The slow motion sale of Citigroup’s wealth management business to Morgan Stanley will likely be announced in just a couple of days. People close to the deal say that a deal has been reached, and all that remains is to work out certain technical issues and the drafting of legal documents.
Citigroup, which will announce huge writedowns when it makes its next quarterly report, has faced pressure from the government to sell its Smith Barney brokerage to raise capital. Citi CEO Vikram Pandit, however, has resisted selling, which is one reason the deal is initially being structured as a joint venture combining Morgan Stanley’s Dean Witter and Smith Barney. In addition, Morgan Stanley, which faces financial difficulties itself, probably lacks the available capital to buy the deal outright.
The deal will initially be structured as a joint venture combining the retail brokerage businesses of Citi and Morgan. Morgan Stanley will own around 51% of the joint venture, according to reports. The remaining parts of the joint venture will be purchased by Morgan Stanley over time at then-prevailing market prices rather than a price set now. This will allow Pandit to claim he has secured some upside value for the business.