Making a Monster Brokerage

January 12, 2009

CITIGROUP/In many ways, Citigroup has been the poster child for the kind of reform lawmakers seem to be talking about when they pump up the bullhorn and turn on the state taps. Too big to fail, losing staggering amounts of money, a product of the excesses of 10 years of low interest rates, Citi’s businesses are too numerous to recount, often competing with one another for clients.

It’s so big that plans to spin off its brokerage business into a joint venture with Morgan Stanley will create the biggest brokerage in the United States. A JV, expected to be announced this week, would have an estimated value of $16 billion to $20 billion, a source said, and would have more than 23,000 financial advisers, surpassing rivals Bank of America and Wells Fargo.

There are reasons for optimism that the making of a mega-broker could mark the beginning of a huge round of long-sought consolidation in the financial sector. It would certainly mark a huge divestment for Citi’s embattled CEO, Vikram Pandit. And it also comes as signs of more asset sales poke up through the quagmire of recession. South African billionaire Johann Rupert’s investment vehicle is looking at buying Lehman Brothers’ merchant banking business.

There are also reasons to worry that taxpayers are not done footing bills. Britain has had to pump more than $25 billion into Lloyds TSB and its takeover target, HBOS, after investors turned up their noses at a rights issue. Germany pumped 10 billion euros into Commerzbank last week.

And unless the promised recovery kicks in soon, having a stake in a giant brokerage might not prove as profitable as investors hope.

In other Deals News:

* Ford Motor has had talks with potential bidders for its luxury Volvo brand, Ford Chief Executive Alan Mulally said.

* Malaysia’s national car company Proton may sell a controlling stake to a foreign carmaker, company Chairman Nadzmi Mohd Salleh told the Business Times newspaper.

* African investment bank and asset management group Imara Holdings said it had formed an alliance with Nigerian financial services firm Chapel Hill Denham to give it a foothold in Africa’s most populous nation.

(Photo: A Citibank branch sign is seen behind a road sign in central Sydney REUTERS/Tim Wimborne)

4 comments so far | RSS Comments RSS

This is terrible. We need competition not consolidation. I am not at all hopeful that once consolidated honesty will prevail. I am not at all optimistic about this financial takeover.

Posted by jason | Report as abusive

Lets make another brokerage that’s too big to fail!

This is crazy.

Posted by CG | Report as abusive

Very interesting content.

Posted by Skillscorp | Report as abusive

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