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Morgan Stanley and Citi to form wealth management business through JV

According to Morgan Stanley, the joint venture will not include Citi Private Bank or Nikko Cordial Securities

Morgan Stanley and Citigroup have reached a definitive agreement to combine Morgan Stanley’s global wealth management group and Citi’s Smith Barney, Quilter in the UK, and Smith Barney Australia into a new joint venture to be called Morgan Stanley Smith Barney.

According to Morgan Stanley, the joint venture will not include Citi Private Bank or Nikko Cordial Securities. The joint venture combines businesses that have more than 20,000 financial advisors; $14.9 billion in pro-forma combined revenues; $2.8 billion in pro-forma combined pre-tax profit; 6.8 million client households globally, with a presence in the important high-net-worth client segment; and, a footprint of more than 1,000 offices around the globe.

Under the terms of the agreement, Citi will exchange 100% of its Smith Barney, Smith Barney Australia and Quilter units for a 49% stake in the joint venture and an upfront cash payment of $2.7 billion. Morgan Stanley will exchange 100% of its global wealth management business for a 51% stake in the joint venture. After third year, Morgan Stanley and Citi will have various purchase and sale rights for the joint venture, but Citi will continue to own a significant stake in the joint venture at least through fifth year.

The transaction, which has been approved by the boards of directors of both companies, is expected to close in the third quarter, subject to regulatory approvals and other customary closing conditions.

John Mack, chairman and CEO of Morgan Stanley, said: By bringing together Morgan Stanley’s and Citi’s strong wealth management businesses, we are creating a new industry-leading wealth management franchise. This joint venture is an important step forward in our effort to build our wealth management franchise, which we believe will be an increasingly important and profitable part of Morgan Stanley’s business in the years ahead.