So say David Faber’s sources. The deal would start as a JV, but might eventually results in all of Smith Barney (Citi’s brokerage unit) coming under Morgan Stanley (MS) ownership. The idea is that MS would buy more and more of it each year. (The Journal has since just corroborated the report)
Obviously it’s sketchy now, but it’s a way for Morgan Stanley to take advantage of some consolidation, while Citi raises cash. As the once-trendy cash cows of Wall Street dissipate, Morgan Stanley has talked up its traditional low-margin brokerage, and the more of this business it can get, the more stable it becomes.
From the CNBC rush transcript: THE DEAL WOULD BE STRUCTURED AS A JOINT VENTURE, BUT WOULD INVOLVE A PAYMENT FROM MORGAN STANLEY TO CITI OF AN UNDISLOSED SUM THAT WOULD GIVE IT THE LARGER STAKE IN THE JV., WHICH WOULD BE COMPRISED OF MORGAN’S BROKERAGE UNIT WITH 8 THOUSAND BROKERS AND SMITH BARNEY, WHICH HAS 11 THOUSAND BROKERS. IT WOULD CREATE THE NATION’S LARGEST SINGLE BROKERAGE, BSTING B OF A’S MERRILL UNIT WHICH HAS 16 THOUSAND BROKERS.
MORGAN STANLEY WOULD HAVE THE RIGHT OVER A PERIOD OF YEARS TO INCREASE ITS STAKE IN THE JV AND ULTIMATELY BUY ALL OF IT, ACCORDING TO SOURCES.
THE DEAL, IN EFFECT BECOMES A LONG TERM SALE OF SMITH BARNEY TO MORGAN STANLEY.