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Morgan Stanley (MS) said the Federal Reserve didn’t object to the firm’s capital plan, including its potential purchase from Citigroup Inc. of an additional piece of the banks’ retail brokerage joint venture.
The Fed also didn’t object to the payment of current common and preferred dividends, New York-based Morgan Stanley said in a statement today. The firm didn’t say whether it was raising dividends or buying back stock.
The Fed is requiring the nation’s largest lenders to show they have credible plans for maintaining capital and continuing lending in an economic downturn. Morgan Stanley’s Tier 1 common ratio would drop to a minimum of 5.4 percent in the Fed’s stress scenario, above the required 5 percent threshold.
Morgan Stanley has the option to buy a 14 percent stake in Morgan Stanley Smith Barney in May, increasing its ownership to 65 percent, and can buy the business outright over the next two years. In 2009, the firm bought a controlling stake in the joint venture, which has more than 17,000 advisers and $1.65 trillion in client assets.
Morgan Stanley would post a net loss of $22.5 through the end of 2013 under the Fed’s stress scenario, according to the results released today. That’s the fourth-highest loss among the 19 banks subjected to the review.
The additional brokerage stake will probably cost about $2.7 billion, Goldman Sachs Group Inc. (GS) analysts said in a note to investors in January. Chief Executive Officer James Gorman said on a January conference call that while immediately purchasing the next stake will depend on price, buying the rest of the brokerage is a “core plank” in his strategy.
Morgan Stanley cut its dividend in 2009 to 5 cents from 27 cents and has maintained the 5-cent payout since then. The firm hasn’t bought back any stock in the past three years under its share repurchase program, which was approved in 2006 and has $1.56 billion remaining.
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