Morgan Stanley To Acquire Smith Barney
Purchase would make Morgan Stanley the world's largest brokerage firm.
January 9, 2009
Morgan Stanley is in talks to take over Citigroup's Smith Barney brokerage division, according to a person familiar with the situation.
Morgan Stanley intends to initially buy a 51% stake in Smith Barney and increase that stake in years to come, according to the source. Morgan will eventually obtain full ownership of Smith Barney. A retention package for brokers is almost certain to be modeled after the deal offered by Bank of America to Merrill Lynch's brokerage force in that takeover.
The proposed merger would create the world's largest advisory force with over 23,000 brokers. The move would comes amid turbulent global markets and a recession that has changed the face of Wall Street's largest brokerage firms, with many top managers leaving their longtime employers.
Danny Sarch, president of executive recruiting firm Leitner Sarch, says he heard of one telltale sign last week when Morgan Stanley supposedly placed a hiring moratorium on Smith Barney advisors. Such a move would be normal if a deal was in the works, Sarch says, although he had no firsthand knowledge of any move.
That said, he was surprised at the news today. "Silly me, I believed the CEO when he said that Smith Barney wasn't for sale," he quipped.
Whether the move makes sense, he says it depends on the execution and noted there are major questions on technology and leadership. And he was also quick to note a pet issue: major acquisitions all too often destroy value instead of creating anything beneficial for shareholders.
Rick Peterson, a Houston-based industry recruiter, says Smith Barney brokers will be unhappy about joining a rival but could be placated by a generous transition package from Morgan. Indeed, they may have few other options in the wirehouse space with only UBS in a position to recruit aggressively at the moment as Merrill is subsumed into Bank of America and Wachovia into Wells Fargo, he adds.
"At the end of the day, brokers are concerned about two things--how well the combined company is presented and what kind of retention package they'll be offered," says Peterson.
Smith Barney spokespeople did not return calls for comment. Smith Barney has approximately 14,133 financial advisors in 764 offices worldwide and currently has close to 9 million domestic client accounts, representing approximately $1.323 trillion in client assets as of November 2008, according to the company's Web site.
Morgan Stanley's global wealth management unit posted a pre-tax income of $1.15 billion for 2008, largely unchanged from 2007.
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