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Wednesday, February 22, 2012

Citi faces multi billion-dollar write-down risk: Report

Financial services major Citigroup Inc may face a multi billion-dollar write-down as it begins to unwind its minority investment in the Morgan Stanley Smith Barney brokerage, says a media report.

Citigroup Inc is facing a potential multi billion-dollar write-down as it begins unwinding its minority investment in the Morgan Stanley Smith Barney brokerage,” the Wall Street Journal reported.

Morgan Stanley has the right this spring to start buying Citigroup out of the joint venture, which was formed in 2009 and is expected to take full ownership in 2014, it added.

Morgan Stanley Smith Barney currently is valued at $20 billion on Citigroup’s books, which is $5 billion more than it is on Morgan Stanley’s, the report said citing Credit Suisse’s analyst Mr Howard Chen.

The difference in the valuation is mainly on account of different accounting standards. The value of Citigroup’s equity stake in the business is roughly $10 billion.

Citigroup may need to take a $2.5-billion write-down on a sale, which could translate into a $1.8-billion after-tax hit, the publication said citing Mr Chen.

“A sale that valued Citigroup’s stake at $7.5 billion, broadly in line with Morgan Stanley’s assessment according to a report from Mr Chen, could result in a $2.5-billion write-down that would translate into an after-tax earnings hit of $1.8 billion,” it said.

According to the report, Citigroup declined to comment on the issue.


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