Uncompetitive financial market spurred by the Citi-Morgan deal

Analysts expect the prospective combination of brokerage units at Citigroup and Morgan Stanley to incite other consolidations in the banking industry. The deal between Citi and Morgan Stanley is considered by the experts as an indicator of still weak condition of the industry. Analysts say that 2009 can be another year of multibillion-dollar losses for banks. Thus with the rising losses banks will likely consider the possibility of selling some assets to raise funds.

Within the past several months a number of banks revised their business models. Shortly after Lehman Brothers Holdings Inc. filed for bankruptcy protection and Merrill Lynch & Co. was sold to Bank of America Corp. Morgan Stanley and Goldman Sachs Group Inc. became bank holding companies. Frequented mergers and consolidations started concerning the investors as long as they realize that stand-alone investment banks would no longer be viable. A sale of Citigroup's brokerage is considered by the analysts as another step in a move toward a more meager industry with just a little number of big banks offering many services. That will surely impact consumers who will find themselves in a less competitive market.

Under their potential deal Morgan Stanley is likely to pay Citigroup between $2 billion and $3 billion for a 51 percent stake in the brokerage Smith Barney. Morgan Stanley will have the option to buy the rest of Smith Barney over the next three to five years. While Citigroup will receive needed cash from the deal Morgan Stanley will gain more manpower, analysts say.

Source: The Associated Press