Morgan Stanley Smith Barney to have 20,000 brokers, $1.7 trillion in assets. As expected, Morgan Stanley is taking control of Citigroup's retail brokerage Smith Barney to create Morgan Stanley Smith Barney, a private-client firm with more than 20,000 brokers and $1.7 trillion in client assets.

Citi will exchange Smith Barney in the U.S., Smith Barney Australia and its U.K.-based Quilter units for 49% of the Morgan Stanley Smith Barney joint venture and a cash payment of $2.7 billion. Morgan Stanley will exchange its Global Wealth Management business for a 51% Morgan Stanley Smith Barney.

After year three, Morgan Stanley and Citi will be able to exercise various purchase and sale options for the joint venture -- but Citi "will continue to own a significant stake in the joint venture" for at least five years after the initial deal is done, according to a Morgan Stanley press release.

Industry leader

"This joint venture is an important step forward in our effort to build our wealth-management franchise, which we believe will be an increasingly important and profitable part of Morgan Stanley's business in the years ahead," says Morgan Stanley's chairman and CEO John Mack.

From Citi's perspective, the tie-in with Morgan Stanley "provides significant synergies and scale, substantially reduces our expenses and enables us to retain a significant stake in a company that immediately becomes the industry leader with real growth opportunities," says company CEO Vikram Pandit. "We will own 49% of this leading wealth-management business and will continue to participate in its earnings and growth, [and] we will generate equity capital that we can deploy to other core businesses which are well positioned to deliver attractive returns in the future."

James Gorman will serve as chairman of Morgan Stanley Smith Barney while continuing in his role as Morgan Stanley's co-president. Charles Johnston, now head of Citi's Global Wealth Management business in the U.S. and Canada, will serve as president of Morgan Stanley Smith Barney.

Gorman joined Morgan Stanley as head of its retail-brokerage business early in 2006. before that, he held a number of senior positions at Merrill Lynch (now part Bank of America), including head of retail brokerage.

Citi's Global Wealth Management consists of Smith Barney, Citi Private Bank and Citi's investment-research unit. The deal with Morgan Stanley takes in only Smith Barney; Citi keeps its private bank and research unit. -FWR

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