Boston, MA 07/07/2014 (wallstreetpr) – Morgan Stanley (NYSE:MS) is making a return to iron ore commodity dealing with the recent purchase of bulk commodities trading book from Deutsche Bank, according to a source with insider knowledge.
The Wall Street bank exited iron ore dealing last year. The acquisition from Deutsche Bank will also expand the bank’s bulk commodities trading book in coal and freight.
The value of the trading book acquisition was not disclosed. However, Deutsche Bank is a pioneer in the iron ore swaps trading having entered the business in 2008.
The acquisition is expected to broaden the Morgan Stanley’s customer base in the commodities segment.
Tight regulatory framework
Deutsche Bank’s decision to unload its bulk commodities trading is linked to the stringent regulations that have diminished profits in the Germany’s largest bank. The German bank has earmarked about 17 businesses for sale. It sold its U.S. power trading books to Citigroup Inc (NYSE:C) and the European power and gas books to EDF Trading.
Morgan Stanley (NYSE:MS) is making the purchase at a critical moment because it is also facing growing regulatory pressure linked to its involvement in physical assets.
U.S. regulators have heightened scrutiny in physical businesses such that the Wall Street bank has decided to unload its stake in Transmontaigne, which deals with oil storage and transport. Morgan Stanley is also selling its physical business to Rosneft, a Russian gas producer.
Focus on revenue growth
Iron ore spot trading is the world’s largest commodity trading by volume, only trailing oil. The business, as well as that of coal, has ballooned in recent years, and both have helped grow the dry freight sector as well. Therefore, in the latest bulk commodity acquisition, Morgan Stanley (NYSE:MS) is seeking to expand its presence in a promising business in terms of revenue.
U.S. lenders are diversifying operations in order to boost revenue and profits amid slowdown in loan books and mortgage deals. As for Morgan Stanley (NYSE:MS), in addition to seeking revenue growth, the company is also keen on reducing its staff costs. It recently announced plans to cut compensation to financial advisors.
