By Brett Philbin
Citigroup Inc. (C) Chief Financial Officer John Gerspach said the bank expects to exchange valuation estimates with Morgan Stanley (MS) later Monday for their brokerage joint venture, with the estimates likely to be more than 10% apart.
During a conference call with analysts, Mr. Gerspach said the size of the gap between the two estimates means negotiations between the two firms will likely go to an independent third party appraiser.
Morgan Stanley, which owns 51% of the brokerage, notified Citi last month that it plans to acquire an additional 14% stake in the venture. Under terms of a deal struck during the financial crisis, Morgan Stanley has the option to acquire Citi's 49% stake in increments between 2012 and 2014.
By contract, Morgan Stanley and Citi will each independently value Morgan Stanley Smith Barney. If the estimates are reasonably close, the value is the average of both figures. If they are far apart, the third party estimate will be required.
Talks between the two firms will likely be tricky as Morgan Stanley and Citi each value the brokerage differently. Morgan Stanley's value for all of Morgan Stanley Smith Barney is roughly $15 billion to $16 billion, a person familiar with the situation previously told Dow Jones Newswires. Citi has disclosed that it values its entire stake at $10 billion based on equity method accounting, but the price Citi will likely demand will depend on the brokerage's financial performance.
On the call, Mr. Gerspach said Citi believes an appraiser would likely need to "complete their work by somewhere around August 30" and that the transaction "closes no later than September 7 by contract."
A Morgan Stanley spokeswoman declined to comment.
--Matthias Rieker contributed to this report
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