)’s move to divest its oil trading unit in Russia seems to have suffered a setback as the potential suitor Rosneft might back out of a deal to acquire it. The company has been facing pressures from the regulators to exit the business citing risks involved in physical oil trading.

Oil Trading Unit

The American company was holding discussions with Russia’s crude oil producer, Rosneft, which agreed to buy the unit way back in December. However, the current indication is that there was no progress in discussions, and the chances of a deal have dimmed, Reuters reported quoting sources familiar with the events. One of the problems seemed to have been the sanctions imposed by the Western countries that make it completely day-to-day financing of operations an impossible factor for the Russian company.

However, Rosneft has refused to give up claiming that the work over the agreement was still going on without elaborating further. On the other hand, skeptics believe that a deal is unlikely to happen. Reuters quoted a Russian-based source as saying that it was not a funding problem that was stalling the acquisition since Rosneft has got enough money.

Main Obstacle

The main issue seems to have been the permission from the Committee on Foreign Investment in the U.S. or CFIUS, which has got the power to reject any merger or acquisition in case it felt that it affected the security of America. Rosneft said that it was in touch with the CFIUS, and the establishment has sought more information. The source told Reuters that the company was still in the process of acquiring Morgan Stanley (NYSE:MS)’s oil trading unit.

No Other Option For Morgan Stanley

Morgan Stanley (NYSE:MS) has been under pressure to divest the oil trading unit since the regulators believe that it was not good for a big bank to have physical oil trading since it poses unpredictable events leading to liability of billions of dollars. The company already faced the financial crisis in 2008 and voluntarily took to stringent regulatory measures by transforming itself into a bank.

The financial services provider has not reacted to the latest development. Its CFO, Ruth Porat, has earlier indicated that a deal could be expected later this year. Since there are sanctions, Morgan Stanley (NYSE:MS) would have to look out for domestic buyers only and if Rosneft has issues so also others. Therefore, the company would have to wait till the CFIUS provides a clear-cut opinion.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.