The venture agreement instructs the banks to value the unit as if it were a standalone, publicly traded firm, taking into account size, earnings and prospects. Gorman has said some of the brokerage's value comes from its ties to Morgan Stanley's investment bank, which can provide stock from initial public offerings and bonds from underwriting to help generate fees through sales to individual investors.

Citigroup estimated in a July 19 regulatory filing that its 49 percent stake was worth $11 billion and said Morgan Stanley's bid was 40 percent lower. That means the two banks' estimates of the total value are about $13 billion apart. Morgan Stanley will pay 14 percent of the total valuation for the new stake.

Wesley McDade, a spokesman for Morgan Stanley, declined to comment, as did Shannon Bell, a spokeswoman for Citigroup.

Citigroup Writedown

Morgan Stanley's valuation indicates that New York-based Citigroup got a good deal in 2009, when it sold a majority stake in the new joint venture, Charles Peabody, an analyst at Portales Partners LLC in New York, wrote in a note last month. Morgan Stanley contributed its wealth-management business to the venture and paid $2.75 billion to Citigroup. The total value of the majority stake was about $10 billion, Peabody said.

A low valuation also threatens Citigroup, which risks a writedown that could wipe out all its profit for the third quarter and serve as another embarrassment for CEO Vikram Pandit, 55, after his firm failed part of the Federal Reserve's stress test this year. The writedown could top $6 billion if Morgan Stanley's valuation is accepted. That's twice Citigroup's $2.9 billion estimated third-quarter net income, according to the average of 13 analysts surveyed by Bloomberg.

Perella Role

The firm overseeing the valuation process required after the banks couldn't agree on a price is headed by industry veteran and Morgan Stanley alumnus Joseph Perella. He has advised on mergers and acquisitions for more than 30 years, working on deals in a number of industries. Perella Weinberg is currently advising Julius Baer Group Ltd. on the purchase of Merrill Lynch's international wealth-management business, according to Perella Weinberg's website.

Perella, 70, worked at First Boston Corp., now part of Credit Suisse Group AG, before leaving in 1988 with Bruce Wasserstein to start Wasserstein, Perella & Co. He joined Morgan Stanley in 1993, rising to head of investment banking before leaving in 2005 during the management revolt that led to the resignation of CEO Philip Purcell.

Kara Findlay, a spokeswoman for Perella Weinberg, declined to comment.

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