Following a week of speculation surrounding the slimming down of Citigroup's financial service offerings, Morgan Stanley and Citi have reached a definitive agreement to combine Morgan Stanley's wealth management unit with Citi's brokerage unit. Morgan Stanley's Global Wealth Management Group and Citi's Smith Barney, Ouilter in the U.K. and Smith Barney Australia units have merged into a new joint venture to be called Morgan Stanley Smith Barney.
The joint venture combines businesses that have $1.7 trillion in client assets, $14.9 billion in pro-forma combined revenues, $2.8 billion in pro-forma combined pre-tax profit and 6.8 million client households globally.
Under the terms of the agreement, Citi will exchange 100% of its Smith Barney, Smith Barney Australia and Quilter units for a 49% stake in the joint venture and an up-front cash payment of $2.7 billion. Morgan Stanley will exchange 100% of its Global Wealth Management business for a 51% stake in the joint venture.
After year three, Morgan Stanley and Citi will have various purchase and sale rights for the joint venture, but Citi will continue to own a significant stake in the joint venture at least through year five.
"We will own 49 percent of this leading wealth management business and will continue to participate in its earnings and growth," states Vikram Pandit, Citi's CEO. "In addition, we will generate equity capital that we can deploy to other core businesses, which are well positioned to deliver attractive returns in the future."