Invesco, the fund manager, agreed to buy Morgan Stanley's retail investment management business for $1.5 billion in stock and cash in a heavily anticipated deal.

Atlanta-based Invesco will pay $500 million in cash and $1 billion in the company's stock to add to Morgan Stanley's $119 billion in assets under management to its business, taking Invesco's total pool of client assets to $536 billion.

The exchange of shares will give Morgan Stanley, which sold retail funds under its own and the Van Kampen brands, a 9.4 per cent stake in Invesco, making it the fund manager's largest shareholder.

The bank wanted to offload its retail business after suffering six consecutive quarterly losses of nearly $1.7 billion, so that it can concentrate on offering funds to institutional investors.

Morgan Stanley recently completed its $2.75 billion joint venture with Citigroup to create Morgan Stanley Smith Barney, the world's biggest retail brokerage with an 18,400-plus army of financial advisers.

Brad Hintz, an analyst at Sanford Bernstein, told Bloomberg that it made sense for Morgan Stanley to sell its retail asset management arm because brokers were sometimes reluctant to sell funds owned by their own company for fear of being accused by clients of having a conflict of interest.

The deal includes an agreement to distribute Invesco funds through Morgan Stanley Smith Barney. The companies did not give further details of the distribution agreement.

Invesco said that it expected to make $70 billion in savings from combining the businesses but denied that cost savings were the impetus behind the deal.

Martin Flanagan, Invesco chief executive, said: "This is about adding depth and breadth to our investment- management capabilities. This is a growth opportunity."

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