Morgan Stanley is exploring "different structures" for its commodities business, the CEO of the investment bank said on Thursday, the firm's first public comments hinting at a possible sale of its multibillion-dollar oil and metals trading arm.

The bank has been in discussions with OPEC member Qatar for more than a year over the sale of at least a majority stake in its energy-focused trading business, according to bankers.

Morgan Stanley Chief Executive James Gorman, speaking on a conference call with analysts after the firm reported better-than-expected quarterly results on Thursday, said changes under the Dodd-Frank financial reform law restrict the kind of trading the firm can do in commodities.

"There are potential limits to some of the activities that we can pursue in that business," Gorman said. "So it is incumbent upon us to explore all forms of different structures, appropriate structures, that can take us forward where we can get the benefits of the business but also meet the regulatory constraints that we operate under."

On Monday, Qatar Prime Minister Sheikh Hamad bin Jassim al-Thani said the Gulf state was studying a proposal to invest in Morgan Stanley's commodities trading arm but needed a few more weeks to "review the details." He did not elaborate on the terms of any possible investment.

Morgan Stanley's commodities trading revenues have dropped sharply since 2008, partly because of the Volcker rule that bans banks from proprietary trading and partly because of capital constraints.

WALL STREET REFINERS

Along with arch rival Goldman Sachs , Morgan Stanley was one of the original "Wall Street refiners" that broke into the energy derivatives market three decades ago. Oil trading is still estimated to make up about half its commodities business.

But while Goldman and many rivals have shifted their focus to client "flow" business - market-making with funds, selling indexes to investors and hedging corporate risks - Morgan Stanley has resolutely remained a merchant-trader, focusing on the business of storing and transporting raw materials.

Morgan Stanley's commodities unit has earned the bank an estimated $17 billion in revenue over the past decade, trading both financial contracts and physical commodities such as gasoline and diesel fuel.

Based on Reuters calculations, Morgan Stanley's commodity revenues peaked at around $3 billion in 2008 and declined to $1.3 billion last year, the lowest level since 2005.

Selling the capital-intensive commodities business would raise much-needed funds for the bank and allow the divested unit to maintain ownership of physical commodity assets in the United States and resume proprietary trading.

Earlier this month, banking sources said the talks with Qatar had run into difficulty and the deal might need to be reworked if it were to go ahead. But the comments from both sides this week suggest a sale remains a possibility.

Qatar Holding, the investment arm of the Gulf state's sovereign wealth fund Qatar Investment Authority, has led most foreign acquisitions but has focused on minority holdings, including stakes in Barclays , Credit Suisse , Volkswagen and Porsche . It has full ownership of retailer Harrods.

Morgan Stanley's adjusted earnings rose sharply in the third quarter compared with a year earlier as it boosted revenue from trading bonds, long a sore spot for the bank.

COMMODITY 'VaR' FALLS

Morgan Stanley said its commodities trading risk fell in the quarter from the previous three months and a year earlier, and it unveiled a new format for calculating portfolio risk.

Under the revised formula, its Value-at-Risk (VaR) in commodities averaged $22 million per day in the third quarter, down from $27 million in the second quarter and the $30 million a year earlier.

VaR is an important consideration for investment banks when making trading and hedging decisions for an asset class.

If the bank had used its previous formula for calculating risk, the commodities VaR for the third quarter would have been $27 million versus $34 million in the second quarter and $32 million a year ago.

Goldman Sachs said its commodities VaR for the third quarter stood at $22 million, compared with $20 million in the second quarter and $25 million a year ago.

Goldman said significantly lower revenues from commodities dragged down its trading businesses in the quarter, singling out weak performance by a unit that was once the pride of the Wall Street titan.

(Reporting by Lauren Tara LaCapra, Barani Krishnan and Jonathan Leff, writing by David Sheppard; Editing by Marguerita Choy and John Wallace)