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Monday, January 12, 2009

Morgan Stanley Smith Barney?

Reported by Sean Hanna, Editor in Chief

Morgan Stanley Smith Barney. That will be the name of the brokerage behemoth created by the combination of Morgan Stanley and Citigroup's brokerage arms, reports the Wall Street Journal. Word that the two firms are in talks hit the wires on Friday evening (see MFWire, 01-09-09). However, the talks have reportedly been ongoing for at least a month.

The paper adds that Morgan Stanley will likely pay Citigroup $2.5 billion as part of the deal. The payment would represent the value of Smith Barney above and beyond the value of Morgan Stanley's wirehouse. The premium roughly reflects the difference in the two firm's revenues: Morgan Stanley's trailing twelve month revenue for its wealth-management unit was $7.4 billion while Smith Barney reported $10.7 billion.

Morgan Stanley will also have an option to start buying out Citi's stake in three years and take total control of the brokerage in five to six years, according to the report.

While initial reports were that the two sides hoped to have a deal announced today, the paper claims that Citigroup's board will not vote on any deal until later today and that a deal may not be announced until later this week.

Meanwhile, there is a consensus in the reports that Morgan Stanley executives led by co-President James Gorman will run the combined brokerage while Citi's Global Wealth Management President Charles Johnston is likely to become CEO of the joint venture.

Under the terms of the still-evolving deal reported in the WSJ, Morgan Stanley will control 51 percent of the new brokerage. On paper, the firm will have more than 19,400 reps (8,400 from Morgan Stanley and 11,000 plus from Smith Barney). 

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