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Fast Money

Deep Concerns Over Big Changes At Citigroup


Morgan Stanley and Citigroup are deep in talks to merge their brokerage operations in a deal that could ultimately lead to Morgan Stanley taking over Citi's Smith Barney unit.  

And the move raises some deep concerns among the Fast Money traders.

Merging Brokerage Operations

The deal would be structured as a joint venture, but would involve a payment from Morgan Stanley to Citi  of an undisclosed sum that would give Morgan the larger stake in the venture.

Morgan Stanley would also have the right over a period of years to increase its stake in the joint venture and ultimately buy all of it, according to sources.

The move would combine Morgan's brokerage unit, with 8,000 brokers, and Smith Barney, which has 11,000 brokers. It would create the nation's largest single brokerage, surpassing Bank of America's newly acquired Merrill Lynch unit, which has 16,000 brokers.

As we said above, the news really raised some eyebrows on the desk.

Tim Seymour asks, “isn’t the brokerage unit the cash cow for Citibank? Aren’t they choking off their ability to make money going forward?”

”A bank in crisis has to sell stuff that makes money,” replies CNBC’s Charlie Gasparino. “Citigroup has a business model problem and a balance sheet problem.”

Jon Najarian thinks the circumstances at Citigroup have to be even more dire than that. “I think there had to be a gun to Citi CEO Vikram Pandit’s head to make him sell Smith Barney or he wouldn’t have done it,” he says.

The other traders agree.

“For Citi this looks like a sign that things are getting worse,” concludes Gasparino.

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Trader disclosure: On Jan 9, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (CSCO), (DNA); Najarian Owns (XME) Calls, (NVLS) Calls, (NVDA) Calls; Najarian Owns (EEM) Long Call Spread ;Najarian Owns (ERTS) Long Call Spread; Karabell Owns (AAPL), (CL), (DRYS), (GOOG), (JPM), (NOK); Seymour Owns (AAPL), (BAC), (EEM), (F), (TSO); Seymour's Firm Owns (PBR); Finerman's Firm Owns (DSX), (MSFT), (DNA); Finerman's Firm Is Short (IYR), (IJR), (IWM), (MDY), (SPY), (USO), (ANF), (AEO), (BBT); Finerman's Firm Is Long (MSFT) Put Spreads

Jon Najarian Owns (C) Preferred Stock