Citi, Morgan Stanley near deal on brokerage: Report

WASHINGTON: Ailing US banking giants Citigroup and Morgan Stanley are near a deal for a joint venture to create the world's biggest brokerage, newspapers reported on Monday.

Such a deal would merge Citi's Smith Barney unit with the brokerage operations of Morgan Stanley.

Citing people familiar with the matter, reports said that cash-starved Citigroup and Morgan Stanley, which wants to reduce its exposure to volatile trading businesses, "seem ready to roll the dice."

Morgan Stanley, a Wall Street investment bank icon that converted to a bank holding company in September to have easier access to credit to survive the global financial crisis, has received $10 billion from the US Treasury's 700-billion-dollar Troubled Asset Relief Program (TARP).

Citigroup, also badly hurt in the credit meltdown, received a $25 billion taxpayer bailout under the TARP program initially aimed at supporting the financial system.

The Treasury later agreed to invest 20 billion dollars in Citigroup, giving US taxpayers an eight percent stake in the company.

Papers noted that putting together a deal on the proposed joint venture faces challenges "from clashing egos to divided loyalties, especially since Smith Barney brokers will likely report to bosses from Morgan Stanley, under the terms being discussed."

The terms of the current talks call for Morgan Stanley to control 51 percent of the two companies' brokerage units, with Morgan Stanley paying Citigroup about 2.5 billion dollars.

That essentially represents a premium, the newspaper said, since Morgan Stanley's brokerage operation has about 8,400 brokers compared with more than 11,000 working at Smith Barney.

The deal would topple the former Merrill Lynch & Co., now owned by Bank of America Corp., from its years-long perch as the world's leading brokerage, it noted.