Citigroup sells part of Smith Barney unit to Morgan Stanley

NEW YORK -- Citi is preparing to sell about a third of the assets on its $2 trillion balance sheet, according to an official with direct knowledge of the company's plans who spoke on background because plans haven't been finalized yet.

CEO Vikram Pandit likely will offer details when Citi reports its fourth-quarter results on Jan. 22.

The deal, which the companies say will close in the third quarter, offers Citi "significant synergies and scale, substantially reduces our expenses and enables us to retain a significant stake" in a growth business, Pandit said in a statement.

But it also contributes to the breakup of Citi's grand effort to turn itself into a one-stop "financial supermarket." Pandit has been under pressure to restructure since September, when the federal government began to inject $45 billion into the company, making it Citi's largest shareholder.

Morgan Stanley will own 51% of the joint venture after folding in its Global Wealth Management Group and making a cash payment to Citi, which will own the remaining 49%. Citi's contribution includes its U.K. wealth-management division Quilter and the Australian unit of Smith Barney.

Morgan Stanley Smith Barney will have 22,000 brokers and serve 6.8 million clients around the globe. But the 600 Smith Barney advisers in Citi's bank branches will continue to work for Citi.

The venture "is an important step forward in our effort to build our wealth-management franchise," Morgan Stanley CEO John Mack said. The company plans to increase its stake in the venture in the next few years.