Bloomberg News

Citigroup Has ‘Plenty of Time’ to Sell All of Smith Barney

April 16, 2012

Citigroup Inc. (C:US) isn’t under immediate pressure to sell its entire stake in Morgan Stanley Smith Barney because the bank has made progress in reaching capital goals, Chief Executive Officer Vikram Pandit said.

Citigroup has “plenty of time” to dispose of its 49 percent ownership in the brokerage, owned jointly with Morgan Stanley (MS:US), Pandit said today on a conference call. Pandit was responding to a question of whether New York-based Citigroup would be open to selling the entire stake this year.

The bank’s investment is included in Citi Holdings, the unit with more than $200 billion of unwanted assets. Pandit has been selling riskier assets as the lender, ranked third by assets in the U.S., moves to strengthen its balance sheet and win approval from regulators to buy back shares and raise its dividend.

Morgan Stanley has the option to buy a 14 percent stake in the venture in May, increasing its ownership to 65 percent, and can buy the business outright over the next two years. In 2009, Morgan Stanley bought a controlling stake in the joint venture, which had more than 17,000 advisers and $1.65 trillion in client assets as of Dec. 31.

Capital Goal

Grouping the brokerage stake in Citi Holdings signals that the bank wants to exit the business, Citigroup Chief Financial Officer John Gerspach said on the conference call. Glenn Schorr, a Nomura Holdings Inc. analyst, said in a note last month that Gerspach indicated to him that the lender would be willing to sell the whole stake this year if Morgan Stanley makes an attractive offer.

Pandit said today the bank probably will reach an 8 percent Tier 1 common equity ratio under new Basel III rules by the end of this year, even without selling the whole brokerage stake.

Citigroup said a drop in revenue in the brokerage and asset-management unit was driven by a lower contribution from Morgan Stanley Smith Barney. Gerspach said the bank’s accounting for income from the stake also includes costs of funding the stake and valuation of intangible assets.

The brokerage and asset-management unit, of which MSSB is more than 90 percent, posted negative revenue of $46 million in the quarter, compared with $137 million of positive revenue a year earlier, according to a presentation on the bank’s website. Morgan Stanley, which operates the brokerage venture, is scheduled to report quarterly results on April 19.

In the first quarter of 2011, Morgan Stanley reported that it had $257 million of net income on $3.44 billion of revenue from its global wealth-management division, which is primarily composed of the brokerage venture. It said $74 million of those earnings were applicable to noncontrolling interests.

David Trone, an analyst at JMP Securities, estimated that Morgan Stanley’s wealth-management revenue rose to $3.48 billion in the first quarter. Barclays Capital’s Roger Freeman and Atlantic Equities’s Richard Staite estimated a drop in revenue to $3.3 billion and $3.38 billion, respectively.

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • C
    (Citigroup Inc)
    • $48.22 USD
    • 0.04
    • 0.08%
  • MS
    (Morgan Stanley)
    • $30.76 USD
    • 0.87
    • 2.83%
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