Still suffering in the aftermath of financial crisis, job lay-offs and a lack of investor confidence, mega bank Citigroup is reportedly gearing itself up to sell its Smith Barney brokerage unit to Morgan Stanley.
According to reports in the Wall Street Journal and the New York Times, the deal would be structured as a joint venture and entail payment from Morgan Stanley for an undisclosed sum that would give Morgan a larger stake in the transaction.
News of a potential deal appeared shortly after Citigroup announced that Robert Rubin, former U.S. Treasury secretary under Bill Clinton, had resigned from his post as senior adviser and director of the bank. Rubin’s resignation came after ongoing criticism for his role in encouraging the bank to increase its trading of high-risk mortgage-related securities – a move that many say led to Citigroup’s current financial troubles.
In the past six months, Citigroup has been rocked with staggering financial losses. Despite a second, $20 billion injection of capital from the government’s $700 billion bailout, along with federal guarantees to cover more than $300 billion of the bank’s exposure to toxic mortgage-backed securities, Citigroup continued to experience problems. With losses totaling more than $20 billion, its stock value responded by plunging nearly 80% in 2008.
Faced with eroding investor confidence and a stock price that continued to slide downward, CEO Vikram Pandit reportedly initiated private talks in November with his top executive team regarding the sale of all or parts of the financial services company.
The possibility of this merge would reunite Pandit with former employer Morgan Stanely. Pandit , who left Morgan Stanley in 2005 after being passed over for a promotion and providing them with 22 years of service went on to begin his own hedge fund firm, Old Lane. Old Lane was later sold for $800 million to Citigroup. Pandit had been on the job with Citigroup for only five months before taking the reins of the company as CEO. His predecessor had been Charles Prince, who resigned following shockingly large losses connected to investments in subprime mortgages.