Morgan Stanley Offered $1bn for Oil Unit

Morgan Stanleyhas been offered more than $1bn for its merchant oil trading business by a US-based trading house, after two failed transactions with foreign buyers.

The offer byCastleton Commodities International, a trading house backed by investors including hedge fund managers Paul Tudor Jones and Glenn Dubin, includes contracts and inventories, a person familiar with the matter said. Castleton and Morgan Stanley had no comment.

Morgan Stanley previously reached a deal to sell its oil merchant business toRosneft, the Russian state-owned oil company, but the dealexpired as it awaited US regulatory approval in Decemberamid tensions over Russia’s conflict with Ukraine.

Earlier the Wall Street bank had engaged in protracted negotiations to sell a piece of its commodities business to Qatar’s sovereign wealth fund.

Morgan Stanley began oil trading in the 1980s and had the most physical presence in petroleum markets among Wall Street banks, acting as a merchant shuttling cargoes via pipelines and across oceans.

However, bank executives sought to sell the business amid concerns among regulators about its safety and disappointing returns on equity. A US Senate report last year revealed that while Morgan Stanley used to charter about 100 oil tankers a month, by 2014 the number had dropped to 10-15 a month.

Morgan Stanley has already sold businesses that owned pipelines and other commodity infrastructure, such asfuel distributor TransMontaigne. A fledglingcompressed natural gasexport venture was purchased by Pentagon Energy, a new trading company whose principals include two former Morgan Stanley executives.

Morgan Stanley continues to trade oil, natural gas, power and metals, and handle commodities transactions for clients, but plans to exit the merchant business.

Castleton, formerly known as LDH Energy, has expanded beyond its base in North American natural gas markets into commodities such as seaborne petroleum and iron ore. It was previously a bidder in the auction ofJPMorgan Chase’s physical commodities business, which was eventually sold to Mercuria, the Swiss-based trading house.