This Day On The Street
Continue to site
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

Gorman's Morgan Stanley Transformation Begins

NEW YORK ( TheStreet) -- Morgan Stanley (MS - Get Report) has received regulatory approvals to complete its purchase of brokerage joint venture Morgan Stanley Smith Barney (MSSB) from Citigroup (C - Get Report), in a move CEO James Gorman characterizes as a "historic day" for the nation's second largest standalone investment bank.

The investment bank said Friday it has received the regulatory go-ahead to buy Citigroup's remaining 35% stake in the brokerage joint venture, in a cash deal that values the holding at $4.7 billion.

MSSB is a key piece of Morgan Stanley's push into brokerage businesses and wealth management, as the firm diversifies its earnings from volatile trading and investment banking operations.

Over the long-term, MSSB is also expected to be crucial in helping Morgan Stanley solidify its capital position.

Such stability is key after Morgan Stanley saw its credit ratings cut sharply in 2012.

MSSB will bring in billions in stable deposits to Morgan Stanley, which may help the investment bank build more stable sources of funding. In Federal Reserve stress tests to the banks' capital position, Morgan Stanley focused on buying a remaining MSSB holding from Citigroup over plans to raise its dividend or buyback shares.

Regulators have now approved Morgan Stanley's deployment of cash to buy Citigroup's remaining holding, signaling confidence in the bank's financial health and strategy.

"This is a historic day for Morgan Stanley. It is the culmination of a multi-year effort to transform our business model into one that offers stronger shareholder returns and greater stability in volatile markets," Gorman said in a statement.

"Immediately upon closing, we expect to start seeing the benefits of 100 percent ownership - including an expanded deposit base, unique syndication and distribution capabilities and enhanced opportunities for both our wealth management and institutional clients."

The deal's completion will be Gorman's biggest stamp on Morgan Stanley after taking the reins of the investment bank in the heat of the financial crisis, and there is reason to understand his excitement.

Gorman's Wall Street background centers on wealth management and brokerage businesses. When taking over as CEO in 2009, some questioned whether that experience was the right fit for Morgan Stanley, which is now the nation's only standalone investment banking competitor to Goldman Sachs (GS - Get Report).

Initially, Morgan Stanley expected the MSSB brokerage JV to operate at 20% margins, however the unit's performance languished at margins of about 10%. Such underperformance raised question marks about Morgan Stanley's transition and Gorman's strategy.

In recent earnings, however, the unit has performed at margins of nearly 20% indicating Gorman's transformation strategy may very-well deliver solid earnings.

"After a year of significant challenges, Morgan Stanley has reached a pivot point. We demonstrated meaningful progress," Gorman said in a recent earnings announcement.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
C $54.08 0.00%
BAC $17.44 0.00%
GS $189.15 0.00%
JPM $66.86 0.00%
MS $33.61 0.00%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs