Citi-Morgan Talks Seen Leading To Wave Of Deals

 

Thursday, Mar 05,2009, 11:36:20 PM   Click:

Citi-Morgan talks seen leading the wave of trafficking SARA LEPROAP Business Writer The Associated Press
NEW YORK_Citigroup May and Morgan Stanley on Monday announced an agreement to merge their brokerage firms, analysts say a move could trigger a new wave of consolidation in the disorder and the thinning of the banking sector.

The potential deal between Citi and Morgan Stanley underlines the problems facing the industry after a year in which several well-known financial companies toppled under the weight of rising losses from bad mortgages.

"This demonstrates the vulnerability of the banking system," said Keith Springer, president of Capital Financial Advisory Services.

Morgan Stanley is liable to pay Citigroup for $ 2 billion and 3 billion for a 51 percent stake in the brokerage firm Smith Barney, a person close to the negotiations said Saturday.

Morgan Stanley would have the option to buy the rest of Smith Barney in the next three to five years, the person said. The person spoke on condition of anonymity because he was not authorized to discuss ongoing negotiations.

A spokesperson for Citigroup declined to comment on Sunday. Calls to Morgan Stanley were not immediately returned.

During the last months of the financial turmoil, many banks have had to revise their business model. Morgan Stanley and Goldman Sachs Group Inc. bank holding companies became shortly after rival Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. was sold to Bank of America Corp. in an emergency, the sale of first evaluated to 50 billion dollars. Investors grew concerned that stand-alone investment banks would be more viable in the midst of continued weakness in the credit markets.

An agreement to combine brokerage Citigroup and Morgan Stanley would not only give Citi need of money, it would also more labor-Morgan Stanley, analysts said.

"If Citi and Morgan get together, they would be able to develop a retail brokerage that is greater than Merrill's thundering herd, what might their market position," said Chris Probyn, economist Head of State Street Global Advisors. "This May be a way to remain competitive."

The move would also be good for Morgan Stanley because it seeks to strengthen its less risky, less leveraged firms more after a bank holding company. The move would also Morgan Stanley greater sales force to enhance its growth-based retail deposit, which was among the first priorities of the Bank in recent months, Lauren Smith, analyst with Keefe, Bruyette & Woods Inc. wrote in a research note Monday.

Morgan Stanley was able to hold relatively better than other financial companies amid the market turmoil of credit, but he had a $ 2.37 billion loss during its fourth fiscal quarter, which was ending 30 November. However, Morgan Stanley, the difficulties were not of the same order of magnitude as the Citi.

Citigroup has been hit particularly hard by the housing crisis and credit. Although the bank has received $ 45 billion in support from the government 700 billion dollar financial rescue fund, its financial situation remains fragile.

Banking regulators are now pushing Citi to replace its chairman, Sir Win Bischoff, in an effort to restore confidence in the headquarters in New York after the bank, you need billions of dollars in government support, according to a report by the New York Times. The Times and the Wall Street Journal said Monday that Richard Parsons, former CEO of Time Warner Inc. and a Citi director, is likely to succeed Bischoff.

Citi has reported four quarters of losses totaling $ 20.2 billion through September 2008 and is expected to another position where it releases loss in the fourth quarter results on January 22.

Citi may report an operating loss greater than $ 10 billion in the fourth quarter, according to the report in the Journal. About 4 billion of the loss would be offset by a gain if the bank from selling its retail banking activities in a German case which closed last year, said the newspaper.

Citigroup may not be immediately reached Monday for comment on newspaper articles.

Analysts polled by Thomson Reuters, on average, forecast a loss of $ 1.14 per share for the fourth quarter. Based on the share of Citi September 30, equivalent to a loss of approximately $ 6.21 billion. Analysts are not always special when their earnings estimates.

A sale of Smith Barney Citi could provide needed money to help more than offset the losses and help streamline the operations of the bank to reduce costs amid the credit crisis in progress.

"It seems to me that they are rethinking the business model that was Sandy Weill, who has been a model of one-stop shop," said Probyn, referring to the former president of Citigroup and head of the direction. "Now, they are perhaps thinking back to a more rational".

Weill built Citigroup conglomerate it is today through a series of mergers and acquisitions over the past two decades, before handing the reins to Charles Prince in 2003. The bank has been criticized for years it has grown too large for its own good, with many investors want a breakup of its units.

But while Citigroup has struggled with its size, its competitors have achieved greater.

Rivals JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co. all acquisitions made during the past year to better diversify their activities.

Bank of America buys Merrill Lynch & Co. and mortgage lender Countrywide Financial Corp. JPMorgan, meanwhile, picked up storied investment bank, Bear Stearns Cos. in March, and the lucrative market for the failure of savings deposits Washington Mutual Inc. and Wells Fargo Citigroup has defeated in his quest for troubled Charlotte, NC, bank Wachovia Corp.

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AP Business Writer Stephen Bernard contributed to this report.

© Copyright 2009 The Associated Press. All rights reserved. This material May not be published, broadcast, rewritten or redistributed. NEW YORK_Citigroup May and Morgan Stanley on Monday announced an agreement to merge their brokerage firms, analysts say a move could trigger a new wave of consolidation in the disorder and the thinning of the banking sector.