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'.
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