Citigroup, Morgan Stanley agree to joint brokerage

Citigroup and Morgan Stanley announced they are to merge their brokerage operations, which will henceforth be known as Morgan Stanley Smith Barney. Their combined client assets will reach 1.7 trillion dollars.


AFP - Citigroup and Morgan Stanley announced plans Tuesday to merge the worldwide brokerage operations of the banking giants in a deal giving ailing Citi 2.7 billion dollars in upfront cash.

The combined firm, to be called Morgan Stanley Smith Barney, will have 1.7 trillion dollars in client assets and some 20,000 brokers worldwide.

The deal was announced amid growing concerns about the fate of Citigroup, which had been the world's biggest financial company but has been hammered by heavy losses in the financial crisis and has been the biggest recipient of a US government program to inject capital into troubled banks.

The deal would combine Morgan Stanley's Global Wealth Management Group and Citi's Smith Barney, Quilter in Britain, and Smith Barney Australia and would be "the industry's leading wealth management business," according to a joint statement.

It will not include Citi's Private Bank or Nikko Cordial Securities.

Morgan Stanley will own 51 percent of the venture and Citi the other 49 percent.

The new venture would have an estimated 14.9 billion dollars in revenues and a combined pre-tax profit of 2.8 billion dollars.

It would have some 1,000 offices around the world and 6.8 million client households globally "with a strong presence in the critically important high-net-worth client segment," the statement said.

News of the deal circulating since Friday had sparked fears that Citi, which has received a total of 45 billion dollars in capital injections from the US Treasury to shore up its finances, was in deeper troubled than expected.

One analyst called Smith Barney the "crown jewel" of Citi, which has been hammered by losses stemming from the US real estate meltdown.

The statement said the deal had been approved by the board of both companies, and is expected to close in the third quarter, subject to regulatory approvals.

The joint venture is expected to achieve cost savings of some 1.1 billion dollars, according to the statement.

John Mack, chairman and chief executive of Morgan Stanley, said, "By bringing together Morgan Stanley's and Citi's strong wealth management businesses, we are creating a new industry-leading wealth management franchise."

"This joint venture is an important step forward in our effort to build our wealth management franchise, which we believe will be an increasingly important and profitable part of Morgan Stanley's business in the years ahead," Mack added.

Citi will get an upfront cash payment of 2.7 billion dollars and will recognize a pre-tax gain of 9.5 billion dollars, or 5.8 billion dollars after taxes. It will add 6.5 billion dollars of equity to Citigroup, which is seen as desperate for fresh capital.

Citi CEO Vikram Pandit said, "This joint venture creates a peerless global wealth management business and provides tremendous value for Citi."

Pandit added that the deal "will generate equity capital that we can deploy to other core businesses which are well positioned to deliver attractive returns in the future."

The Wall Street Journal reported that the move was the first step in a major reorganization of Citigroup that would dismantle what had been a diversified conglomerate to focus on retail banking and services for businesses.

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