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Gorman Sees Smith Barney Talks Taking Months

Morgan Stanley’s process of buying the next piece of its brokerage joint venture will probably take a couple months, said Chief Executive Officer James Gorman.

Discussions won’t start with Citigroup Inc. until Morgan Stanley’s call option on the next 14 percent stake becomes effective at the end of this month, Gorman said today at the firm’s annual shareholder meeting in Purchase, New York.

“How long it takes depends presumably on whether it goes to arbitration or not,” Gorman said. “It’s probably a couple of months.”

Morgan Stanley can buy a 14 percent stake in the next month, increasing its ownership in Morgan Stanley Smith Barney - - the world’s largest brokerage -- to 65 percent. It can buy the business, which has more than 17,000 advisers and $1.74 trillion in client assets, outright over the next two years.

Under the current agreement, Citigroup and New York-based Morgan Stanley will submit their estimates of the brokerage’s fair value. If the figures are within 10 percent of each other, the stake will be sold at the average of the two, a person briefed on the arrangement has said. If the difference is more than 10 percent, the firms would bring in an outside appraiser, the person said.

Citigroup Chief Financial Officer John Gerspach, 58, indicated last month that the bank may be willing to sell the rest of its stake to Morgan Stanley this year. Gorman said April 19 that he feels “no particular compulsion” to speed up the purchase of the remaining pieces.

Gorman reiterated today that he plans to stick to the preset schedule of buying the remaining stake over the next two years.

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