Smith Barney and Morgan Stanley "Tie the Knot"
The joint venture announced by Morgan Stanley in January to take 51% control of Citigroup Inc.’s Smith Barney brokerage unit was completed last week on June 1. The $2.75 billion joint venture creates the biggest retail brokerage firm on Wall Street. With a collection of over 18,000 financial advisors, according to press reports, the new venture will control both firms’ retail operations. The new venture is also expected to execute both institutional and retail orders although each firm’s institutional business will remain separate. The venture is expected to bring in $14 billion annually and Morgan Stanley has the option to purchase the remainder of Smith Barney from Citigroup over five years.
A recent advertisement in The Wall Street Journal suggests that things will be new and different at the firm. In the print version of The Wall Street Journal on June 3rd, a two-page ad for Morgan Stanley Smith Barney proclaimed it has “rethought the wealth management firm.” The ad claims that Morgan Stanley Smith Barney financial advisers have access to a “global network of economists, strategists and research analysts” helping to “manage risk and seek out investment opportunities.” Will Morgan Stanley Smith Barney really be any different than just Morgan Stanley or Smith Barney?
Among the unknowns associated with the new venture will be the effect it has on (i) relationships between brokers and clients, (ii) brokers who service the same clients, (iii) the individual firms and (iv) the interests of each firm’s shareholders. There are obviously huge costs associated with integrating the two companies into one immense joint venture. According to The Wall Street Journal, Morgan Stanley and Citigroup are planning to spend as much as $3 billion just to retain Smith Barney brokers. It will be interesting to see if the parties can really pull their plan off.
