Morgan Stanley and Citi announced Monday the closing of their planned joint venture to create a new global wealth management business.

Originally targeted for the third quarter of 2009, the closing was achieved ahead of schedule, the firms said. As previously announced, Morgan Stanley Smith Barney combines Morgan Stanley’s global wealth management group with Citi’s Smith Barney in the U.S., Quilter in the UK, and Smith Barney Australia retail units into a new wealth management firm.

The combined firm boasts over 18,500 financial advisors, 6.8 million client households globally, approximately US$14 billion in pro forma net revenues, and 1,000 brokerage locations around the world, including in the U.S., Latin America, Europe/Middle East and Asia.

John Mack, chairman and CEO of Morgan Stanley, said that the firm’s clients and advisors will benefit from “an unrivaled global platform, a vast array of products and services and the powerful intellectual capital that both firms bring to this venture.”

Citi noted that the deal’s closing marks another step in the execution of its strategy to optimize shareholder value through asset disposition and combination opportunities. “We believe this transaction is consistent with that goal,” said Vikram Pandit, chief executive officer of Citi. “Citi benefits from this transaction by monetizing its investment in its wealth management business, while continuing to benefit from a multi-year earnings stream created by the larger firm.”

Under the final terms of the agreement, Citi will transfer 100% of its Smith Barney, Smith Barney Australia and Quilter retail units for a 49% stake in the joint venture and an upfront cash payment of US$2.75 billion. Morgan Stanley will transfer 100% of its global wealth management business for a 51% stake in the joint venture. After year three, Morgan Stanley has the right to increase its stake in the joint venture, although Citi will continue to own a significant stake through at least year five.

The joint venture is expected to create cost savings of approximately US$1.1 billion after full integration, which will take about two years.

IE