Citigroup Inc (C.N) may have to a take a charge of almost $6 billion in the current quarter on a markdown of its valuation of the retail brokerage business it owns with Morgan Stanley (MS.N), Barclays Capital said.
The third-largest U.S. bank said last month that Morgan Stanley estimates the business, known as Morgan Stanley Smith Barney, is worth less than half as much Citi believes it is.
The disagreement came as Morgan Stanley tried to buy another 14 percent of the joint venture, beyond the 51 percent it owns.
Citi estimates the business is worth $22 billion, while Morgan Stanley pegs it at $9 billion.
The bank's valuation reflected an extremely optimistic view of the future of Wall Street profits, setting up the possibility of a multi-billion charge.
A third-party appraiser will help set the final price in a process set to conclude at the end of August, with the sale slated to close by September 7.
Smith Barney became part of Citigroup in 1998 when former Chief Executive Sandy Weill turned the bank into a financial conglomerate. The subsequent joint venture was forged in the financial crisis in January 2009 when Citi looked to raise capital and Morgan Stanley sought a stable source of revenue.
Barclays analyst Jason Goldberg, in a note to clients, also said the charge, if taken, would reduce Citigroup's earnings per share by $1.30 in the third quarter.
Goldberg is rated five stars for the accuracy of his earnings estimates on Citigroup, and ranks second out of 24 analysts covering the stock, according to Thomson Reuters StarMine.
Analysts on average currently expect Citigroup to earn 97 cents per share, excluding items, according to Thomson Reuters I/B/E/S.
Goldberg, however, maintained an "overweight" rating and a price target of $46 on the stock.
Citigroup's stock closed at $28.56 on Monday on the New York Stock Exchange.
(Reporting by Jochelle Mendonca in Bangalore; Editing by Don Sebastian)