This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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.

Friday's earnings indicate Morgan Stanley has significantly accelerated its plans to buy into the brokerage unit.

In fourth quarter earnings, Morgan Stanley also showed long overdue progress on the brokerage unit's profitability. Net revenues for the unit were $3.5 billion and pre-tax margin rose to 17%, far above the 10% that had raised some investor and analyst alarm in past quarters. When the brokerage JV was cut, Morgan Stanley forecast 20% margins.

Meanwhile, average annual revenue per brokerage employee was $824,000, the highest since the JV was formed. In recent quarters, Morgan Stanley has laid off brokerage and investment banking staff. Earlier in January, the bank outlined a plan to layoff 1,600 staff by year end.

"After a year of significant challenges, Morgan Stanley has reached a pivot point. We demonstrated meaningful progress in our Wealth Management Joint Venture, reaching the highest pre-tax margin since the inception of the JV," James Gorman, Morgan Stanley chief executive said in a statement. "We charted a path to acquire the remainder of the JV," he added.

-- Written by Antoine Gara in New York

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,919.59 +80.85 0.48%
S&P 500 1,981.60 +9.86 0.50%
NASDAQ 4,527.5140 +19.2020 0.43%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs