Barclays expects Citi to book $6B charge in 3Q

LOS ANGELES (AP) — A Barclays analyst projects that Citigroup Inc. may book a charge of up to $6 billion in the third quarter related to its stake in the retail brokerage Morgan Stanley Smith Barney, which it owns with investment bank Morgan Stanley.

That non-cash charge against the carrying value of the investment bank's 49 percent interest in the brokerage could reduce Citigroup's earnings per share in the third quarter by $1.30, Barclays analyst Jason Goldberg wrote in a research note Tuesday.

Citigroup had noted earlier this year that it believed it might have to book a temporary impairment charge, but said it was not material.

The charge stems from Morgan Stanley's decision to buy back a portion of Citigroup's stake in the joint venture.

On June 1, Morgan Stanley exercised an option to purchase an additional 14 percent interest. But initial appraisals by each company aimed at calculating a fair market value for the transaction ended up more than 10 percent apart.

That opened the door for Citigroup to have a significant non-cash charge to its net income in the third quarter, Goldberg explained in the note.

A third-party appraisal of the value of the joint venture is expected to be completed by the end of this month, with the sale of the 14 percent stake set to close by Sept. 7.

Representatives for Citigroup and Morgan Stanley did not immediately respond to requests for comment.

The speculation of a $6 billion charge against Citigroup's third-quarter net income did not dampen the company's shares in afternoon trading on Tuesday. The broader market got a lift from a wave of strong earnings from U.S. companies.

Citigroup shares gained 53 cents, just under 2 percent, to $29.09. Shares of Morgan Stanley rose 43 cents, or 3 percent, to $14.57.