Citigroup’s Smith Barney and Morgan Stanley’s Brokerage operation are close to deal. This move would create the largest retail brokerage company, surpassing that of Bank of American who became number one with mergers this year.

As the financial crisis of 2008 continues into 2009, this transaction will be seen as a large step throws divesting the world’s largest financial services company.

The joint venture deal of the two units is seen as a way to not sell Smith Barney outright in a deflect time, when most buyers would not be able to come with the cash need.

Creation of the joint venture would lead to Morgan Stanley making a cash payment to Citi of about $2.5-$3 billion, a source familiar with the situation said on Sunday.

Additional Problems

“U.S. government banking regulators are pressing Citigroup to shake up its board and replace its chairman, Winfried Bischoff, in an effort to restore confidence in the beleaguered financial giant.”

Federal regulators would like Citigroup to shake up its board in an effort to show Wall Street its is committed to improving its image. This effort would include creating an independent chairmanship and replace several long-serving directors.

Breakdown: Possible New Chairman

·          Richard Parsons

·          Chairman of Time Warner

·          Citigroup director

·          Change could come as early as this week

“Regulators are growing increasingly concerned that Citigroup’s board is struggling to regain investors’ trust after the company was compelled to seek not one but two financial lifelines from Washington.”

Citibank announced that Robert Rubin a Citigroup director and former Treasury secretary would resign this week. “The prospect of changes within Citigroup’s board underscores the enormous challenges the company faces.”

Breakdown: Fourth-quarter numbers

·          Anticipating loss to exceed $10 billion

·          Citigroup to sell Smith Barney brokerage firm

·          Deal to fetch $2.5 billion in cash

·          Create after-tax gain of $6 billion

“The pressure on Citigroup also underscores the extent of government involvement in the company, with an investment of $45 billion and guarantees on $269 billion in illiquid mortgage assets.”

Read Article: U.S. regulators press Citigroup to replace chairman