Morgan Stanley Moves Up Smith Barney Takeover
NEW YORK (TheStreet) -- Morgan Stanley(MS) said it will look to complete its acquisition of a brokerage joint venture with Citigroup(C) by year end, accelerating the investment bank's plans to diversity into less risky businesses such as wealth management.
In Morgan Stanley's fourth quarter earnings, which came in better than expected, the standalone investment bank said it would look to acquire 35% of the brokerage joint venture it doesn't already own from Citigroup, putting its total ownership at 100%.
In September, the unit's name was changed from Morgan Stanley Smith Barney to Morgan Stanley Wealth Management
In a presentation appended to earnings, Morgan Stanley calculated such a stake buy in would cost roughly $4.7 billion and drain $400 million from its capital. The plan, Morgan Stanley noted, would be subject to regulatory approvals such as the upcoming Federal Reserve review of the bank's capital plan.
Morgan Stanley said that a full ownership of the brokerage joint venture by year end could help with grow client orders and synergies with its investment bank, while reducing the operational complexity with the brokerage's joint venture structure.
Owning what will be one of the worlds largest brokerage units has other benefits. As investment banks transform diversify funding sources from overnight markets, which froze during the financial crisis, broker deposits may be seen as a stable source of capital. Such stability is key after Morgan Stanleysaw its ratings cut sharply in 2012.
In September, Morgan Stanley and Citigroup went to a mediator to value the first leg of the bank's increase of its controlling 51% stake - owned since the joint venture was formed in 2009. In that independent review, investment bank Perella Weinberg valued the brokerage joint venture at $13.5 billion, roughly $8.5 billion less than the unit was carried on Citigroup's books.
Once the brokerage valuation was complete, Morgan Stanley reached an agreement to up its 51% stake in the brokerage joint venture by 14% and said it would look to take full control of the business by June 2015.