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What is Morgan Stanley Smith Barney? Morgan buys controlling interest in Smith Barney brokerage unit of Citigroup Inc.

By Amarendra Bhushan for CEOWORLD Magazine Updated:January 14, 2009

After days of speculation, Citigroup Inc. the nation’s third-largest bank by assets, after Bank of America and JPMorgan Chase & Co and Morgan Stanley unveiled plans Tuesday to merge their brokerage businesses in a new joint venture.

- The combined firm, to be called Morgan Stanley Smith Barney
- It will not include Citi Private Bank or Nikko Cordial Securities.
- Citigroup Inc agreed to merge its Smith Barney brokerage with Morgan Stanley’s wealth management unit
- expected to make further asset sales to raise capital
- focusing on corporate, investment and retail banking and keeping a slimmer trading business
- unwanted assets and businesses such as complex debt to a separate structure
- Assets that could be sold include its Primerica unit, which sells life insurance, mutual funds and other financial products.
- Citigroup received $25 billion from the government last October and another $20 billion of capital in November
- The joint venture with Morgan Stanley will create the largest U.S. brokerage, Morgan Stanley Smith Barney, with more than 20,000 brokers and $1.7 trillion in client assets.
- The number of brokers will surpass that of Bank of America Corp, which bought former No. 1 Merrill Lynch on January 1.
- Morgan Stanley will pay Citigroup $2.7 billion in cash for an initial 51 percent stake in the venture, which could grow to 100 percent after five years.
- James Gorman will retain his role as a Morgan Stanley co-president and be chairman of the joint venture
- Charles Johnston, president of Citigroup’s global wealth management business in the United States and Canada, will be the venture’s president.
- Citigroup lost $20.3 billion in the year ended September 30
- Morgan Stanley may boost its stake in the venture to 65 percent after three years, 80 percent after four years, and 100 percent after five years.
- The banks expect $1.1 billion in cost savings, or 15 percent of combined expenses, excluding broker commissions.

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