Citigroup Said to Speed Smith Barney Venture to Boost Capital
May 5 (Bloomberg) -- Citigroup Inc. is pushing to complete a brokerage venture with Morgan Stanley ahead of schedule to lock in a $5.8 billion gain and bolster the bank’s argument it doesn’t need more capital, people familiar with the matter said. Citigroup has told employees it wants to close the deal by June 1, according to several workers who spoke this week and aren’t authorized to publicly discuss the matter. When the deal to combine New York-based Citigroup’s Smith Barney unit with Morgan Stanley’s U.S. brokerage was announced in January, the companies said it would be completed in the third quarter. Booking the gain would add to Citigroup’s capital and may ease the concern of U.S. regulators who today plan to give 19 major banks results of stress tests. The Federal Reserve is conducting the tests to gauge the ability of the institutions to withstand a worsening economy. “The more capital they can book, and the sooner they can book it, puts them ahead in whatever game plan they need to initiate to make good on the government’s requirement,” said Phillip Jacoby, senior portfolio manager at Spectrum Asset Management Inc. in Stamford, Connecticut. Spectrum oversees $6 billion, including $80 million in Citigroup preferred securities. The combination will create the biggest retail brokerage with more than 20,000 brokers and $1.7 trillion in assets. Morgan Stanley will control the venture with a 51 percent stake, after paying $2.7 billion to Citigroup. The bank said ijn January it will get a $5.8 billion after-tax accounting gain from writing up the value of Smith Barney. The companies characterize June 1 as a target, not a deadline, one person briefed on the plan said. The companies have reiterated plans to complete the deal by the third quarter and may do so earlier if possible. ‘Soon As Possible’ “We are pushing to be able to close as soon as possible, but it is dependent on a lot of different factors and no date- certain has been set,” Morgan Stanley spokesman James Wiggins said today. Citigroup spokesman Alex Samuelson today said no closing date has been set. As many as 10 banks undergoing stress tests are being told that they’ll need additional capital to withstand a deeper recession, people familiar with the matter have said. Citigroup and Bank of America Corp. are among the lenders, according to the people. Citigroup, beset by mortgage-bond writedowns and surging losses on credit-card loans, has recorded a $36 billion net deficit in the past six quarters, reducing its tangible common equity to $29.7 billion as of March 31. The bank last year had to get $45 billion of U.S. rescue funds. After-Tax Gain Tangible common equity is the most reliable portion of a bank’s capital because it excludes goodwill, the intangible asset booked when a company makes acquisitions, some investors say. Goodwill may have to be written off in a market where the value of acquired businesses becomes suspect. Citigroup’s after-tax gain from Smith Barney will translate to $6.5 billion of additional tangible common equity, the bank said in January. The venture with Morgan Stanley is part of a plan by Chief Executive Officer Vikram Pandit, 52, to shed “non-core” businesses to free up capital and streamline the company. Last week, Citigroup said it would get a $2.5 billion boost to tangible common equity from the sale of its Japanese brokerage, Nikko Cordial Securities. That deal is scheduled to close in the fourth quarter, according to a May 1 press release. |
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