Two stocks that we at T&T Capital Management (TTCM) think are likely to be big winners over the next 3-5 years are Citgiroup (C) and Morgan Stanley (MS). This article talks about the possibility that Morgan Stanley will accelerate the purchase of the remaining portion of Smith Barney that Citigroup owns. This deal which was done during the depths of the Financial Crisis, is likely to be very attractive to Morgan Stanley. I think that with both stocks trading at substantial discounts to tangible book value, the best thing they can do for their shareholders is to buyback stock. I think it is far more attractive for Morgan to buy the remaining portion of the business as I think it will get more expensive over the next few years. The article’s logic that Citigroup should sell even if they don’t love the price is silly in my opinion, as that stress test only limited the amount of capital they can return to shareholders. To think it is a reflection of their capital ratios being weak right now in any normal business environment is just not accurate and Citigroup has to make the right business decision.
INVESTING IN THE FINANCIAL MARKETS INVOLVES RISKS. OPTIONS ARE NOT SUITABLE FOR ALL INVESTORS.