Citigroup, Morgan Stanley merge brokerages

Sat Jan 10, 2009 1:09 PM EST

us-news, business, citigroup, morgan-stanley, citigroup-inc

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NEW YORK — Citigroup Inc. and Morgan Stanley agreed Tuesday to combine their brokerages in a deal that shows how much Citigroup wants to slim down and build up cash.

Morgan Stanley is paying Citigroup $2.7 billion for a 51 percent stake in the joint venture. Citigroup will have a 49 percent stake.

Citigroup's retail brokerage, Smith Barney, was once the crown jewel in its wealth management business.

The new unit, to be called Morgan Stanley Smith Barney, will have more than 20,000 advisors, $1.7 trillion in client assets; and serve 6.8 million households around the world, the companies said.

Citigroup will recognize a pretax gain of about $9.5 billion because of the deal, or about $5.8 billion after taxes, the companies said. The joint venture is expected to achieve total cost savings for the two companies of around $1.1 billion.

The deal was announced after the market closed. Shares of Citigroup rose 30 cents, or 5.4 percent, to $5.90 on Tuesday, and Morgan Stanley shares rose 7 cents to $18.86.

CEO Vikram Pandit has been saying for months that he plans to sell assets to raise cash, but the executive, according to media reports, is getting ready to announce that Citigroup is abandoning the financial "supermarket" model. That term described the aim of Citigroup — created over the last couple decades by former CEO Sandy Weill — to service all of individuals' and businesses' financial needs, from saving to borrowing to investing to deal-making.

Citigroup has fared worse than other banks in recent years, particularly during the recent credit crisis. The New York-based company is expected to post a fifth straight quarterly loss next week. The government has already lent it $45 billion — more than other large banks received — and agreed to absorb losses on a huge pool of Citigroup's mortgages and other soured assets.

Some investors believe Citigroup is headed for a larger-scale breakup now that the government is involved and that President-elect Barack Obama is rethinking how to dole out the remaining $350 billion of bailout money.

The new administration could "come to the realization that the whole economy does not hinge on the banks," said Octavio Marenzi, head of financial consultancy Celent. "Banking is important. The banks themselves are not."

William Smith of Smith Asset Management, who still owns shares of Citigroup, has been calling for a breakup of Citigroup for years and believes the government will force that fate, in piecemeal fashion, over the coming year.

"I think within 12 months, Citigroup no longer exists," Smith said. "The new CEO of this company is the government."

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1.4

{"commentId":4752734,"authorDomain":"offmyback"}

jeffrodisiac

Citigroup has received $45 billion in support from the government's $700 billion financial rescue fund, an amount that is almost double what has been provided to any other major bank.

can anyone please explain to me why we the taxpayers gave the banking industry money at a lower rate only to have to borrow the money back from the same banks at an extremely higher rate (less a few billion for executive pay raises)?

Isnt there a better way we could have assured that the american people (who are also in debt to the very same banks ) somehow could have benefitted from this bailout?

{"commentId":4752734,"threadId":"466640","contentId":"2296434","authorDomain":"offmyback"}

1 vote

#1 - Sat Jan 10, 2009 3:15 PM EST

{"commentId":4772990,"authorDomain":"newvistaschool"}

Un-Common Common Sense

It seems that the bailout money was never meant to work its way to the people but rather to help with the consolidation of wealth of US institutions. Congress - you are either scum for going along with this or fools for being scamed! Either way I blame you Congress for not listening to all the outcries from the American people not to go along with this in the beginning!

{"commentId":4772990,"threadId":"466640","contentId":"2296434","authorDomain":"newvistaschool"}

2 votes

#1.1 - Mon Jan 12, 2009 9:18 AM EST

{"commentId":4754580,"authorDomain":"frankenberry"}

frankenberry

Morgan Stanley received 10 Billion bailout cash, which it will use for acquistions. But MS is highly leveraged in Alt A loans, keep your eyes open.

{"commentId":4754580,"threadId":"466640","contentId":"2296434","authorDomain":"frankenberry"}

1 vote

#2 - Sat Jan 10, 2009 5:36 PM EST

{"commentId":4757249,"authorDomain":"offmyback"}

jeffrodisiac

spoken like a true banker, thanks

{"commentId":4757249,"threadId":"466640","contentId":"2296434","authorDomain":"offmyback"}

1 vote

#2.1 - Sat Jan 10, 2009 9:13 PM EST

{"commentId":4803859,"authorDomain":"frankenberry"}

frankenberry

If only I were a bankster, I might be getting a billion here, a billion there....

{"commentId":4803859,"threadId":"466640","contentId":"2296434","authorDomain":"frankenberry"}

#2.2 - Wed Jan 14, 2009 9:02 AM EST

{"commentId":4781732,"authorDomain":"worldknightboy"}

worldknightboy

Things are going to get interesting.....

{"commentId":4781732,"threadId":"466640","contentId":"2296434","authorDomain":"worldknightboy"}

#3 - Mon Jan 12, 2009 5:50 PM EST

{"commentId":4798809,"authorDomain":"geojag9"}

GEORGIE-814056

more like nerve racking!!!!!!!!!!!!!!!!!!!

{"commentId":4798809,"threadId":"466640","contentId":"2296434","authorDomain":"geojag9"}

1 vote

#3.1 - Tue Jan 13, 2009 8:20 PM EST

{"commentId":4798078,"authorDomain":"geojag9"}

GEORGIE-814056

where do us smith barney-investors stand now??? should we bail? are we insured if they go down???

{"commentId":4798078,"threadId":"466640","contentId":"2296434","authorDomain":"geojag9"}

1 vote

#4 - Tue Jan 13, 2009 7:22 PM EST

{"commentId":4798108,"authorDomain":"geojag9"}

GEORGIE-814056

what should the smith barney investor do now--bail?? ane they insured if they go down???

{"commentId":4798108,"threadId":"466640","contentId":"2296434","authorDomain":"geojag9"}

1 vote

#5 - Tue Jan 13, 2009 7:23 PM EST

{"commentId":4890200,"authorDomain":"worldknightboy"}

worldknightboy

What was your entry price, and where is the stock now?

{"commentId":4890200,"threadId":"466640","contentId":"2296434","authorDomain":"worldknightboy"}

#5.1 - Mon Jan 19, 2009 9:15 PM EST

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Death knell for Citigroup's 'supermarket' model	Associated Press	Tue Jan 13
Pandit: Citi undergoing "long-term transformation"	Associated Press	Wed Jan 14
Citi-Morgan talk may spark fresh wave of deals	Associated Press	Sun Jan 11
AP Executive Morning Briefing	Associated Press	Fri Jan 9
Citigroup, Morgan Stanley talk about merging units	Associated Press	Fri Jan 9

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