Deal or no deal, Morgan Stanley commodity trade shrinks

NEW YORK, Thu Jun 7, 2012 – The hard core of Morgan Stanley’s commodities trading empire, once the mightiest on Wall Street famed for its powerful union of paper and physical deals, is shrinking.

Even as the bank is reported to be considering selling a stake in its billion-dollar commodities unit, its physical trading activity in key U.S. markets is contracting in the face of abruptly changing market dynamics as well as diminishing risk appetite due to growing regulations and capital constraints.

In the power markets, it is trading only one-fifth as much electricity as five years ago. In oil, its imports to the United States fell last year to the lowest since 2004, while exports remain negligible. It barely makes the top 100 list of U.S. natural gas traders, with activity slipping from 2010.

Even the bank’s prized subsidiary TransMontaigne, a Denver-based refined petroleum products supply and distribution company it bought for $630 million six years ago, hasn’t helped it cash in on the boom in domestic U.S. crude oil trading this year. Its 2011 revenues were $152 million, up just 16 percent from 2007.

The data, based on government figures, port intelligence, securities filings and market sources, casts in sharp relief a trend that commodity traders say has been apparent for some time: Morgan Stanley is losing its edge in the opaque, over-the-counter cash commodity markets it once ruled.