Morgan Stanley is lopping off more pieces of its once-sprawling commodities empire, as Wall Street faces scrutiny over dealings in oil, gas and electricity.
The investment bank is in advanced negotiations to sell its stake in Heidmar, an oil tanker operator. A deal could be announced within weeks, industry executives said.
Subsidiaries of Morgan Stanley have also sold two US power stations that were part of its lucrative energy trading business, leaving just one mothballed Nevada plant in its portfolio.
The disposals are the latest move by Wall Street banks to shed holdings that store, transport or process cargoes of commodities. Goldman Sachs and JPMorgan Chase have cut loose metals warehouses and power plants, while Morgan Stanley in 2015 sold its 2m-barrel-a-day global oil merchant business to Castleton Commodities International, a private trading house.
Bank regulators have grown concerned about the risks of handling hazardous commodities, historically the domain of commercial companies. The Federal Reserve has proposed steep capital charges on banks in the sector, citing dangers of “environmental catastrophe” from spills and explosions.
Morgan Stanley once had the biggest physical footprint among the banks, but is shifting towards dealing commodity derivatives to clients. The value of its commodities inventories has declined from $10.3bn in 2011 to less than $200m, filings at the Fed show.
The shipowner George Economou and the bank are negotiating to sell their respective 49 per cent stakes in Connecticut-based Heidmar to investor FDX Capital, two people briefed on the talks said. Morgan Stanley acquired Heidmar in 2006 and two years later sold just over half the company to Mr Economou and company executives.
Morgan Stanley and Heidmar declined to comment, FDX could not be reached and Mr Economou said the process “still has some way to go”. TradeWinds, a shipping publication, first reported FDX’s involvement.
Last year, Morgan Stanley sold a 100mW gas-fired power plant in Lee County, Alabama and an 80-mW oil-fired plant in Bainbridge, Georgia to Walton Electric Membership Corp, a rural co-operative in Monroe, Georgia. The bank still has long-term power supply obligations in the region and has contracted to purchase power from the plants until the 2030s, records show.
“They call us when they want the energy and we dispatch it for them,” said Robert Rentfrow, a Walton senior vice-president.
Morgan Stanley’s remaining physical commodities holdings include a 30 per cent stake in Global Energy International of Singapore, which supplies marine fuel and operates tankers, and Pioneer Energy Holdings, which owns a diesel terminal in Queensland, Australia, according to securities filings and executives.
Under a provision of US law, Morgan Stanley and Goldman are the only Fed-regulated banks allowed to own commodity infrastructure such as tankers and power plants, in addition to the materials that flow through them.
In its rule proposal, the Fed said “both environmental risks and reputational risks are higher” from such assets and suggested burdensome capital requirements for banks that continue to own them.
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