Citi may book $10 bn gain on Morgan deal

Bloomberg
Posted: Tuesday, Jan 13, 2009 at 0015 hrs IST
Updated: Tuesday, Jan 13, 2009 at 0015 hrs IST

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Foreign banks pip PSBs in assets growth Swiss banks flay data on black money Blame game begins on Swiss banks Vikram Pandit buys Citi stock worth $8.4 m

: Citigroup Inc may book a gain of as much as $10 billion by selling control of its brokerage to Morgan Stanley, helping to replenish capital depleted by the biggest losses in the bank's history, a person familiar with the talks said.

The pretax gain would come from writing up the value of Citigroup's Smith Barney unit to a new price set by the deal, said the person, who declined to be identified because the talks are confidential. The gain of $5 billion to $6 billion after taxes would flow into Citigroup's capital, a loan-loss cushion so eroded that the New York-based bank had to get $45 billion of rescue funds last year from the US government. "You're selling out the future to get through the crisis of the present, and unfortunately they don't have a lot of other choice," David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller in New York, said in a Jan 9 interview.

The worst banking crisis since the Great Depression forced Citigroup Chief Executive Officer Vikram Pandit, 51, to abandon his pledge not to sell Smith Barney. For the past decade, the unit has been at the center of the bank's plan to provide bond- underwriting, savings accounts and investment advice under a single umbrella. Former U.S. Treasury Secretary Robert Rubin, 70, who joined the company in 1999 and had opposed calls to break it up, said Friday he plans to quit the board.

Citigroup spokesman Michael Hanretta declined to comment. Jim Wiggins, a spokesman for Morgan Stanley, didn't return calls seeking comment. Citigroup fell 1 % to $6.68 in German trading on Monday; Morgan Stanley rose 0.9% to $19.24. Talks on the plan to combine Smith Barney with Morgan Stanley's brokerage in a $20 billion joint venture progressed over the weekend, another person briefed on the talks said. The deal may be announced as soon as mid-week, this person said. Under the plan being considered, Morgan Stanley would pay $2 billion to $3 billion to Citigroup to obtain 51 percent of a venture that would combine both firms' retail brokerage arms, people familiar with the plan said. The new firm, tentatively named Morgan Stanley Smith Barney, would have about 22,000 brokers, exceeding the network created by Bank of America Corp's Jan 1 takeover of Merrill Lynch & Co.

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