Mack Closer To Making Morgan Stanley A "One-Stop Shop" With Smith Barney Deal
Morgan Stanley's longtime hero John Mack is betting that he can create a different species of investment bank to dominate today's morphed financial landscape.
As Citigroup looks to divest valuable assets in order to beef up its beleaguered balance sheet, rival Morgan Stanley appears as if it's back to old tricks: trying to become a one-stop shop in the financial services arena.
Earlier this week, Morgan Stanley agreed to purchase Citigroup's Smith Barney retail brokerage unit in a $2.75 billion deal which gives the investment bank a 51 percent holding. Under the terms of the deal, Morgan Stanley has the option to extend that share to full ownership in the future.
In reality, Citi also loses a key employee in the sale as Charles Johnston, the bank's wealth-management president in the U.S. and Canada, is heading up the joint venture. The newly re-branded Morgan Stanley Smith Barney features 18,500 financial advisors servicing 6.8 million high-net-worth households across the world.
The Smith Barney acquisition is a bit of an odd choice for Morgan Stanley, given the bank's patchy history in the retail client arena. In 2005, you may remember, Morgan Stanley was forced to spin-off its Discover Financial Services unit in a fire-sale after a disaster foray into consumer finance. That venture was mainly responsible for the ousting of ex-chief executive Philip Purcell, who was later replaced by the bank's current second-time-round leader Mack.
While the Smith Barney brokerage business is more institutional in nature than the Discover lending debacle, it's hard to read Morgan Stanley's interest in it as anything other than the bank's desire to become everything to everyone.
If Morgan Stanley succeeds in making the division work under its umbrella, then that will make it a clear rival to Wells Fargo Advisors and Bank of America's Merrill Lynch. Indeed, Morgan Stanley is already boasting that its new Morgan Stanley Smith Barney is the largest retail broker by headcount.
The acquisition also comes on the heels of Morgan Stanley's strengthening ties with Japanese commercial bank Mitsubishi UFJ. In March, Morgan Stanley agreed to merge its Japanese securities business with Mitsubishi's. That was followed by rumors that the bank would spin-off its biggest proprietary trading desk into a hedge-fund style entity after the departure of former star trader Fabrio Gallo.
Exactly what Mack's Morgan Stanley will look like after this financial crisis has subsided is still up for speculation. But one thing is for certain: if it works, it will be a very different institution to anything the industry has seen before.
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