Morgan Stanley

Morgan Stanley & Citigroup Reach Agreement over Smith Barney

Following what seemed like an eternity of haggling and arguing, Morgan Stanley (NYSE:MS) and Citigroup Inc. (NYSE:C) have finally arrived at an agreement with regard to the Morgan Stanley Smith Barney battle.

Morgan Stanley & Citigroup Reach Agreement over Smith Barney

Today, it has been concluded that Citigroup Inc. (NYS:C) will have to part with 14 percent of its stake at Morgan Stanley Smith Barney holdings LLC (MSSB). This sell will be coupled with the transfer of an estimated $5.5 billion of deposits, absent any premiums and subject to an implied 100 percent valuation of $13.5 billion.

In addition to that, the two banks have reached an agreement- albeit awaiting regulatory approval- over the remaining 35 percent stake that Citigroup owns in Morgan Stanley Smith Barney. This agreement will allow Morgan Stanley to purchase Citigroup’s remaining stake absent any friction.

Today’s agreement seems to have worked out well for both parties, as the chief executives on either side expressed nothing short of joy and happiness. James P. Gorman, the CEO and chairman at Morgan Stanley, was noted for particularly remarking that the agreement was beneficial to both parties. Gorman also noted that it was a notable milestone in the ongoing implementation of a new strategy for the company.

Vikram Pandit, the CEO at Citigroup, equally rallied a joyful spirit citing that the agreement was in line with its plans of reducing its assets in a rational and economical fashion. “I am pleased we have reached agreement on a value for our remaining stake in Morgan Stanley Smith Barney. Establishing certainty regarding the divestiture of this business is in the best interests of our shareholders,” he remarked. His statement underscored both companies’ desire to move ahead of the dispute and streamline operations in line with their goals.

The price dispute cropped up earlier, when the two heavyweight banks could not arrive at a conclusive price for the Morgan Stanley (NYSE:MS) Smith Barney unit, their joint retail brokerage unit. The two New York titans had placed different price tags on the lucrative unit, with either side arguing their case out.

The joint venture, which was created back in 2009, was valued by Citigroup Inc. (NYSE:C) at $22 billion. Morgan Stanley (NYSE:MS) was however, not willing to pay such high valuation, and argued that the joint venture was worth $9 billion. This disparity in value sparked off a heated debate at the onset of September and in the following days. A third party appraiser-Perella Weinberg Partners to be specific- was then placed with the responsibility of providing an objective insight into the true value of the joint business venture.

Citigroup will likely take a large write-down on the investment in the next quarter. The write-down is expected to be between $4-$6 billion dollars.


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