A deal to combine the brokerages of Citigroup and Morgan Stanley - which would give Citi more cash, and Morgan Stanley more manpower - appears just days away.
Morgan Stanley is likely to pay Citigroup between $2 billion and $3 billion for a 51 per cent stake in the brokerage Smith Barney, a person close to the negotiations said.
Morgan Stanley would then have the option to buy Smith Barney over the next three to five years, the person said. The person spoke on condition of anonymity because he was not authorised to speak about the ongoing talks. If negotiations proceed through the weekend as they have been, an announcement could come as early as tomorrow, the person said.
Word of the negotiations came as investors digested news on Friday that Robert Rubin, a senior adviser to Citi who has drawn heavy criticism, would resign and would not seek another term on the board.
A combination of the brokerage units would help Citigroup get more much-needed cash and cut costs, said Aite Group analyst Alois Pirker. The benefit for Morgan Stanley, Pirker said, would be a bigger staff to compete with other growing brokerages - particularly Merrill Lynch, which recently was acquired by Bank of America.
The deal may also lead to a full-fledged merger between the two banks, he speculated.