TheStreet.com notes that Morgan Stanley has huge decision to make regarding the two-year old joint venture Morgan Stanley Smith Barney.

It has an option that expires in May to boost its stake in the venture, which is now the largest brokerage in the industry, larger even that the Thundering Herd. Recall that Morgan Stanley owns 51 percent of the venture, while Citigroup owns the rest. The issue for CEO James Gorman is whether acquiring the rest of the venture will enhance shareholder value more than using those funds to buy back shares.

Credit Suisse analyst Howard Chen has calculated estimates “that a 2012 buyout of the venture would add 6 cents to 2012 earnings, while providing a 30 cent benefit through 2014. Meanwhile, the brokerage purchase would add to returns on equity and push the bank's ROE to 9.6% by 2014. As a result the calculations show that over three years, a decision to buy the venture from Citigroup may be the best way for Morgan Stanley to to boost earnings, outweighing a gradual stake increase, a share buyback program - or a mix of both.”

The danger would be that the venture tanks, as rivals poach top producers and independents steal away clients. The wirehouse industry right now is at something of a crossroads, and success over the next two years cannot be taken as a given.

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