Meet Morgan Stanley Smith Barney

The new combination provides an “unmatched global platform,” the firms said, with $1.7 trillion in client assets and more than 20,000 reps.
JAN 13, 2009
It's official — Morgan Stanley and Smith Barney are forming a joint venture, to be called Morgan Stanley Smith Barney, according to a joint statement released late Tuesday by Citigroup Inc. and Morgan Stanley, both of New York. The new combination provides an “unmatched global platform,” the firms said, with $1.7 trillion in client assets and more than 20,000 reps. Under terms of the deal, Morgan Stanley would control 51% of the joint venture. It will pay Citi $2.7 billion for Smith Barney, Smith Barney Australia and Citi Quilter, an investment firm in the U.K. Citigroup will realize a pretax gain of $9.5 billion on the transaction, which will create $6.5 billion in tangible common equity for the bank. The firms also said the venture would generate about $1.1 billion in cost savings coming from consolidation of technology, operations, sales support, product development and marketing. The savings represent about 15% of the combined firms' expense base, the firms said. “It's way to early” to talk about layoffs, said James Gorman, Morgan Stanley co-president, on a conference call with reporters. “There's some duplication to what we do, but this is also a growth story” that will take business away from competitors, he said. Mr. Gorman will serve as chairman of the joint venture. Charles Johnston, president of Citigroup's wealth management business, will serve as president of the combined operation. “We'll fill out the rest of the management team as we go forward,” Mr. Gorman told reporters. “Unlike other mergers, this one would be a great match,” said one recruiter who works for Smith Barney and asked not to be identified. The deal would create the largest “pure investment firm,” the recruiter said. Both Smith Barney and Morgan Stanley brokers are expected to get a retention bonus. Details of that package are not yet known.

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