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Citigroup, Morgan in brokerage merger talks

Citigroup Inc. is confirming it is talking with Morgan Stanley about combining their brokerages.
/ Source: The Associated Press

Citigroup Inc. confirmed Tuesday it is in talks with Morgan Stanley about combining their brokerages.

No definitive agreement has been reached, and "no assurance can be given that any such agreement will be reached," the bank said.

A person close to the negotiation said, however, that if discussions progress as they have been, there could be an announcement as early as late Tuesday or Wednesday. The person spoke on condition of anonymity because he was not authorized to discuss the ongoing talks.

Citigroup and Morgan Stanley plan to combine Citi's brokerage, Smith Barney, with Morgan Stanley's wealth management business. Morgan Stanley would pay Citigroup about $2 billion to $3 billion in cash for a 51 percent stake in the joint venture, the person said.

Citigroup, which has lost more than $20 billion between October 2007 and October 2008, and is expected to post another loss for the final quarter of last year when it reports those results next week. The government has already lent the embattled bank $45 billion — more than other big banks have received — and agreed to absorb the losses on a huge pool of mortgages and other assets.

CEO Vikram Pandit has been saying for months that he plans to sell assets to raise cash, but many investors believe Citigroup is headed for a larger-scale break-up now that the government is involved.

"Pandit's a puppet now. He either goes along with what the government says, or he's out," said William Smith at Smith Asset Management, who still owns shares of Citigroup. "The new CEO of this company is the government ... Now that the government's the biggest shareholder, you finally have an activist."

Smith has been calling for a break-up of Citigroup for years, and believes the government will force that fate, in piece-meal fashion, over the coming year.

"I think within 12 months, Citigroup no longer exists," Smith said.