Morgan Stanley Own Goal ?

A win for Morgan Stanley in a fight with Citigroup over the value of their brokerage joint venture could show the firm is playing a losing hand.

Bloomberg reports that Morgan Stanley, which has staked much of its pitch to investors on the stable earnings of its wealth-management business, is arguing that the brokerage is worth less than half what Citigroup says as it adds a 14% stake to the 51% the investment bank currently owns. Morgan Stanley’s $9bn valuation implies the joint venture’s profit could shrink by as much as 12% annually over the long term, according to Goldman Sachs analysts.

The $13bn gap between the two firms’ valuations raises the stakes for the sale and stokes a debate on Wall Street about the future of retail brokerages. Investment bank Perella Weinberg Partners LP will provide its assessment of the outlook when it sets a valuation this week.

'If you’re bullish on Morgan Stanley, the lower amount they pay the better', said David Konrad, an analyst at KBW Inc. in New York. 'However, then you take a step back and say, this is supposed to be one of your best businesses, and you’re saying it’s not worth very much. It’s a fine line they’re walking'.

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Morgan Stanley Win on Brokerage Would Be Pyrrhic Victory