Banking & Finance

Citi Fesses Up On Smith Barney & Morgan Stanley Reports (C, MS)

Douglas A. McIntyre

Citi_logoCitigroup Inc. (NYSE: C) has issued a statement regarding the many news reports on the possible combination of Smith Barney with Morgan Stanley (NYSE: MS). 

The company has said that it is in discussions with MorganStanley over a possible combination of the retail brokerage business that wouldoperate under the Smith Barney name with the wealth management businessoperated by Morgan Stanley.

The banking giant also said that no definitive agreement has beenreached, and no assurance can be given that it will bereached.   Citi ended by saying that it has no further comment.

What is interesting is that this pertains to the “retail brokeragebusiness” rather than the entirety of Smith Barney as many reports have said.

We feel an outright combination at today’s current market conditionswould have been a disaster for everyone working at those two firms andwould have further eroded Wall Street as aninstitution.

If Citi can keep its investment banking operations and itsinstitutional business, then this “might” be okay for the companies.  Ifthe discussions morph into the full kit and kaboodle for all of SmithBarney, then Citi better brace for further marketcriticism.  It will likely have to deal with that anyhow, but at leastit won’t be handing over all of he keys to the castle and a diagram ofthe secret passages at a time when the price islower than it has been in a decade or more.

Shares are down 6% right after the open, and that follows an almost-20%drop yesterday.  Wall Street is not pleased even if itis just a partial deal.

Jon C. Ogg
January 13, 2009