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Citi moves closer to brokerage deal: sources

(Agencies)
Updated: 2009-01-12 11:52

NEW YORK -- Citigroup Inc. was getting closer to a deal on Sunday to join its Smith Barney retail brokerage business into a joint venture with Morgan Stanley, in a move that could see it get about $2.5 - $3 billion cash, a source familiar with the situation said.

A businessman walks past a Citibank branch in Tokyo, November 18, 2008. [Agencies]

Citi would also gain $5 billion-$6 billion in tangible common equity as a result of revaluing the unit as part of the bigger venture rather than as a stand-alone business, the source said.

The new business would have a combined estimated value of $16 billion to $20 billion, the source said.

A deal could be announced this week but is unlikely to come as soon as Monday, that source said. A second source familiar with the situation said an announcement was expected this week.

Under the deal, Morgan Stanley would take a 51 percent stake in the new venture and would also have options to increase that amount at a period of 3-6 years in the future, the first source said.

The cash payment would allow Morgan Stanley -- which has a smaller brokerage business than Citi -- to take the controlling rather than the minority stake in the venture.

The cash would be a big boon for Citigroup, which is under tremendous pressure from the US government to shore up its balance sheet after taking $45 billion of government capital in October and November.

Capital is crucial for Citigroup, which has posted more than $20.3 billion of net losses for the four quarters ended Sept 30.