Who will head up the combined brokerage powerhouse that would be created if Citigroup sells its brokerage to Morgan Stanley? The combination of Morgan Stanley’s Dean Witter group and Citi’s Smith Barney would create the largest retail brokerage on Wall Street and now tongues are wagging about who could get tapped to run the huge shop.
Although the deal is being marketed as a joint venture, it is more like a slow motion acquisition. Morgan Stanley will pay somewhere between $3 billion and $2 billion for the company, which will likely be named Morgan Stanley Smith Barney. Over time, the Morgan Stanley will likely have rights to acquire the remaining portion from Citi. The combined brokerage would have around 22,000 financial advisers. Its closest rival would be the combined brokerages of Bank of America and Merrill Lynch, which has around 20,000 brokers.
The most obvious candidate to run MSSB would be a Morgan executive. At Morgan Stanley, Ellyn McColgan, has run the wealth management business since December 2007. But it is her boss, James Gorman who is more likely to be tapped for the job, according to people close to the matter. Gorman ran the brokerage of business Merrill Lynch before coming to Morgan Stanley.
Candidates from within Citi have also been discussed. Sallie Krawcheck, who ran Smith Barney until September of 2007, is under consideration, according to a person familiar with the matter. As chief financial officer of Citi from 2004 until 2007, whe is widely credited for helping clean up Citi’s tarnished image after conflict of interest scandals rocked the bank in the early years of this decade.
Michael Corbat, a 25-year veteran of Citi, took her place in late 2008. Although he’s now running Smith Barney, it doesn’t seem as if he’s likely to be tapped to run the combined brokerage. Corbat’s background is in banking rather than the brokerage business, and his elevation to the head of Citi’s wealth management business is viewed more as a testament to his insider status at Citi and management skills, rather than a deep knowledge or experience with brokers.
One rumour that has begun to circulate is that Morgan Stanley could reach for an outsider to run MSSB. Such a move has its risks, as the outsider would lack the institutional and personal loyalties insiders have built. The right candidate, however, could avoid the ego bruising that might take place if when Smith Barney brokers find themselves answering to a Morgan Stanley executive or Dean Witter brokers find themselves answer to a former Citi exec.
The most likely outside candidate would be Bob McCann. The recently departed head of Merrill Lynch’s brokerage business could be a major coup for MSSB. Morgan Stanley has been trying to hire Merrill brokers ever since the merger was announced, hoping to take advantage any ill-will generated by the merger with Bank of America. Hiring McCann would likely make poaching top talent from Merrill easier. McCann worked under Gorman while Gorman run the Merrill brokers, so that relationship may provide an opening for bringing McCain on board. Some of those familiar with the situtation actually believe that the selection of McCann is the most likely scenario.
Of course, much of this talk is still at the gossip stage. Citi and Morgan have not yet agreed on a final deal, so talk of who will run the venture is premature.