Morgan Stanley Pays $2.7 Billion for Citi Brokerage

[sabra]

Source: Bloomberg

Jan. 13 (Bloomberg) -- Morgan Stanley bought control of the Smith Barney broker unit of Citigroup Inc. for $2.7 billion, two weeks after Bank of America Corp. purchased securities firm Merrill Lynch & Co., widening the shakeout on Wall Street from the worst credit panic in seven decades.

Morgan Stanley, led by Chief Executive Officer John Mack, will own 51 percent of a newly formed brokerage joint venture named Morgan Stanley Smith Barney and receives an option to acquire the rest after five years, the companies said in a statement today. Morgan Stanley Co-President James Gorman, 50, will oversee the venture.

Citigroup, which received $45 billion of U.S. government aid last year after recording $20 billion of losses, also may sell its CitiFinancial consumer-lending unit and cut back on trading with the firm’s capital, people familiar with the plan said. The bank will get cash as well as a $5.8 billion accounting gain from writing up the value of Smith Barney. The venture will employ more than 20,000 advisers, surpassing the number at Bank of America after its purchase of Merrill Lynch, and will have $1.7 trillion in client assets.

“Morgan Stanley has experience in the business, and I think it’s a positive for them and a negative for Citi,” said Matt McCormick, a money manager at Cincinnati-based Bahl & Gaynor Inc., which oversees $2.5 billion for clients and doesn’t hold either company’s stock. “Citigroup needed the funds, and clearly the government is exerting its power and wants them to raise some capital.”

Read more: http://www.bloomberg.com/apps/news?pid=20601087&sid=ahQv3.GdV0ho&refer=home

[cloudbase]

1. Oh, good.

We can have another "too big to fail" operation.

[Joanne98]

2. Oh man. Citi is soooo screwed! GOOD!

[Ichingcarpenter]

3. The Chinese Govt. owns 9.9 per cent of Morgan Stanley now

Bought in last year to help it from going under.




Morgan Stanley became the latest bank to announce a bailout from a foreign government as the Wall Street firm reported the first quarterly loss in its 73-year history yesterday after taking writedowns of $9.4 billion (£4.7 billion) on mortgage-related investments.

The writedowns, which took Morgan Stanley to a $3.56 billion fourth-quarter loss, were so severe that the bank was forced to agree a $5 billion cash injection from the Chinese Government to prop up its capital base.

The Beijing Government's China Investment Corporation (CIC) will inject $5 billion into Morgan Stanley in return for a 9.9 per cent stake.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3076045.ece

[lelgt60]

4. And they got the 2.7 billion from where? n/t