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Morgan Stanley and Citi to Combine Brokerage Units

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Citigroup and Morgan Stanley agreed January 13 to form a joint venture called Morgan Stanley Smith Barney that will combine its retail brokerage operations, resulting in a firm that the companies said will be able to count more than 20,000 brokers, $1.7 trillion in client assets, and 6.8 million client households around the world when the deal closes in the third quarter of 2009. Under the terms of the agreement, Citigroup will exchange 100% of its Smith Barney, Smith Barney Australia and Quilter of the U.K. units for a 49% stake in the joint venture, and an upfront payment of $2.7 billion, and will “continue to own a significant stake in the joint venture at least through year five.” Morgan Stanley will exchange 100% of its Global Wealth Management Business for a 51% stake in the joint venture.

Prompted by Citigroup’s intention to streamline its overall operations, the deal, Citigroup said that under the deal “Morgan Stanley and Citi each will distribute their products through what will be the leading global wealth management platform.”

Morgan Stanley Co-President James Gorman will be chairman of the new joint venture, while Citigroup’s Charles Johnston–who most recently was president of its Global Wealth Management business in the U.S. and Canada–will be president.