Morgan Stanley Said To Have Taken Citi To The Cleaners

Morgan Stanley may have avoided paying Citigroup hundreds of millions of dollars more for the remaining stake in their Smith Barney joint venture by fixing a price just before the brokerage’s profit surged.

Bloomberg reports that Morgan Stanley’s wealth-management division, the bulk of which is the brokerage venture formed in 2009, more than doubled fourth-quarter net income to $385m, helping the company beat analysts’ estimates and sending the stock up 7.9%Friday. The wealth business surpassed a profit-margin target six months ahead of schedule.

Morgan Stanley CEO James Gorman and former Citigroup CEO Vikram Pandit agreed in September to value the brokerage at $13.5bn - fixing the price for a 14% percent stake that Morgan Stanley was buying at the time, and for the final 35% piece. Citigroup had previously appraised the unit at $22bn while tagging it for disposal with other unwanted assets in its Citi Holdings division.

'Morgan Stanley really took them to the cleaners', said David Trone, a JMP Securities LLC analyst. 'Citi’s decision to just get it over with was a function of them wanting to get Citi Holdings closed up as quickly as they could. Personally, I wouldn’t have sold the last tranche at the same price'.

Hit the link below to access the complete Bloomberg article:

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