Morgan Stanley to buy Citi's Smith Barney stake

Associated Press Modified: September 11, 2012 at 1:45 pm •  Published: September 11, 2012

NEW YORK (AP) — Morgan Stanley and Citigroup have settled a dispute Tuesday over the value of the brokerage firm Morgan Stanley Smith Barney, which they jointly own.

The deal clears the way for Morgan Stanley to buy Citigroup's 49 percent interest in the broker, giving Morgan Stanley full ownership. It will also result in a $2.9 billion after-tax charge for Citi.

Morgan Stanley will purchase Citi's interest in Smith Barney in stages, starting with a 14 percent stake for $1.89 billion. It will buy the rest by June 1, 2015.

The deal values Smith Barney at $13.5 billion. It is a victory for Morgan Stanley, which bought 51 percent of Smith Barney from Citi during the height of the financial crisis in January 2009. CEO James Gorman is keen to up Morgan Stanley's stake in the brokerage at a time when the bank is struggling to make money.

Regulatory changes have cut some of Morgan Stanley's more lucrative trading businesses, and investment banking and trading carry more risk in a weak economy. In the second quarter, Morgan Stanley reported a 37 percent drop in its investment banking revenue.

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