Citi, Morgan Stanley Close Smith Barney Deal

Citigroup and Morgan Stanley on Monday officially launched their wealth management joint venture, one month earlier than expected.
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on Monday officially launched their wealth management joint venture, one month earlier than expected.

The Morgan Stanley Smith Barney joint venture, which closed Monday, originally was expected to be completed sometime in the third quarter. The deal, announced in January, combines Citi's Smith Barney business in the U.S. and Australia, Citi's Quilter in the U.K. and Morgan Stanley's global wealth management group.

The combined group has roughly 18,500 advisors, 6.8 million client households globally, mostly wealthy clients, and 1,000 brokerage locations around the world. The joint venture is expected to produce $1.4 billion in pro forma revenue, according to a release.

Both firms will use the joint venture for retail distribution, while each firm's institutional business will continue to execute order flow from it, they said.

Citi transferred 100% of Smith Barney, Smith Barney Australia and Quilter for a 49% stake in the joint venture and an upfront cash payment of $2.75 billion. Morgan Stanley transferred 100% of its global wealth management for a 51% stake in the venture. Beginning in June 2012, Morgan Stanley has the right to increase its stake in the venture, but Citi will continue to own a "significant stake" in the venture at least through the fifth year, the companies said.

Citi has said the transaction will bring in some much-needed tangible capital as the company seeks to pare down its diverse businesses, shore up its balance sheet and find capital.

Citi expects to recognize a pre-tax gain of approximately $10.9 billion, or $6.6 billion after taxes. The move will also create about $7.8 billion of tangible common equity for the firm and raise Citi's Tier 1 capital by 86 basis points on a pro forma basis as of March 21, the release said.

The joint venture is expected to create cost savings of $1.1 billion after it is fully integrated approximately two years from now, the firms said.

Shares of the two financial companies were rising on Monday.