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Morgan Stanley and Citigroup to merge brokerage operations

NEW YORK (January 15 2009): Citigroup and Morgan Stanley announced plans Tuesday to merge the world-wide brokerage operations of the banking giants in a deal giving ailing Citi 2.7 billion dollars in upfront cash. The combined firm, to be called Morgan Stanley Smith Barney, will have 1.7 trillion dollars in client assets and some 20,000 brokers world-wide.

The deal was announced amid growing concerns about the fate of Citigroup, which had been the world's biggest financial company but has been hammered by heavy losses in the financial crisis and has been the biggest recipient of a US government program to inject capital into troubled banks.

The deal would combine Morgan Stanley's Global Wealth Management Group and Citi's Smith Barney, Quilter in Britain, and Smith Barney Australia and would be “the industry's leading wealth management business,” according to a joint statement. It will not include Citi's Private Bank or Nikko Cordial Securities.

Morgan Stanley will own 51 percent of the venture and Citi the other 49 percent. The new venture would have an estimated 14.9 billion dollars in revenues and a combined pre-tax profit of 2.8 billion dollars.

It would have some 1,000 offices around the world and 6.8 million client households globally “with a strong presence in the critically important high-net-worth client segment,” the statement said. News of the deal circulating since Friday had sparked fears that Citi, which has received a total of 45 billion dollars in capital injections from the US Treasury to shore up its finances, was in deeper troubled than expected.

One analyst called Smith Barney the “crown jewel” of Citi, which has been hammered by losses stemming from the US real estate meltdown. The statement said the deal had been approved by the board of both companies, and is expected to close in the third quarter, subject to regulatory approvals.

The joint venture is expected to achieve cost savings of some 1.1 billion dollars, according to the statement. John Mack, chairman and chief executive of Morgan Stanley, said, “By bringing together Morgan Stanley's and Citi's strong wealth management businesses, we are creating a new industry-leading wealth management franchise.”

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