Citigroup, Morgan Merge Brokerage Arms

Morgan Stanley To Pay $2.7 Billion For 51 Percent Stake In Joint Venture

(CBS/AP)  Citigroup Inc. and Morgan Stanley agreed Tuesday to combine their brokerages in a deal that shows how much Citigroup wants to slim down and build up cash.

Morgan Stanley is paying Citigroup $2.7 billion for a 51 percent stake in the joint venture. Citigroup will have a 49 percent stake.

Citigroup's retail brokerage, Smith Barney, was once the crown jewel in its wealth management business.

The new unit, to be called Morgan Stanley Smith Barney, will have more than 20,000 advisors, $1.7 trillion in client assets; and serve 6.8 million households around the world, the companies said.

Citigroup will recognize a pretax gain of about $9.5 billion because of the deal, or about $5.8 billion after taxes, the companies said. The joint venture is expected to achieve total cost savings for the two companies of around $1.1 billion.

The deal was announced after the market closed. Shares of Citigroup rose 30 cents, or 5.4 percent, to $5.90 on Tuesday, and Morgan Stanley shares rose 7 cents to $18.86.

CEO Vikram Pandit has been saying for months that he plans to sell assets to raise cash, but the executive, according to media reports, is getting ready to announce that Citigroup is abandoning the financial "supermarket" model. That term described the aim of Citigroup - created over the last couple decades by former CEO Sandy Weill - to service all of individuals' and businesses' financial needs, from saving to borrowing to investing to deal-making.

Citigroup has fared worse than other banks in recent years, particularly during the recent credit crisis. The New York-based company is expected to post a fifth straight quarterly loss next week. The government has already lent it $45 billion - more than other large banks received - and agreed to absorb losses on a huge pool of Citigroup's mortgages and other soured assets.

Some investors believe Citigroup is headed for a larger-scale breakup now that the government is involved and that President-elect Barack Obama is rethinking how to dole out the remaining $350 billion of bailout money.

The new administration could "come to the realization that the whole economy does not hinge on the banks," said Octavio Marenzi, head of financial consultancy Celent. "Banking is important. The banks themselves are not."

William Smith of Smith Asset Management, who still owns shares of Citigroup, has been calling for a breakup of Citigroup for years and believes the government will force that fate, in piecemeal fashion, over the coming year.

"I think within 12 months, Citigroup no longer exists," Smith said. "The new CEO of this company is the government."

[enriquecaliente]

Wake up people. Big Business is the Government. We are nothing but cattle, being led by our nose''s.

[wardoglrs]

The Federal Reserve has been pumping hundreds of billions of newly created dollars into %u201Cthe economy.%u201D Much of that money has been sent to Wall Street to bailout large, struggling firms. But that%u2019s just the beginning. President-elect Obama says that since he needs to %u201Cstimulate the economy%u201D we can look forward to trillion-dollar budget deficits for years to come. Even before the financial turmoil began, the deficit had approached $500 billion. (Not to worry, though%u2013Obama says deficit spending will impose %u201Cfiscal discipline%u201D

Of course, when the federal government spends more than it taxes, it has to get the extra money somewhere. Therein lies the treachery. The government%u2019s vendors and other beneficiaries demand to be paid on time. So it borrows from the credit markets by selling Treasury securities to investors. The Federal Reserve in turn monetizes the debt by buying Treasury securities in the marketplace. It pays for those securities by creating bank reserves%u2013money%u2013from nothing, or as John Maynard Keynes suggested, by performing the %u201Cmiracle %u2026 of turning stone into bread.%u201D

Since we, like the rest of the world, have long lived with a fiat-money system%u2013that is, a system in which the paper money is not backed by anything%u2013there is nothing remarkable about this for most. But before long, they will pay a steep price whether or not they know who the culprit is.

[wardoglrs]

Steadily the bank''s kill off each other buy design growing there own little tight knit family of terrorist banking and lending and whats really out rages is the American people dont not know anything of there value and worth of there own currency. Ask yourself what is the value of the dollar? I rest my case