Bloomberg News

Morgan Stanley Smith Barney Valuation Delayed Before Sale

August 29, 2012

Morgan Stanley (MS:US) and Citigroup Inc. (C:US) agreed to delay setting a valuation for their brokerage joint- venture as they wrangle over the sale of a 14 percent stake.

A determination of Morgan Stanley Smith Barney’s fair market value will be made Sept. 10 rather than this week, according to a statement yesterday from Morgan Stanley, which is buying the stake from Citigroup to boost its holding to 65 percent. Shannon Bell, a Citigroup spokeswoman, declined to elaborate.

The companies hired Perella Weinberg Partners LP to help settle a disagreement this year over the unit’s value, which Citigroup estimated is about $13 billion more than an amount submitted by Morgan Stanley. Morgan Stanley Chief Executive Officer James Gorman, 54, has said the purchase of the whole brokerage is key to his strategy of making the firm less reliant on trading revenue and improving profitability.

The two New York-based banks formed the joint venture in 2009 with more financial advisers than any brokerage. Morgan Stanley paid $2.75 billion for a 51 percent stake and the right to buy the rest over time. The bank announced in May it would exercise its option to increase its stake. It has the right to buy another 15 percent next year and 20 percent in 2014.

Citigroup estimated in a July 19 regulatory filing that its 49 percent stake was worth $11 billion and said Morgan Stanley’s bid was 40 percent of that. Citigroup faces a writedown that could top $6 billion if Morgan Stanley’s valuation is accepted. That’s twice Citigroup’s $2.9 billion estimated third-quarter net income, according to the average of 13 analysts surveyed by Bloomberg.

The brokerage, which is run by Morgan Stanley’s Greg Fleming, 49, is largely made up of the Smith Barney and Dean Witter businesses. Gorman said in June that he will change the name of the unit to Morgan Stanley Wealth Management.

To contact the reporter on this story: 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)
    • $34.05 USD
    • -0.34
    • -1.01%
  • C
    (Citigroup Inc)
    • $51.73 USD
    • -0.40
    • -0.77%
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