Page last updated at 23:14 GMT, Tuesday, 13 January 2009

US banking giants in tie-up deal

Citigroup headquarters in New York
Citigroup received the largest government bail-out of any US bank.

Struggling US banking giant Citigroup and its rival Morgan Stanley have agreed a deal which sees the tie-up of their brokerage operations.

Morgan Stanley is paying Citigroup $2.7bn (1.9bn) for a 51% stake in the joint venture while Citigroup will have a 49% stake.

Observers say the deal showed how much Citigroup wanted to slim down its operations and build up cash reserves.

It received the largest government bail-out of any US bank last year.

Losses expected

Citigroup's retail brokerage, Smith Barney, was formerly a key part of its wealth management business.

The new unit - to be called Morgan Stanley Smith Barney - will have more than 20,000 advisors, $1.7 trillion in client assets, and serve 6.8 million households around the world, the firms said.

The move was announced after markets closed on Tuesday.

Shares of Citigroup rose 30 cents, or 5.4%, to $5.90 - having fallen earlier on fears among investors who took the fact that talks were taking place as a sign that the bank was in poorer shape than first thought.

Morgan Stanley shares rose 7 cents to $18.86.

Citigroup is expected to report its financial results on 22 January, with analysts expecting the bank to post a big loss.

The company has announced 52,000 job losses worldwide, on top of 23,000 job cuts previously announced. It employs about 12,000 people in the UK.

Government ownership?

Citigroup chief executive Vikram Pandit has been saying for some time that he plans to sell assets to raise cash - having already received about $50bn from the Treasury.

Some investors believe it is going to be broken up on a larger scale.

The firm has built its business, over the past 20 years on the "supermarket model" - to offer a service to individuals' and businesses' financial needs, from savings accounts and loans to investing to sealing deals.

But media reports suggest that this will be abandoned.

The Financial Times reports Citigroup will separate its higher risk US consumer finance and securities businesses from its global commercial banking operations.

Analysts suggest that the government will end up buying some struggling parts of the business with the next tranche of its financial rescue programme.

"I think within 12 months, Citigroup no longer exists. The new CEO of this company is the government," said William Smith of Smith Asset Management.

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