Austin Kilgore | 01.13.09 www.dsnews.com

Citigroup Inc. confirmed Tuesday it is negotiating a merger of its brokerage operations with Morgan Stanley.

The merger would combine Citi's Smith Barney retail brokerage business and Morgan Stanley's wealth management business operation.

The confirmation came in a brief statement released by Citi Tuesday. Rumors of the negotiations were reported in multiple media outlets as early as last Friday. The statement said no agreement has been reached, nor was it definite that a deal would be reached.

Anonymous sources cited in multiple media reports said current negotiations would give Citi a 49 percent stake in the partnership and receive $2.5 billion from Morgan Stanley, who would then purchase Citi's remaining shares within a few years.

The deal would give Citi the ability to make the most of Smith Barney, widely considered one of the corporations greatest assets, and write up the value of the division, boosting capital for Citi.

Any deal would need the blessing of the government, which has infused $45 billion of Troubled Asset Relief Program funds into Citigroup.