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Citigroup to announce brokerage deal

A partial view of the Citigroup Tower at the Lu Jia Zui Finance and Trade Area in Shanghai

TEXT OF STORY

Bob Moon: One of the things dragging the market lower today: Citigroup shares have dropped around 10 percent amid word the financial giant and Morgan Stanley are likely to merge their brokerage houses. Talks intensified over the weekend, and inside sources now say a deal is likely by the middle of the week. Marketplace's Jeremy Hobson has more on that from New York.


Jeremy Hobson: Citigroup has posted $20 billion in losses over the last four quarters, and more losses are likely to be announced next week.

Giving up control of a brand like Smith Barney would be a sign of just how badly Citigroup needs cash, says Brad Hintz, an analyst at Sanford Bernstein:

Brad Hintz: If you're the CEO of the company, you can only sell the things that are saleable if you want to raise capital. Smith Barney is saleable. I'm just not certain whether you can sell portfolios of mortgage assets at this point.

And Hintz says Citi may need to shed more, as credit card and loan defaults increase. Citigroup is likely to get a cash payment of $2 [billion] or $3 billion for Smith Barney.

It's Morgan Stanley that may look like the winner in the end, says Graham Turner of GFC Economics:

Graham Turner: There are some parts of the financial system that are going to survive. I think brokerage has got to be one of them, because ultimately people will be trading markets.

If the deal goes through as planned, it would leave Morgan Stanley in charge of what would be the world's largest retail brokerage.

In New York, I'm Jeremy Hobson for Marketplace.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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