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Morgan Stanley said to be set to buy Smith Barney
Word of a $3-billion deal expected within a few days, according
to reports. The news wires are abuzz with talk of a Morgan
Stanley takeover of Citigroup's Smith Barney. The combination
would create the world's biggest retail brokerage, easily
surpassing the 19,000-broker force at Bank of America's command
since it completed its acquisition of Merrill Lynch a week and a
half ago with about 22,000 reps -- assuming that many of its
brokers stick around to see the deal done.
Citing "people with knowledge" of ongoing talks between Citi and
Morgan Stanley, media reports have Morgan Stanley on the verge of
acquiring a narrow majority of Smith Barney for between $2.5
billion and $3 billion, giving Citi the ability to book a gain in
tangible equity of between $5 billion and $6 billion as a result
of being a part owner of venture that's bigger than Smith Barney
was on its own.
Mid week
Citi and Morgan Stanley aren't commenting on the rumors.
The immediate impetus for the deal is supposedly Citigroup's need
for cash. The New York-based bank reported more than $20 billion
in losses through the past four quarters. It took $45 billion in
U.S.-government bailout funds in the last quarter of 2008. A few
months ago, Citi's CEO Vikram Pandit was saying Smith Barney -- a
comparatively stable source of revenue -- wasn't on the auction
block and wouldn't be put there.
From Morgan Stanley's perspective, a tie-in with Smith Barney
stands to make its brokerage a more formidable competitor to Bank
of America's newly enlarged private-client business. Access to
Smith Barney's clients is also supposed to give it a shot at
attracting customers to its newly-chartered retail-banking
business.
Morgan Stanley retail-brokerage boss James Gorman is figured to
lead the combined unit -- which would have more than $14 billion
in annual revenue, according to 2008 figures. Morgan Stanley's
institutional securities division generated $16.6 billion in
sales last year.
Scuttlebutt has official word of a deal between Citi and Morgan
Stanley coming on Tuesday or Wednesday this week. -FWR
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