Smith Barney is on the move yet again.

Citigroup Inc.'S (C) agreement to sell Morgan Stanley (MS) a 51% stake in its retail brokerage unit is just another deal for a firm with a long history of mergers that have occurred since its inception.

Analysts and industry observers say the joint venture would give Smith Barney's clients access to initial public offerings, research and other investment products from Morgan Stanley and vice versa. In addition, Smith Barney will no longer be directly linked to a retail bank, but would still be able to generate deposits.

Morgan Stanley is pushing to garner deposits after recently becoming a bank holding company. What Smith Barney's relationship would be with its new owners, while jointly owned by Citi and Morgan Stanley, which both want to generate deposits, is uncertain.

And with terms of the transaction just announced late Tuesday, some brokers at competing firms don't see an immediate allure to the potential entity.

"I don't have any interest in Smith Barney/Morgan Stanley," said a Merrill Lynch & Co. broker in the Northeast U.S. "The last thing I want to do is jump into more turmoil," the broker said.

 
   More Offerings?

Morgan Stanley said it will pay Citi $2.7 billion for Smith Barney, Smith Barney Australia and Quilter, the companies said after stock markets closed Tuesday.

In a press release, Morgan Stanley and Citi said the joint venture "expands Citi's access to retail customers for our capital markets products and research, allowing us to better serve our issuing clients."

Earlier Tuesday, Fox-Pitt Kelton analyst David Trone said the transaction would provide "double the options" for Smith Barney's retail customers.

Trone said clients would gain access to alternative investments including derivatives, real-estate funds and private equity funds, through the prime brokerage operations of both firms.

 
   Another Deal?

A change in affiliation would be nothing new for Smith Barney. The original Smith Barney & Co. was formed 71 years ago between the merger of Charles D. Barney & Co., which was founded in 1873 by a young broker and Edward B. Smith & Co., a young investment banker who founded his firm in 1892.

In the late 1980s, the firm was acquired by Primerica Corp., a financial-services firm, which in the summer of 1993 bought the retail brokerage and asset management operations of Shearson Lehman Brothers and combined them with Smith Barney. A few months later in December, Smith Barney became a subsidiary of Travelers Group because Travelers acquired Primerica.

In 1997, Smith Barney, which was the brokerage arm of Travelers Group at the time, was combined with Salomon Inc. In 2003, the Salomon name disappeared as corporate and investment banking activities were restructured to fall under the umbrella of Citigroup. Smith Barney became the wealth management and equity research functions group.

Under terms of the joint venture announced Tuesday, the wealth management business would be called Morgan Stanley Smith Barney. Morgan Stanley Co-President James Gorman will serve as chairman of the new company, while continuing in his role at Morgan Stanley.

Carri Degenhardt-Burke, of Degenhardt Consulting, said that a Morgan Stanley/Smith Barney combination would be "the new old Merrill Lynch" - referring to a brokerage firm not attached to a large retail bank.

In recent weeks, the traditional wirehouse model has evaporated as Bank of America Corp. (BAC) completed its acquisition of Merrill Lynch & Co. and Wells Fargo & Co. (WFC) bought Wachovia Corp.

"Despite the size (of Morgan Stanley/Smith Barney), there is still less red tape that needs to be cut through," Degenhardt said.

Yet, Morgan Stanley recently converted to a bank holding company and has said it will use its brokerage force to raise deposits from new and existing clients.

While some observers questioned how the firms will handle deposits, the firms said that "each organization will retain its deposits as of the close of the transaction and "new deposits collected in the joint venture will be allocated based on ownership of the new company."

 
   Will Brokers Join?

A marriage between Morgan Stanley and Smith Barney is sure to attract the attention of financial advisers at competing firms, given the surge in broker movement over the past year. Financial advisers are looking to switch firms more than ever before as plunging company stock prices have reduced the incentive for them to stay at their firms. Stock is a key component of brokers' deferred compensation.

Some say that a Morgan Stanley/Smith Barney entity would carry more weight with brokers because it isn't owned by a retail bank such as Bank of America or Wells Fargo.

There's a part of the brokerage industry that likes being part of a broker-focused firm, where decisions are made based on what's in the best interest of the financial advisers," said Andrew Tasnady, compensation consultant with Tasnady Associates. "The Morgan Stanley-Smith Barney combination would be the only large place like that left."

He said that could make very traditional brokers, like many of those at Merrill, attracted to the firm.

Michael Campbell, chief executive and president of Dominick & Dominick, said that "given the time it will take to consolidate branches, management and platforms, brokers may not look to join Morgan Stanley/Smith Barney for a while."

A Merrill Lynch broker wouldn't want to join the firm now, and then have to deal with the possibility of the branch closing or management changes, he said.

Matthew Bienfang, senior research director of brokerage and wealth management at research firm TowerGroup, said "I'm not so sure if I were a Merrill guy I'd be looking to go that environment. They will have to wait and prove to me that (joint venture) is going to work."

Smith Barney and Morgan Stanley declined to comment.

Shares of Citigroup closed up 30 cents, or 5.4%, at $5.90 and fell 5 cents to $5.85 in after-hours trading. Morgan Stanley closed up 7 cents to $18.86 and fell 26 cents to $18.60 in after-hours trading.

- Brett Philbin, Dow Jones Newswires; 201-938-5393; brett.philbin@dowjones.com

- By Jessica Papini, Dow Jones Newswires; 201-938-2437; jessica.papini@dowjones.com

(Annie Gasparro and Matthias Rieker contributed to this report.)

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