Citigroup is in talks to merge its Smith Barney stockbroking business with Morgan Stanley, in a money-raising move that would create the biggest brokerage in the world.
News of the negotiations leaked last night at the end of another milestone day for the giant US corporation, when Bob Rubin, the former Treasury secretary, said he would quit Citigroup's board and retire as an ambassador for the company.
Mr Rubin, who served at the Treasury under President Bill Clinton, had become a lightning rod for criticism of Citigroup's disastrous investments in sub-prime mortgages and other toxic loans, which have left it reliant on two cash infusions from the US government.
Despite the bailouts, analysts still believe that Citigroup needs to raise more capital to repair its tattered balance sheet, and talks to offload the Smith Barney stockbroking business have reached an advanced stage, it was reported last night.
The main plan under consideration is a joint venture with Morgan Stanley, which has been looking to bulk up its non-investment banking operations after the mauling they received from September's financial panic. Morgan Stanley already has one of the biggest brokerage businesses in the US, with about 8,000 advisers, and combining with Citigroup's Smith Barney would take the total to 19,000, leapfrogging into the No 1 position in the country.
It is believed that the two sides are planning a joint venture that would be majority-owned by Morgan Stanley, with Citigroup receiving a cash payment in return. It is possible the Morgan Stanley will have the right to absorb the whole of Smith Barney over time.
Citigroup's bosses have traditionally been wedded to the "financial supermarket" business model, where the company combines a network of stock-brokers with investment banking and retail banking operations in the hope of marketing a suite of products and services to clients across the whole group. Vikram Pandit, who took over as chief executive in December 2007, has faced gathering pressure to take bold action as the credit crisis has progressed, however.
Meanwhile, calls for Mr Rubin's departure had been intensifying since November, when a plunging share price caused a crisis of confidence that threatened to capsize the bank. Mr Rubin has been paid more than $100m for his work as a member of Citigroup's board since leaving government in 1999 and acting as a roving ambassador.