Wednesday, October 5, 2011

"Morgan Stanley’s Ukrainian Farming Adventure" (MS; MOO; DBA)

A good story, well told.
From Bloomberg:
Iowa native Justin Bruch marveled at the opportunity when Morgan Stanley (MS) called in late 2007 to recruit him for an unusual assignment.

The New York bank, flush with $7.5 billion in fiscal 2006 profit -- the biggest in its history -- was going to be farming 11 parcels on the steppes of Ukraine. The commodities team wanted Bruch, a redhead with meaty hands who’d been farming all his life, to manage one of them.

Bruch saw a chance to dig into some famous dirt, Bloomberg Markets magazine reports in its November issue. The former Soviet republic has 30 percent of the world’s black soil, earth so fertile Adolf Hitler had Nazi troops cart some back to Germany during World War II. Wheat, corn, rapeseed and sunflowers thrive there.

“It’s like the prairie land that was broken in the Midwest 100 years ago,” says Bruch, 34, who grew up on his family’s 2,500-acre (1,012-hectare) corn and soybean farm. “The soil and potential for crops that Ukraine has is the best in the world.”

Morgan Stanley was primed for the investment. It was then the second-largest U.S. securities firm by market value, after Goldman Sachs Group Inc. (GS) Chief Executive Officer John Mack was pushing managers to take more risks.

The year Morgan Stanley called Bruch about running a farm in the Mykolayiv region near Odessa on the Black Sea, the bank spent $6.5 billion for Crescent Real Estate Equities Co., which had 54 office buildings in Dallas, Las Vegas, Miami and elsewhere.

Golden Fields
The bank also financed an Atlantic City casino resort after buying the land for it in 2006. The commodities division, which had acquired operators of fuel terminals and oil tankers, recruited for its European agriculture desk, anticipating rising food prices. The increases would spark riots in several countries in 2008.

Enselco Ltd., the company Morgan Stanley funded that owned the Ukrainian farms, bought satellite-guided John Deere tractors to plow its weed-strewn Ukrainian acres and imported mold- preventing grain bags as long as football fields. Bruch picked up enough Russian to joke with his tractor drivers and order a meal in his adopted home.

Things began to fall apart within months. The locals stole fertilizer and insecticide, Bruch says, and he suspected that harvested wheat was disappearing too. He wound up fighting with tax, immigration, fire and police inspectors and trying to satisfy officials who wanted him to build roads, not just till fields. He left the farm, called Golden Fields, in June 2009 to manage a Ukrainian farm owned by another foreign investor....MORE