Morgan Stanley has paid $2.75 billion in cash to conclude a wealth management joint venture with Citigroup’s Smith Barney brokerage unit to compete with Bank of America & Merrill Lynch. Under a revised agreement, Morgan Stanley is paying $214.2 million for 51% of Citigroup’s managed futures business, which is higher than the $2.7 billion disclosed earlier in January.
The new Morgan Stanley Smith Barney features over 18,500 world-class financial advisors, 6.8 million client households globally, with a strong presence in the high-net-worth client segment, approximately $14 billion in pro forma net revenues and 1,000 brokerage locations around the world, including in the US, Latin America, Europe/Middle East, and Asia.
John Mack, Chairman and CEO of Morgan Stanley, said: “Morgan Stanley Smith Barney perfectly complements Morgan Stanley’s traditional leadership position in the global institutional markets. It is a clear industry leader that will be the premier choice for clients and high-quality financial advisors around the world, who will benefit from an unrivaled global platform, a vast array of products and services and the powerful intellectual capital that both firms bring to this venture.”
Vikram Pandit, CEO of Citi, said: “One important goal for Citi Holdings is to optimize the value to Citi shareholders through value-enhancing disposition and combination opportunities. We believe this transaction is consistent with that goal. Citi benefits from this transaction by monetizing its investment in its wealth management business, while continuing to benefit from a multi-year earnings stream created by the larger firm.”
Both Morgan Stanley and Citi will access the joint venture for retail distribution and each firm’s institutional businesses will continue to execute order flow from the joint venture. At closing, Citi estimates it will recognize a pre-tax gain of approximately $10.9 billion, or approximately $6.6 billion on an after-tax basis, create close to an estimated $7.8 billion of tangible common equity and increase Citi’s Tier 1 capital ratio by approximately 86 basis points on a pro forma basis, as of March 31, 2009.
