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Morgan Stanley eyes venture
By Bradley Keoun |
January 12, 2009, Monday
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Print Edition
Print Edition
MORGAN Stanley may pay Citigroup Inc as much as US$3 billion for control of a venture that would combine their brokerage units and overtake Bank of America Corp as the largest financial adviser to individuals, a person with knowledge of the discussions said.
Morgan Stanley, led by Chief Executive Officer John Mack, may get 51 percent of the new company and an option to acquire the rest over three to five years, according to the person, declining to be identified because the deal isn't complete and the talks are confidential.
Citigroup, which reported US$20 billion of losses in the past four quarters, would get cash for its Smith Barney brokerage, while Morgan Stanley would get recurring fee revenue and more potential banking customers.
The joint venture would employ about 22,000 advisers, compared with the approximately 20,000 at BoA after its purchase of Merrill Lynch & Co.
Morgan Stanley Co-President James Gorman may oversee the company, tentatively named Morgan Stanley Smith Barney, the person said.
"There's been a lot of pressure for Citi to monetize some of their more valuable assets and Smith Barney is certainly one," said Michael Nix, a money manager at Greenwood Capital Associates LLC in South Carolina. "There's also been a lot of pressure for Morgan Stanley to look at how they can better lever their business units."
The worst financial crisis since the 1930s has recast rivals in the financial industry as merger partners and transformed the United States government into one of the biggest investors in Wall Street firms, including Morgan Stanley and Citigroup, Bloomberg News said.
Changes sweep in
As Lehman Brothers Holdings Inc sank into bankruptcy in September, Merrill Lynch, then the biggest US brokerage, agreed to be taken over by North Carolina-based BoA.
Morgan Stanley converted from a securities firm to a bank holding company and Citigroup, took US$45 billion of US bailout money.
Under the deal being negotiated now, Morgan Stanley and Citigroup would contribute their brokerage units to the joint venture, two people with knowledge of the talks said. Morgan Stanley would also pay Citigroup US$2 billion to US$3 billion, or 20 percent of the total value of Smith Barney, to gain majority control, one of the people said.
The venture may be led by Morgan Stanley managers and a board with a majority of Morgan Stanley appointees, the person said.
The news came as Citigroup said former US Treasury Secretary Robert Rubin, who joined the firm in 1999 and has opposed calls to break it up, plans to quit the board.
Morgan Stanley, led by Chief Executive Officer John Mack, may get 51 percent of the new company and an option to acquire the rest over three to five years, according to the person, declining to be identified because the deal isn't complete and the talks are confidential.
Citigroup, which reported US$20 billion of losses in the past four quarters, would get cash for its Smith Barney brokerage, while Morgan Stanley would get recurring fee revenue and more potential banking customers.
The joint venture would employ about 22,000 advisers, compared with the approximately 20,000 at BoA after its purchase of Merrill Lynch & Co.
Morgan Stanley Co-President James Gorman may oversee the company, tentatively named Morgan Stanley Smith Barney, the person said.
"There's been a lot of pressure for Citi to monetize some of their more valuable assets and Smith Barney is certainly one," said Michael Nix, a money manager at Greenwood Capital Associates LLC in South Carolina. "There's also been a lot of pressure for Morgan Stanley to look at how they can better lever their business units."
The worst financial crisis since the 1930s has recast rivals in the financial industry as merger partners and transformed the United States government into one of the biggest investors in Wall Street firms, including Morgan Stanley and Citigroup, Bloomberg News said.
Changes sweep in
As Lehman Brothers Holdings Inc sank into bankruptcy in September, Merrill Lynch, then the biggest US brokerage, agreed to be taken over by North Carolina-based BoA.
Morgan Stanley converted from a securities firm to a bank holding company and Citigroup, took US$45 billion of US bailout money.
Under the deal being negotiated now, Morgan Stanley and Citigroup would contribute their brokerage units to the joint venture, two people with knowledge of the talks said. Morgan Stanley would also pay Citigroup US$2 billion to US$3 billion, or 20 percent of the total value of Smith Barney, to gain majority control, one of the people said.
The venture may be led by Morgan Stanley managers and a board with a majority of Morgan Stanley appointees, the person said.
The news came as Citigroup said former US Treasury Secretary Robert Rubin, who joined the firm in 1999 and has opposed calls to break it up, plans to quit the board.
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