3. Investment Bank Insanity
Citigroup (C - Get Report) said its brokerage joint venture with fellow investment bank Morgan Stanley (MS - Get Report) was worth $22 billion. Morgan Stanley, on the other hand, valued the unit at $9.5 billion on its books.
So which bulge-bracket firm got the price right? Who won Tuesday's showcase showdown over Morgan Stanley Smith Barney (MSSB)?
Hold on. Don't shout out your guesses just yet. Before doing so, we want you to remember that bot firms are handsomely paid by business owners and investors alike for their valuation prowess. Whether it's pricing an Internet company on its way to an IPO or a pipeline for an acquisitive oil company, that's what these guys do each and every day. Dentists pull teeth. Investment bankers discount cash flows.Alright. With all that in mind, and without any further ado, the winner is: Neither one of those jokers. According to independent arbiter Perella Weinberg, the brokerage business in question is worth the grand sum of $13.5 billion. Remember the Oscar Wilde quote about people knowing "the price of everything and the value of nothing"? Well, these guys clearly don't know either. Of course, the whole stupid exercise was just another Wall Street parlor game anyway since Morgan Stanley, which is in the process of buying MSSB, submitted a low-ball bid to get a better price while Citigroup aimed way too high for the same exact reason. And as for the pencil-pushers at Perella Weinberg, well, who knows if they got their appraisal exactly right? Essentially all they did was split the baby in half. The sour news for Citigroup, however, is that they got the bad half. As a result of Perella Weinberg's binding decision, Morgan Stanley will up its 51% stake in the MSSB by 14% and will buy Citigroup's remaining 35% stake by June 1, 2015. Citigroup, on the other side of the ledger, will take a $2.9 billion after-tax loss related to MSSB in its third-quarter results. "This mutually beneficial agreement gives both parties certainty and transparency on price and timing, and is a significant milestone for Morgan Stanley in the implementation of our strategy," gloated Morgan Stanley CEO James Gorman in a statement. Mutually beneficial? Get off it Gorman. Perella's price may be righteous in your view, but that doesn't make it right.