8-KRegulation FDExhibits & Filings

MORGAN STANLEY 8-K Report, Regulation FD Disclosure (May 31, 2012)

Filed May 31, 2012For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

This 8-K filing from Morgan Stanley, dated May 31, 2012, announces the company's intention to exercise its Call Right to purchase an additional 14% interest in Morgan Stanley Smith Barney Holdings LLC (MSSBH) from Citigroup Inc. This move signifies a significant step in consolidating ownership of the joint venture, which houses Morgan Stanley's wealth management business. The purchase price will be determined based on a specific fair market value (FMV) calculation as outlined in the LLC Agreement, which involves a detailed valuation process with independent appraisers. Importantly, the FMV determination will exclude control premiums and illiquidity discounts, while considering factors like future earnings prospects, comparable company valuations, and tax attributes. The filing also details the transfer of approximately $5.4 billion in customer deposits from Citigroup to Morgan Stanley as part of the transaction, along with a premium payment on these deposits.

Key Highlights

  • 1Morgan Stanley intends to purchase an additional 14% interest in Morgan Stanley Smith Barney Holdings LLC (MSSBH) from Citigroup.
  • 2The exercise of the Call Right is expected to be officially notified to Citigroup on June 1, 2012.
  • 3The purchase price will be based on a Fair Market Value (FMV) determination as per the LLC Agreement.
  • 4The FMV calculation will exclude control premiums and illiquidity discounts, and will consider various valuation factors.
  • 5A complex appraisal process involving up to three independent appraisers will be used to determine the FMV.
  • 6Approximately $5.4 billion in customer deposits will be transferred from Citigroup to Morgan Stanley.
  • 7Morgan Stanley will also pay a premium on the transferred deposits, calculated based on specific portfolio characteristics.

Frequently Asked Questions

MSSBH is the joint venture entity that houses Morgan Stanley's wealth management business, which was formed in partnership with Citigroup.

Exercising the Call Right means Morgan Stanley is formally electing to purchase a specified percentage (in this case, 14%) of the membership interests in MSSBH from Citigroup, as permitted by their existing agreement.

The purchase price will be the Fair Market Value (FMV) of the 14% interest. This FMV will be determined through a rigorous process involving independent appraisers, as detailed in the LLC Agreement, considering factors like future earnings and comparable company values, but excluding control premiums or illiquidity discounts.

The transfer of approximately $5.4 billion in customer deposits from Citigroup to Morgan Stanley reflects the change in ownership percentage in MSSBH. It's a mechanism to realign the balance sheet of the joint venture with the new ownership structure, and Morgan Stanley will pay a premium on these transferred deposits.