When Citigroup Competes With Itself

Dear John Thain is getting into the weeds of the Morgan Stanley Smith Barney joint venture, and doesn't like what he's seeing.

The big problem here, according to DJT, is that Citigroup is intent on keeping its private bank -- complete with the brokers the private bank uses. Up until now, lines have been very blurry between the Smith Barney brokerage and the private bank, which services clients with $10 million or more in assets. Suddenly, however, those two operations are going to be competitors.

This also means that Citi will essentially retain a lot of its brokerage costs without getting anything like the same revenues:

Citi retains brokers housed in their retail branches and its private bank, both direct competitors to the joint venture. Well, that hardly seems logical... To sell a business but still keep enough fragments of it to have to maintain the same infrastructure, support staff, and organizational complexity as if it wasn't sold-things like stock trading, account processing, compliance, client account management, and relationship management software are all required no matter how many brokers you have.

To make matters worse, says DJT, Smith Barney itself has a significant number of teams of brokers who are private bankers in all but name and who use the private bank's platform rather than Smith Barney's. It's unclear where those brokers will end up, but it's crystal clear that their VIP clients are going to require a seamless transition. And the chances of that happening seem slim.