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NEW YORK (Reuters) – Citigroup Inc (C.N) agreed on Tuesday to merge its Smith Barney brokerage with Morgan Stanley's (MS.N) wealth management unit, a big step in what could be a dismantling of what was once the world's largest bank.
The Citigroup-Morgan Stanley venture will create the largest U.S. brokerage, with more than 20,000 brokers and $1.7 trillion in client assets. The brokerage force will surpass that of Bank of America Corp (BAC.N), which bought former No. 1 Merrill Lynch on January 1.
Morgan Stanley will pay Citigroup $2.7 billion and obtain a 51 percent stake in the venture. It may buy a greater stake after three years, but Citigroup will retain a significant stake for at least five years.
Citigroup, meanwhile, is expected to shed businesses it considers "non-core," and may announce plans on Jan, 22, the same day it is expected to post a big fourth-quarter loss, a person familiar with the matter said.
The transaction is part an overhaul of Citigroup, following big losses tied to complex debt.
Citigroup, now the No. 3 U.S. bank by assets, was created in 1998 by Sanford "Sandy" Weill, but has been humbled by massive credit losses and writedowns triggered by the ongoing financial crisis.
"Citigroup's model was let's get bigger, and that will make us better," said Robert Millen, who helps invest $2.5 billion at Jensen Investment Management in Portland, Oregon, but doesn't own the bank's shares. "It didn't work that way."
The transaction allows Morgan Stanley greater diversification, less than four months after it adopted a bank holding company structure, so it can gather low-cost deposits and survive beyond the global credit crisis.
Wealth management "will be an increasingly important and profitable part of Morgan Stanley's business in the years ahead," Morgan Stanley Chief Executive John Mack said in a statement.
The banks expect to realize $1.1 billion of costs savings, or 15 percent of the combined firms' expense base, excluding broker commissions.
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Citigroup expects to recognize a $5.8 billion aftertax gain on the transaction and add $6.5 billion of tangible common equity.
The bank has struggled to bolster capital after suffering $20.3 billion in losses in the year ended September 30, 2008. It has received $45 billion from the government's $700 billion Troubled Asset Relief Program, including $20 billion in an emergency rescue arranged in November.
"We will generate equity capital that we can deploy to other core businesses," Citigroup CEO Vikram Pandit said in a statement.
Morgan Stanley Co-President James Gorman will be chairman of the joint venture, making him a top candidate to eventually succeed Mack at the helm of all of Morgan Stanley.
Charles Johnston, who has been president of Citigroup's global wealth management business in the United States and Canada, will be president of the venture.
The transaction is expected to close in the third quarter, pending regulatory approvals and other conditions.
In Tuesday trading, Citigroup shares closed up 30 cents, or 5.4 percent, at $5.90, while Morgan Stanley shares rose 7 cents to $18.86. | 
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发表于 2009-1-13 06:28 PM
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