Bloomberg News

Morgan Stanley Will Buy More of Smith Barney From Citigroup

May 31, 2012

Morgan Stanley (MS:US), the majority owner of Morgan Stanley Smith Barney Holdings LLC, plans to buy an additional 14 percent stake in the brokerage from Citigroup Inc. (C:US)

The price will be determined over a 90-day period, according to a statement today from New York-based Morgan Stanley. The investment bank already owns 51 percent of Morgan Stanley Smith Barney, which is the world’s largest brokerage. Citigroup, the third-largest U.S. bank, sold the controlling stake to Morgan Stanley in 2009.

Citigroup Chief Executive Officer Vikram Pandit, 55, is unloading unwanted assets in the Citi Holdings division to buttress the bank’s balance sheet. Morgan Stanley has the right to buy the entire brokerage, which has more than 17,000 advisers and $1.74 trillion in client assets, over the next two years.

“Several years ago, after taking a dispassionate look at all of our businesses, we placed Morgan Stanley Smith Barney in Citi Holdings because we decided it was not core to our strategy,” Jon Diat, a Citigroup spokesman, said in an e-mailed statement. “Citi has made enormous progress in reducing similar non-core assets in an economically rational manner.”

In addition to paying for the stake, Morgan Stanley must pay New York-based Citigroup a premium for about $5.4 billion of customer deposits that will be transferred as part of the sale, according to a regulatory filing.

Estimates Due

Morgan Stanley and Citigroup will submit their estimates of the brokerage’s fair value within about 45 days from tomorrow. If the figures are within 10 percent of each other, the stake will be sold at the average of the two, according to a regulatory filing. If the difference is more than 10 percent, the firms would bring in an outside appraiser, who will submit an estimate of fair value by the end of August.

Citigroup Chief Financial Officer John Gerspach, 58, indicated last month that the bank may be willing to sell the rest of its stake to Morgan Stanley this year. Morgan Stanley CEO James Gorman said April 19 that he feels “no particular compulsion” to speed up purchases of the remaining pieces.

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

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